Gravitas Spark CrowdFunding

Tag: risk

  • Battle For Capital Starts At Home

    Battle For Capital Starts At Home

    Investment capital does not come easy. Unless you’re Kristi Noem, the very recent US Secretary of Homeland Security. It seems Kristi had no problem accessing capital to fund a $220m personal branding campaign, a fleet of $70m luxury jets with queen-sized beds to ride around the nation and multiple photo shoots of the DHS Secretary on horseback at national monuments. Those rides – that word is doing some heavy lifting – are now over. “Generalissimo Bonespurs” bravely reached for his social media keyboard last night and fired her via Truth Social. At least it was a fate less lethal than that experienced by Kristi’s late puppy, Cricket, who was shot by “ICE Barbie” for discipline issues. No tears from Cricket, or the rest of the caring world me thinks. Anyway, I’d like to stick with investment capital and discipline.

    The screaming headlines away from the Arabian Peninsula in 2026 have been again all about AI, and the ‘space race’ to spend more and more money to build that AI future. Leaving aside the discipline or uncertainty of returns(success) on that capital spend, there is one certainty. This enormous shift of investment capital – $650 billion spend this year by MSFT, Amazon, META and Google alone – risks ‘crowding out’ other sectors desperately looking for capital to fund their own growth plans. In fact, Pitchbook data indicates funding for AI exceeded half of all VC deal value in 2025 (53% of $513 billion). However, this sector concentration phenomenon highlights a challenge for Europe. Clearly, the investment capital is out there but Europe is struggling to muster up ‘big ticket’ investment to truly dominate/gain monopoly on the global stage. Consider SAP as the only European ‘startup’ of recent decades to achieve a valuation of over €100 billion. Then think of the still privately owned SpaceX eying up a 2026 IPO with a $1.7 trillion valuation. The US is on a different planet to Europe in terms of swinging the investment capital ‘bat’. Indeed, Mario Draghi’s report on EU competitiveness way back in 2024 flagged a couple of things relevant to today’s article:

     

    • Europe needs to radically overhaul innovation. Draghi noted only 4 of the world’s top 50 tech companies were European.

     

    • His solutions included innovation in Europe’s financial markets: 5% of European GDP (or €800 billion per annum) needs to be invested in Europe’s best innovative companies, infrastructure, energy etc. This capital could be unleashed through joined-up thinking on common EU debt instruments and unlocking the vast private savings pools in Europe’s aging societies.

     

    Closer to home, the government and Tanaiste Simon Harris are promising a new savings scheme to incentivise savers to deploy some risk capital. Despite the presence of so many bold brave successful US multinational corporations in Ireland’s economy, we have become a nation fearful of risk. Possibly we have been spoiled and become risk flabby due to multi-national ‘air cover’. The €170 billion of savings sitting in Irish banking deposit accounts earning returns below the rate of inflation is a damning indictment of our national financial literacy and an exercise in mass wealth destruction. Something radical needs to happen so we will be writing further on this theme in terms of what’s possible and what we believe might work. After all, we are pretty much the only Irish free-to-access platform for investing and purchasing the shares of young fast growing companies. So, we do have a view close to the coalface and….. we also know the hurdles currently experienced by both the companies seeking investment and the institutions assessing the returns prospects of those companies. Let’s first consider how venture capital institutions, family offices and private equity houses make that returns assessment.

    One of the more thought provoking pieces I have read in the last 12 months was an article by Progress Ireland’s Sean Keyes. He used real numbers in an investment decision example to demonstrate how an Irish company when competing against other European companies (not even US ones) for investment “need to be smarter, harder working, or luckier than Europeans to achieve the same results”.  Why? Simply put, investment companies have a ‘hurdle’ or returns target which they put in all their marketing literature for their investors, partners, shareholders etc. It will be expressed as an annual rate of return over the duration term of the investment (eg 20% or 30% per annum over 5 years). However, this is NOT the same as what the investee company achieves in its own operations. Think of two companies earning profits of €1m per annum for 5 years and then selling/exiting for €10 million to a new owner. You’d be right to think that both companies delivered €15 million over the holding period of the investment. But…. that is NOT what the investment company will receive. That will depend on the tax regime of the relevant investment. Here’s where the numbers don’t look good for Ireland’s companies. We DO have a low corporation tax (15%) but other taxes significantly change the returns picture for investment companies. Consider the following:

     

    • Ireland taxes dividends at the highest rates in Europe (remember the distribution – out of company – of those €1m per annum profits)
    • Capital Gains Tax is the 4th highest in the EU (remember that €10 million exit)

     

    Clearly, the post-tax picture for investors in Irish companies compared to the exact same average EU company is lower. Therefore, an investment manager needs to know that an Irish company is going to deliver a supra-normal PRE-tax performance in order to deliver a post-tax result in line with his ‘hurdle’ requirements. The Progress Ireland article is worth a read to understand the framework calculations but for the purposes of this article (and Friday lunch deadline approaching) I would flag the two key numbers which standout. An Irish company receiving €1m of VC funding and required to beat a hurdle of 30% per annum over 5 years needs to generate€ 23.7m over the 5 years. Meanwhile, the average EU start-up receiving the same €1m VC investment only needs to deliver €11.3m over the same period. That feels like an Irish start-up needs to be roughly twice as lucky, smart and hard working than average. It also feels wrong. Not the maths, the returns hurdle implicit in any Irish start-up investment by an institutional player is way too onerous. Radical thinking is required and none of these challenges are addressed if we end up incentivising SSIA-type savings schemes which steer investment capital into publicly listed companies on global stock markets.

    We already have an incentive solution for that. It’s called a pension. So, we will return to this topic again with more on the potential solutions and the wider imperative for Europe to mobilize its vast savings’ pools. Frankly, if we and Europe don’t encourage risk-taking discipline, then we all economically end up like poor Cricket.

     

  • Things Getting Very Real….

    Things Getting Very Real….

    I know, I know we’re not supposed to throw the “F” word about lightly. But things are getting serious, and expletives aren’t even close to what I’m thinking. I’ll save those for counting freezing Freezbrury water minutes. No…my reluctant F word is  FASCISM. Possibly over-used in recent times….until now. Check out the enormous banner poster of Donald Trump which has just been hung on the outside of the headquarters of the US Justice Department (DOJ). Gobsmacking. The capture of the rule of law in the US is now almost complete. While business leaders are removed, senior foreign government officials resign in disgrace and the 8th in line to the throne of the UK is taken into police custody, Trump’s private legal firm (the DOJ) is desperately trying to deflect and pretend there are no US-based Epstein predators. Deflection tactics from the White House have now moved on to releasing files on Aliens (the non-ICE versions) and UFOs. However, the biggest ‘bread and circus’ deflection show is the 15- day countdown to conflict with Iran.

    I am struck by how complacent current geopolitical risk thinking is right now, and what desperate measures Tehran’s murderous regime might take to strike a blow against the US and its allies in the region including Israel.  Any regime which murders 20,000 of its protesting citizens in a matter of days is capable of awful stuff. So, it concerns me that the emotionally stunted “Admiral Bonespurs” in the Orange House and his War Secretary, “Whiskey Pete”, in the Pentagon will be the key decision makers if US forces take larger casualties than expected. We are into very unpredictable territory now. However, Iran is not the only risk reality creeping up on us.

    The financial markets have been focused on the carnage wrought on software company share prices year-to-date. Valuation destruction has been close to $2 trillion as the latest Wall Street thinking is that AI will blow up software business models. It even has its own event taxonomy – “SaaSpocalypse”. The basic premise is that companies will build their own workflow, HR, process applications etc. in-house with increasingly powerful AI coding tools. Thus, software companies could face growth and competition challenges which in turn impacts valuation/sales multiples framing that growth. In fact, this invasion of artificial digital expertise is in danger of commoditizing software. Ironically, there has been a complete reversal of the valuation hierarchy between hardware and software. In tech terms, things are getting very real. Real stuff like memory chips(DRAM) and logic chips (GPUs) are perceived as supply constrained and ditching their historic ‘commodity-type’ characteristics. The best illustration of this shift in investor perceptions is the stunning statistic that 89% of semiconductor companies’ (real stuff) share prices are flying (trading above 200 day moving average) while precisely ZERO software company (digital bits) share prices are exhibiting any technical strength(evidence of buying). However, we are in danger of focusing on the trading trends of financial markets while missing the bigger AI picture. Technology insiders are becoming more nervous about the power of AI without adequate guardrails…

    It’s difficult to get away from Anthropic’s founder, Dario Amodei, confidently predicting a world where AI systems would be “better than almost all humans at almost everything” within 2 years. Implicit in this forecast is the rapid realisation by the rest of us that AI systems are soon going to be coding their own optimised functions. If you’re thinking Terminator and Skynet you wouldn’t be far wrong and we’ll definitely need more than Arnold this time. As the global geopolitical balance shifts towards lawless autocracy and fascist ‘might over right’, we seem as a species particularly ill-equipped for what’s to come. Amodei himself describes the challenge:

     

    “Humanity is about to be handed almost unimaginable power, and it is deeply unclear whether our social, political, and technological systems possess the maturity to wield it.”

     

    It feels like a moment of AI truth is approaching. If I were to strike an optimistic note, I’d be encouraged reality is beginning to break through to the public consciousness on a number of fronts. This could bring a very welcome return to valuing credibility, data and honesty. Populists beware and feast your eyes on these beauties:

     

    Brexit: The UK’s Office of Budget Responsibility (OBR) has estimated the various costs of Brexit at 6-8% of GDP, £100 billion per year of structural economic losses, 4% productivity loss and 15% lower trade volumes.

    US Manufacturing: All the trade shakedowns, foreign investment ‘promises’ and noise about making America  manufacture again (Oh Mama!) resulted in 2025 manufacturing/factory construction spend actually FALLING by 7%. Oh, and the US has lost 70,000 manufacturing jobs since tariff ‘Liberation Day’ last April.

    US Trade: Just in…. the US trade deficit remained a stubborn $900 billion in 2025. That’s a microscopic 0.2% reduction in the deficit despite all the ‘winning’ and tariff chaos trumpeted by Agent Orange. And now for more breaking ‘winning’ news…. The Supreme Court of the United States has reportedly ruled, in a 6–3 decision, that tariffs imposed by Donald Trump were illegal. The ruling could leave the U.S. facing more than $150 billion in potential tariff refunds.

    That final datapoint of almost zero deficit reduction is just embarrassing. But it gets better. Shockingly, to nobody outside the US, other countries trading with the US are smarter than Howard “Nutlick” and his Commerce Department lackeys. The US trade deficit with Taiwan is now bigger than that with China. The last time that happened was in 1992!! It seems like the rubber is meeting the road for quite a few of these populist distractions. Indeed the final irony, 250 years after the US gained its independence, might be that the epic downfall of a British prince reveals the true colours and deceptions of a ‘King’ in Washington…..

  • Software Is Eating Your Pension….

    Software Is Eating Your Pension….

    Is it time to rip up our favoured playbooks? No, I’m not trying to steer Andy Farrell after that first half ‘traffic cone’ tackling effort in Paris. Nor will I hold out any hope of Britain’s Labour Party saving its government from the existential fallout of ignoring its own “Prince of Darkness” links to Epstein. Sir Keir Starmer’s premiership is already “dead in the water” but I will stick with the trading theme. Long-time political commentators are rightly appalled that Peter Mandelson tipped off Jeffrey Epstein and his elite rolodex/assets about a €500 billion bailout of the euro currency during the Greek debt crisis. The €500 billion number is huge in its own right but the derivative opportunities in banking debt, currencies, bond markets etc at the time were in the trillions and available for exploitation by Epstein & Co without any obvious trace. So, following on from last week’s article, we promised to dig deeper into the huge AI numbers hitting our screens. Actually, we won’t. Instead, we will focus on a related huge number with potentially massive knock-on/derivative investment implications.

    For me, the big number this week is the $1 trillion of value wiped from software stocks (and their SaaS subscription/business models) in just 6 days of trading. Of course, this is directly connected to the threat of AI and some developments, in particular, from the Anthropic/Claude suite of products which are making massive strides in assisting coders and companies to develop/manage their own work processes. Software, of course, is the incumbent go-to solution for companies seeking to optimise work processes and engagement with their customers. Indeed, the venture capital guru, Marc Andreessen, in 2011 was moved to say  “software is eating the world”. From Netflix to Uber to Amazon, digital subscriptions gave companies and consumers access to technology-optimised services. As AI invades the digital opportunity, software is possibly no longer the ‘always’ solution on the Boardroom table. In fact, software could be on the displacement menu itself. The twin threats of AI are summarised well by Business Insider:

     

    “First, if employees get more efficient using AI tools, companies may not need to buy as many business software subscriptions. That would dent the growth of “seats” or how many subscriptions software companies sell. Each employee has a seat, so if there’s no new hiring, growth stalls.

     The second threat is more existential. If AI tools and AI agents get good enough, companies could replace the software they use entirely and instead rely on new AI-powered workflows. And with AI coding tools showing big improvements lately, companies could even develop their own software, without needing to buy it from established vendors.”

     

    There are plenty of analysts and observers who disagree with the gloomy interpretation of AI’s eventual impact on software companies like SAP, Salesforce, Adobe, Figma and HubSpot. However, these company share prices falling by 30-40% in just one month, is telling us the ‘fear’ is real. The $1 trillion of value evaporation in less than a week is not an earth-shattering number given some individual companies are valued in the trillions alone. But… perhaps looking at the software value obliteration in isolation is misguided. The commentariat might think software fears are ‘overdone’ but, if you have a pension, this might be the less scary of TWO outcomes. The first is that software stocks growth and valuations are hit severely by AI replacement. However, there’s a second set of updated numbers/data to take a look at. While the software sector was being hammered, the AI/Cloud giants were announcing quarterly results. Interestingly, their earnings and sales growth numbers were pretty much ignored as the market focused on just one number; capital expenditure spend on AI infrastructure and development. Last week Facebook promised $135 billion of INVESTMENT in 2026 which equates to their total sales in 2023. Microsoft told us their number was circa $105 billion. This week it was Google and Amazon’s respective turns to talk the AI ‘space race’…

    Google, perceived as the AI leader these days, told the market it would spend a cool $185 billion. That equates to its total revenues in 2020(!). Meanwhile, Jeff Bezos seems happy to test out the theory that “Democracy Dies in Darkness” at the investment-starved Washington Post, as his primary wealth creation vehicle, Amazon, announces a planned $200 billion capex spend for 2026. So, the Big 4 are up for a $625 billion investment splurge this year and probably every year for the foreseeable future. That looks like a bet of $3 trillion to $5 trillion on AI, and I’m just wondering what the ‘risk’ calculations could be? I chose the ‘space race’ phrasing earlier deliberately. It feels like the prospect of AI failure for these companies is existential in terms of economic power and analogous to the geopolitical calculations at the height of the Cold War in the 1960s. Well, the historians would probably agree that Reagan’s “Star Wars”  broke the Soviet empire. It’s too early to tell who will ‘break’ in the AI race but software is in the crosshairs right now. However, the sense that big tech including software is ‘going for broke’ introduces a very new risk for financial markets.

    The beauty of software and SaaS business models is recurring revenues, huge scalability at minimal incremental cost, 80-90% margins and enormous cash flow generation. The end result can be seen in the massive spending plans of Big Tech; these companies’ balance sheets were sitting on enormous cash piles (or equivalent liquidity). Simply put, these were the most robust (credit risk) companies on the planet. Pension funds, family offices, sovereign wealth funds and Swiss bank accounts loved the security/risk safety attached to loans and bonds issued by tech/software companies. These instruments were considered “defensive”. Now, not so much.

    Stock/equities markets (as my former boss Terry Smith used to point out to me) occupy 28 of the 30 pages of the Financial Times. But, the last two pages covering debt, currencies, commodities etc are much more significant for financial markets. Now the bonds and loans associated with big technology companies are receiving intense scrutiny (and investor selling) as they each seek to out-spend their cash and balance sheet credibility. This has incredibly important implications for your pension. The credibility of the United States and global technology stocks are being reviewed for their ‘risk safety’. Some serious investment institutions are already acting and re-positioning. This doesn’t mean just selling. What investors are buying at the moment is telling too. Here’s a few data snippets to alert you to what is happening right now….

     

    *Software sector selling activity is the worst since 2008

    *Software valuations – forward price/earnings multiples of 20x – are now at levels (low) not seen since 2014.  

    *Now the buying: defensive consumer staples companies (Nestle, Mondelez, Heinz etc) have been up 1% on consecutive days while technology sector companies fell 1% on the same days. That divergence of performance has not happened since ….2000.

    *The same consumer staples stocks are experiencing buying intensity (“RSI” for the technicians) not seen since 1995. Other indicators (DMA 200 day) are 4.2 standard deviations above average.

     

    It looks like people are buying ordinary stuff; petfood, protein, household goods, chocolate….. really boring but real. We have written before that investors are flocking to atoms (real) and hedging/selling their risk with bits(digital code). One suspects the meltdown in crypto land (Bitcoin at $65,000, down over 50% from its highs) is also partly driven by digital ‘fear’. So, for those keeping an eye on the headlines and their pensions, you might want to check with your advisors on three areas:

     

    1. Pension exposure to technology (software or AI spend). It could be as high as 30% of your portfolio.
    2. Pension exposure to defensive real stuff. It could be as low as 5% of your portfolio.
    3. Pension exposure to the USA. It could be as high as 70% but there is currently a lawless armed militia running around the country, a Supreme Court in dereliction of its duty, international grift on an epic scale and the real threat of mid-term election suspension.

     

    The advisors won’t have all the answers but it should be on ALL pension radars. This period of history offers mind-boggling opportunity but we must be also aware that there is an unusual confluence of technology ambition/confidence and global political leadership operating in an environment where traditional values and rules are being disregarded. Hopefully, rules-based leadership will return soon but here’s a warning from Andrew Ross Sorkin’s book, 1929:

     

    “It’s a haunting elegy for a fractured era, a timeless reminder that progress is fragile, choices have repercussions, and the flaws embedded in the human condition are ours to confront”

     

    Might be time to make better choices and confront those flaws (including White House ape videos)….

  • A Wave Of Huge Numbers And New Thoughts

    A Wave Of Huge Numbers And New Thoughts

    Freezbrury waters are imminent, but I sense things are actually hotting up. I’m also conscious it’s Friday before a bank holiday weekend so will keep it light. Let’s just highlight a few significant datapoints from the tsunami of numbers bombarding our screens this week. Then, next week we might dive deeper. Not quite as low as Cruella “Reformed” Braverman, Commandant Greg “Himmler coat” Bovino, Stephen “Peewee German” Miller, or Kristi “ICE Barbie” Noem who definitely fall into wannabe Waffen SS territory. There’s something deliciously ironic about a world which has embarked on an artificial intelligence (AI) space race while “Trump Is Making America Stupider” per The Bulwark newsletter headline. Maybe the bots won’t need to be that good? Anyway, that possibility doesn’t seem to be stalling spending by global technology giants on AI… for now.

    My favourite AI datapoints this week come from Microsoft, Meta, Sandisk, OpenAI and ElevenLabs. Given these numbers are like an assault on the senses I think it’s best to present them in bullet form:

     

    • Microsoft’s fiscal Q2 update this week showed its cloud/AI order backlog rocketing by 110% to $625 billion. But, that wasn’t the show stopper or the share price killer (down 10% overnight). A whopping 45% of that backlog ($281 billion) was linked to one private start-up company, OpenAI.

     

    • Meta/Facebook also announced a huge number, but not a future revenue one. Its planned capital spending on AI infrastructure and development this year will be $135 billion. For context, as recently as 2023 Meta did not even generate this much money as its entire year’s REVENUES (not profits).

     

    • Lesser-known memory chip player, Sandisk, was the S&P 500’s best performing stock last year (+577%) as a beneficiary of investors’ search for AI ‘picks and shovels’. That story continues and is a reminder not to quit on your winners. Sandisk’s quarterly update this week beat expectations with 600% earnings growth and another 25% jump in the share price in after-hours trading. So far this year, the Sandisk share price is up 127%. Yep, just January.

     

    • In start-up land ElevenLabs is the hot AI Voice tool backed by Sequoia. It’s not just a hot investment, it’s a hot career choice. Only 0.018% of 180,000 job applicants in a 6 -month period get a job. As the brilliant VC commentator and fund manager, Harry Stebbings, pointed out, you are 200x more likely to get into Harvard.

     

    • Back to OpenAI. Yes, people worry about that famous FT graphic and OpenAI as the potential AI investment “weakest link”. However, the capital cavalry could be on its way. Latest chat is that OpenAI plans to IPO in Q4 2026 with a raise of $100 billion on a valuation close to $1 trillion. For historical context, the previous biggest IPO raise in history was $26 billion by Saudi Aramco.

     

     

    There’s now a bigger qualitative exploration of the AI theme due, given the pretty scary comments from OpenAI rival, Anthropic, CEO founder Daro Amodei. He reckons we are moving towards “AI systems that will be better than almost all humans, at almost all tasks….by 2026, 2027.” Check out the videos on social media showing how the likes of Moltbook and Clawd are blowing people’s minds with the power of their agentic capabilities.  Here’s a few other mind-blowing datapoints in a variety of areas where regular readers will know I have been thematically focused.

    Opportunity outside USA: We talked about real things (atoms) versus digital code (bits) previously. So, see how Brazil’s real asset-rich stock market has clocked 14% gains in January alone. However, the genuine head-rocker outside US stocks is the latest earnings growth  estimates for South Korea’s stock market. Goldman’s reckon earnings growth for the entire blue chip Kospi Index will be 75% in 2026. Note most of that earnings growth will come from two companies who are critically plugged into the supply squeeze for memory chips (RAM, DRAMs, thank you Mam) – Samsung and SK Hynix. Amazingly, South Korea’s stock market is now worth more than Germany’s DAX index ($3.25 trillion).

    Automation/Power Infrastructure: It’s not a huge surprise software stocks (SaaS) like SAP are being hurt by AI speculation, investment capital shifts. However, we should note the recent overtaking of SAP as the highest valued German company by Siemens. Its key three divisions? Automation processing, power/grid systems and transport infrastructure. Note none of the famous German auto stocks feature in this table-topping race.

    Electric Vehicles: Europe hit an inflexion point in recent weeks. Latest data shows EVs as a percentage of new car sales overtook traditional internal combustion engine (ICE) powered vehicles. Looks like ICE on two levels this week faces an existential threat. Thinking of not nice people, it was amusing to see Tesla post a 61% decline in profits in its results this week. Who knew, apart from Ryanair’s Michael O’Leary, that idiotic interfering in other people’s business (politics and privacy too) can be brand destructive…?

    Last thought, and this merits a much bigger discussion. The problems for Tesla might result in a $3 trillion mega-merger/pivot of SpaceX, Xitter, xAI and Tesla, but also subtly highlights the scale of manufacturing dominance exerted by China in the electrification race. While Trump focuses on Bruce Springsteen, White House ballrooms, Melania movies and Venezuelan oil grift, the Chinese are stealing a march on the US in so many technologies. Oh, and the Chinese consumer might be coming back. Apple just told us it had its greatest ever quarter in The Middle Kingdom. A 38% jump in China sales blew the hinges off all the ‘expert’ analyst expectations.

    Lots to think about over the weekend and well done to all who invested in Social Voice before its dramatic funding close; a great illustration of investor ‘social listening’  in the venture world of little gems.

  • Don’t Get Angry, Get Ready….

    Don’t Get Angry, Get Ready….

    I was right. The first of my predictions for 2026 was spectacularly on the money. Sadly, it won’t make any of us wealthier given its focus on noise rather than direction. To refresh memories, the final words in my last article, Themes and Dreams For 2026, were as follows: “I’ve a feeling I won’t be short of writing material in 2026.” Little did I know there would be a year’s worth of material in just the first 10 days of 2026. Where do we start?

    The US is celebrating its 250th birthday by re-branding as an exploration company with an army (hat tip George Carlin) as Venezuela is ‘acquired’ and ‘takeover bids’ are lined up for the Panama Canal and Greenland. Back at HQ, the Boss re-asserts control of executive salaries and cash flows in the company’s defence supply divisions while promising a 50% expansion of investment ($1 trillion to $1.5 trillion) in its Business Development unit, previously known as the Department of War, and before that, as the Department of Defense. Meanwhile, the company’s traffic stop management division has secured immunity from regulatory or criminal oversight of its shoot-to-kill (or stop) policy on a nationwide basis, not just in Minneapolis. Of course, none of these revolutionary business initiatives can happen without funding. The company’s Treasury unit has set up overseas bank accounts to deposit proceeds of its newly acquired Venezuelan oil unit. In the interests of tax efficiency these bank accounts will be overseen directly by the Boss, and will not be consolidated in the parent company accounts. But, of course. However, US Inc is not the only company turning to oil….

    It is probably more accurate to say some companies are breaking with a seismic global shift to electric power. Again, it’s American-sourced exceptionalism. This week General Motors (GM) has followed Ford and abandoned its move in to electric vehicles (EV). These recent investment write-offs amount to $7 billion and $19 billion respectively which will hurt. But… that might not be the end of the pain. The train, or car, has already left the station. The Electric Age, per the superb Noah Smith, is here with 25% of cars purchased in 2025 of the EV variety. In many Asian and a few European countries that penetration rate is through the 40-50% level. China leads the world in the entire EV technology stack and have focused their attentions on battery production, manufacturing scale and grid expansion (solar). Fewer moving/motor parts, efficiency and superior performance are the current and long-term edge for EVs which will kill the internal combustion engine (ICE). Writer’s note: Be careful how you say or ‘weaponise’ that acronym these days.  All is political these days rather than factual which highlights why the US is making a fatal error on oil over electric. Noah Smith writes:

     

    The main reason America is missing the EV transition is that we’ve insisted on thinking of EVs in terms of climate — as a “green” technology whose purpose is to save the environment, rather than a superior technology whose purpose is to save you time and money. Trump canceled EV subsidies because he associates them with the environmental movement and the political left.

     

    It’s not just electric vehicles(EVs) experiencing their electric break-through moment. EVs share the same components as drones, trains, cameras, phones …..and robots. Just this week at the massive CES 2026 conference in Las Vegas, Nvidia’s Jensen Huang didn’t even blink when asked how long it would take for humanoid robots to match human-level ability. “This year”, he said. Guess what – those robots run on many of the exact same components which go inte EVs. Think batteries, power/motor electronics, sensors, software…..and AI. Clearly, in the AI piece of the assembly package, the US is perceived as the global leader. However, even AI and its support infrastructure is inextricably tied to electric power. And, before you say “but, but, but… the Venezuela oil reserves”, get ready for more non-delivery from the “stable genius” back at HQ. Venezuela currently produces less than a million barrels of oil per day. It’s like a rounding error of less than 1% of global oil production. Yes, that production level can grow but please note the lack of announcements from US oil company executives about investment plans and potential commercial negotiations with Venezuela’s 5,000 plus generals and regional warlords. While the Department of War was planning ‘business development’ in Latin America, China built more solar power capacity than the rest of the world combined in 2025. For perspective, that additional solar capacity of 380GW built in 2025 equates to 5x China’s total existing nuclear capacity (58 plants). Get ready or get digging on two fronts.

    First, we have written a lot in 2025 about the asynchronous explosion of excitement and revenue projections for the AI world and the mining sector. At certain times in 2025 one AI company, Nvidia, was worth 4 times more than the entire publicly listed mining sector. Get ready for a change. Gold, silver, platinum and copper prices have soared which has finally juiced the risk spirits of mining sector executives. We said the sector needed a big deal. Well, global giants Glencore and Rio Tinto are talking a megadeal again with a copper focus (yep, all that electricity) and a $260 billion valuation. Metals of course in earlier times were the basis for currency. In time, central banks became the back-stop or guarantor of currency but we might have to dig again.

    The global reserve currency, the US Dollar, lost almost 10% of its value in 2025. In isolation, this is not unprecedented. In fact, the Trump regime are quite keen on a softer dollar and lower interest rates for trade deficit and investment reasons. However, we must get ready for a further assault on institutional independence in the US. The current Fed Chair, Jerome Powell, is due to leave his post in May this year. The new appointee (apparently already decided by the Boss) will be expected to cut interest rates dramatically to keep Trump happy. However, the potential unintended consequence of this action in the context of a $40 trillion US national debt is loss of credibility for the Fed and its ability to prudently manage that debt, and the currency. Hopefully, the bond markets are more effective than Russian or Chinese radar systems in spotting and thwarting that assault on Fed and dollar credibility. A final word on markets and pensions.

    Those of you reading your pension updates/reviews for 2025 might be underwhelmed by the performance. Before you get angry, I would recommend a read of Terry Smith’s own review of his $20 billion fund which underperformed in 2025. As always, my former boss writes superbly and highlights some key factors driving investment markets these days. Terry always sticks to the basics and this might well be a theme for 2026. The thoughts above should ready minds for investment opportunities in electrification, real assets, financials, mining and assets located outside the exploitation company, US Inc, formerly known as the United States of America…..

  • Shunning Risk Not Making It EIISy For Europe…

    Shunning Risk Not Making It EIISy For Europe…

    Finally, somebody called it. Poland has a Donald as President too but he seems less enthralled by criminal heads of state. Donald Tusk’s view on the latest Trump ‘peace’ plan for Ukraine was quite  the zinger – “it would be good to know for sure who is the author of the plan and where was it created”. Answers on a postcard to the Kremlin. Sadly, Europe’s leaders have been generally slow to call out Agent Orange’s craven need to be Putin’s fluffer. Indeed, this risk aversion by Europe is not confined to geopolitics.  Mario Draghi has given a blunt assessment of progress made by Europe since his high profile EU Competitiveness Report last year.

    Draghi is unhappy about the slow pace of investment in innovation and the mobilisation of capital to scale the growth of Europe’s young companies. Worryingly, his initial estimate of innovation investment required of €800 billion has now jumped to €1.2 trillion as other economic regions accelerate their efforts to lead in healthcare, electrification, renewable energy and AI. Draghi’s words make for uncomfortable reading and go so far as to link this lack of risk courage to the existential threat to Ukraine and European sovereignty:

     

    “One year on, Europe is therefore in a harder place. Our growth model is fading. Vulnerabilities are mounting. And there is no clear path to finance the investments we need. We’ve been reminded painfully that inaction threatens not only our competitiveness, but also our sovereignty,”

     

    Inaction. Sounds familiar closer to home too. At our recent re-branding event for Spark Venture Funding, Fintan O’Toole in his guest address highlighted Ireland’s failings in housing, healthcare, infrastructure and SME support and identified a key contributing factor. Typically, Fintan did not mince his words. Citing the €150 billion or more of cash sitting in non-interest earning deposit accounts, he viewed this as symptomatic of a nation which “is afraid of risk”. The scars of the relatively recent Troika bail-out run deep but Mario Draghi is clearly saying the risks of inaction are far far worse. On a more positive note, we should remind ourselves of what can happen if investment bravery recovers again. In just the last 7 days, the European tech sector has been grabbing an unusually large share of the global financial headlines. Check out the following:

    *Revolut completes a funding round including an investment from Nvidia at a $75 billion valuation. Last year the valuation was $45 billion.

    *Lovable, the AI powered coding and developer platform, has reached annual recurring revenues (ARR) of $200 million and is raising money at a $6.3 billion valuation.

    *Energy play, Fuse Energy, founded by Revolut alumni is raising money at a $5 billion valuation just 5 months after reaching ‘unicorn’ status ($1 billion). Again ARR acceleration has been stunning, moving from $100m to $300m of recurring revenues within months.

    *Second-hand fashion market platform, Vinted, has reached the $1 billion revenue mark and is reported to be looking at a valuation close to $8 billion.

    *Quantum Drones is also raising at a $3 billion valuation while payments player, Flatpay, has just raised funds at a $1.7 billion valuation.

    All good in the ‘hood. But…here’s the really good bit. The geographic spread of these companies is pan-European with Sweden, UK, Lithuania, Germany and Denmark all represented.

    In Ireland there are many young companies with the potential to join these headlines. Returning to the embarrassing €150 billion pool of funds sitting in Irish deposit accounts doing nothing, it cannot be overstated how big an impact could be made if even 10% of that money was used in risk appropriate manner. To be clear, riskier investments should form an essential but much smaller portion of any savings/investment portfolio. We are not talking about 30-50% asset allocations. Depending on age profiles and existing risk budgets, a 5-15% allocation to innovation and young companies should be considered. And, don’t forget we are in EIIS “season”. Investments in EIIS-eligible companies can bring tax rebates (and risk reductions) of 35-50%. It is amazing how many people are unaware of this excellent government scheme used to scale young businesses, create employment and enter new markets. From this writer’s perspective, we are in a global race. Spark Private’s own portfolio of deal opportunities currently open for investment are race leaders and can deliver exciting and diversified exposures to multiple high-growth markets.

    Europe and Ireland urgently need to shake off their fears of risk. Frankly, Draghi is right: the risk of inaction could now be fatal for our economies and sovereignty. Think about that bank deposit shift, the EIIS de-risking opportunity and the speed of growth and wealth creation now possible in a global innovation economy growing at warp speed. There’s a ready-made EIIS portfolio available to curious investors which can help drive leadership and innovation in medical devices, digital currencies, e-transport, logistics infrastructure, AI and fintech. It’s worth taking a look and then considering the risk-reward of Moby, Social Voice, Quadrant, OOHPod, Nazare Point or Ostoform featuring in headlines like the ones above in just a few years from now.

     

  • Numbers Which Make You Wonder….

    Numbers Which Make You Wonder….

    I’m quite enjoying the “rubber meets road” moment for the leaders whose numbers never add up. In a previous political era they might just have been called liars and shunned by serious media. Now, it’s about eyeballs for the media and their audiences retaining some memory cells. Good ol’ Nigel Farage has moved from trying to avoid discussing the number of white people in ads (thanks to Reform MP Sarah Pochin) to rowing back on previous tax promises. Currently, known as “aspirations”. Like Brexit, more lies. In the US, gold-plated ballrooms and newly minted tech billionaires don’t quite cut it for the 50% of US have-nots who don’t benefit from 401k investment savings. But, the have-nots do have votes…..for now. New York has just voted for a Democrat socialist mayor with the biggest mandate since 1969. Meanwhile public representative seats and offices have flipped this week from MAGA red to Democrat blue in New Jersey, Georgia, California and Virginia. Even Mississippi is turning. In Washington adjacent, Virginia, the political landscape has morphed back to 1987 as Federal workers, either sacked or not being paid, discover some numbers are very real. Here’s a few other numbers flagging change which caught the eye in recent days….

    Sports betting was legalised in the US in 2018. Americans bet over $148 billion on sports last year, which is more than they spent on movies, books, concerts and sports tickets…. combined.  Meanwhile, Disney through its sporting broadcast arm, ESPN, is teaming up with DraftKings as its new sports betting partner. Expect more deals in the sports betting space with $148 billion of US wallets on offer and then wonder about societal shifts. Housing shortages and fewer children seems to be freeing up a lot of discretionary spending power. Watch also prediction marketplaces like Kalshi and Polymarket. The latter is doing over $1 billion of volume each month and is fully crypto-native. More traditional financial businesses are taking notice. Robinhood’s share price is up 235% year-to-date and has reported 2.5 billion prediction contracts (fees of $25m) traded on its platform in just October 2025. That is more than all of the contracts traded in Q3 2025. Any more predictions…?

    You can probably bet on OpenAI doing more AI/cloud infrastructure deals. The famous Financial Times graphic of OpenAI playing a central role in $1 trillion of AI projects is worth revisiting. OpenAI has recently announced a re-jig of its corporate structure to allow for a profit making entity under the stewardship of the original non-profit foundation. The profit bit is going to have to wait. Thanks to Microsoft’s recent results (and a circa 27% stake in OpenAI) analysts have estimated quarterly losess at OpenAI could be as high as $11 billion. Per quarter! Now think about those trillion dollars of projects planned. Then digest this little gem…

    OpenAI is requesting US government support to help guarantee financing for the massive investments in AI chips and data centers it needs for expansion, per Bloomberg.

    The latest OpenAI infrastructure project commitments, per Wall Street analysts, are heading towards $1.4 trillion. UK water utility observers will be familiar with the privatise-the-gains and socialise-the-losses model. It doesn’t end well. And, Fox News and Trump think Zohran Mamdani is the communist….

    On a more capitalist pursuit, M&A deal flow, the news is very encouraging and starting from a less frothy base. Deal research house, Pitchbook, gives the latest update on confidence levels in the C-suite. As we often say, it’s what companies DO, not say, which counts:

     

    “Q3 activity increased by 25.6% in M&A value and 3.8% in deal count as buyers jumped back into the market after macroeconomic headwinds disrupted momentum earlier in the year. Moreover, 2025 is shaping up to be an incredible year for global M&A despite the spooky headwinds present in the market, including geopolitical volatility, stubborn inflation, and a slowing global economy. YTD, there have been 37,096 M&A transactions for an aggregate of $3.4 trillion….. This resurgence in large-scale deals leaves the door open for two consecutive years of M&A deal value growth for the first time in over a decade. Deal count itself is on pace for year-over-year growth, with an active fourth quarter that could see the ecosystem hit nearly 50,000 deals for the year. ”

     

    One can expect more deals in the electricity/power sector. Close to home, Energia was bought by French private equity house, Ardian, and Blackstone bought TXNM Energy for $11.5 billion earlier in the month. It’s all part of the AI infrastructure story but the daddy of the AI rush is Nvidia’s Jensen Huang. He had some sobering thoughts in an FT interview. “China is going to win the AI race.” warned Huang, citing China’s advantages in energy and less‑stringent regulation. He later clarified that China is “nanoseconds behind” the US, adding “it’s vital that America wins by racing ahead and winning developers worldwide.” Huang might have backed away from his original statement but consider that last year China added 426 GW of electricity generation capacity. In the US that number was 30 GW. A growth differential of 14x doesn’t take many ‘nanoseconds’ for China to establish a dominant cheaper electricity base. If electricity is going to decide the global AI race then “drill baby, drill” could cost US industrial policy dearly. Go ask Germany, where manufacturing output is 20% below 2019 levels thanks to disastrous energy policy decisions. But there are prescient decisions to be made too…..

    Investors can see M&A activity pick up, corporate earnings growth above 12% year-on-year, cost of capital shift to a lower trajectory and even the possibility of the US Supreme Court stifling Trump’s ‘emergency’ tariff powers. It’s always awkward to claim ‘emergency’ in court when your lawyer (for US government) agrees the consumer pays 30-80% of tariff costs, and the judges note that tariffs have been imposed on countries like Brazil and Great Britain who actually have trade DEFICITS with the USA. More ketchup on the walls of Mar-a-Lago me thinks. However, the key point is that the investment environment for private investors is picking up momentum. And, Spark Private can help. A flow of new EIIS season deals has just hit our investors’ in-boxes. In this instance, the numbers are real, and do warrant real attention. This is a genuine opportunity to build an exciting diversified portfolio of 8-10 companies with a variety of timing/risk horizons and big thematic exposures in a matter of weeks.

  • Banks Are So Back!!!

    Banks Are So Back!!!

    It’s a weird world right now. I endured another episode of “The Celebrity Traitors” last night and wondered how the US version would work without offending the Kremlin ‘besties’ and reality TV cast of Mar-a-Lago. And who knew Joe Marler would out-smart Stephen Fry? Serious kudos to the rugby front row forwards fraternity. Anyway, park reality TV and let’s face market reality. Another weird one very close to home – Irish banks are now achieving 89% customer satisfaction ratings. It’s amazing what one can achieve by leaving the small business sector completely unbanked in terms of risk capital. However, it can’t be denied that banks are SO back in a global sense. And, some are really ratcheting up the risk dial. Today’s article is really a whistlestop tour of global financial sector developments which caught the eye in recent weeks.

    Let’s kick off with Blackrock Inc. It’s results season and Larry Fink’s giant asset manager recorded net inflows of investment monies in excess of $250 billion in Q3 alone. Blackrock’s current total assets under management (AUM) have just hit a record $13.5 trillion, yep trillion. You might say Blackrock is not a bank but if you look closer at those investment inflows, you’ll see private credit(lending) is a huge driver of asset growth. You’d be right in thinking that other institutions are competing or replacing banks in the financing space. That trend brings its own risks. Indeed, the IMF took the opportunity in its 6 monthly Financial Stability Report to warn about “the rapid growth of non-bank financial institutions”. Then, the EU’s Single Resolution Board (which ultimately sorts bank collapses) also warned this week of the “dire” consequences of a non-bank failure. Sounds nervy, but the financial services sector is enjoying record growth thanks to the lack of nerves among investors…

    Robinhood, the trading platform loved by meme-stock and crypto fund day-traders, has seen its share price rocket by 250% since January this year. Then check out Charles Schwab, the US broker/trading platform which started out in commercial life as a newsletter with 3,000 subscribers, and was briefly owned by Bank of America in the 1980s. I had to wipe my eyes on this one, but Schwab now holds $11.6 trillion of investor assets and has just announced its intention to offer digital currency (crypto) trading in 2026. That number was just over $4 trillion when Covid-19 struck. This growth in assets can be equated to the growth of balance sheets and collateral to be used in further investing activity. We can’t avoid mentioning AI but the infrastructure spending by cash rich tech giants is another boon for investment bankers. The latest data from research house, Gartner, is that global AI spending will be $2 trillion in 2026. Amazingly, the star of our most recent article, OpenAI, sits in the middle of $1 trillion of that spending. Needless to say, Wall Street investment banks are doing cartwheels as big tech names compete with each other to announce bigger and bigger spending plans as their share prices(and executive option pools) rocket on each headline. No wonder luxury laggard, LVMH, is seeing its share price suddenly perk up. It’s not alone.

    Investment banking blue chips like JP Morgan, Morgan Stanley and Goldman Sachs all posted record equity trading activity and revenues. The Daily Upside summed up the joy across the wealth and brokerage spectrum:

     

    “Results from other financial firms this week also showed that clients from scrappy retail traders to high-net-worth jetsetters are hankering for equities and investments. Wealth units at Bank of America  (revenue up 19% year over year to $1.3 billion), Goldman Sachs (up 17% to $4.4 billion), Morgan Stanley (up 13% to $8.2 billion) and more notched high marks. Customer assets at Schwab competitor Interactive Brokers rose 40% to $757.5 billion, and daily trades there rose 47% to $3.86 million.” 

     

    But it is a weird world. The crypto universe cratered last weekend as Bitcoin elevator-shafted investors with a 20% drop in price from $126,000 to $105,000. Then gold keeps marching remorselessly to $5,000/oz in $100 clips. There is a sense that different cohorts of investors are buying different assets but there’s enough liquidity (investment flow) to drive EVERYTHING upwards. It was striking to see in Schwab’s record inflows that Gen Z and Millenial investors accounted for a third each of new accounts being set up and looking for equity exposure mainly. Meanwhile in California, there’s a new bank coming. Erebor is a new crypto-focused bank which received federal approval this week. The excellent Morning Brew newsletter reports:

     

    “The new venture will offer traditional and crypto-oriented banking to upstart tech companies and the ultrawealthy, according to its charter application and approval letter. It needs another stamp of approval from more federal officials before operations can commence, but road bumps are unlikely under President Trump’s crypto-friendly administration.”

     

    Before you think it’s all crypto and AI out there, keep an eye on more familiar moves. Goldman Sachs has done an interesting deal buying Industry Ventures for nearly $1 billion. Small beer you might think, but Industry Ventures is in the venture capital ecosystem with $7 billion of VC assets bought from other VCs (known as secondaries). Clearly, Goldman is taking a view on more VC deals/exits happening and should be a boost for the start-up world. Oh, and JP Morgan are going to put $10 billion to work in nationally important industries and supply chains. In fact JP Morgan sees itself involved or banking $1.5 trillion of projects in the coming years. Here’s what those deals might look like…

    Meta/Facebook has just sealed a $30 billion private capital deal to finance its Hyperion data centre build in rural Louisiana. Here’s the kicker – Meta retains only 20% ownership. Morgan Stanley has arranged $27 billion of debt and $2.5 billion of equity in a special purpose vehicle (SPV). Yip, that’s a more than 10:1 debt-equity structure. Welcome to the world of superhero collateral in the form of AI infrastructure. This is the largest private capital deal ever but expect many more over the next few years. Of course, there are concerns.

    FT headlines this week highlighted poorly structured loans (read opaque dodgy) going wallop and hitting US regional banks’ share prices badly. Also, volatility in financial markets is picking up. However, the key drivers of global investment activity are big tech firms, private capital, sovereign funds etc and they have trillions of cash and collateral to deploy. This is not quite TMT era when the major players, telcos and media, were already swamped with debt. Returns on investment will obviously be the metric to watch in the future but arguably we are a few years away yet from getting visibility on AI’s payback. So get ready for more deals, more AI and more financial services profit joy. You’d almost be tempted to get exposure to these big structural trends. Well….. keep your eyes peeled next week as Spark Private will have a very interesting deal for you with a strong blend of alternative assets, financial services and AI baked into the offer.

    We are SOOOO back.

  • Think Big, Think Private

    Think Big, Think Private

    Well, that wasn’t so bad. Said no US general summoned to Quantico this week by their spray-tanned hardened bosses. I actually was thinking more about September and its data-earned reputation as historically the worst month for stock markets. Scratch that. The key benchmarks for equities, the S&P 500(up 4.25% in the month) and the Nasdaq(up 5.6%), blew the hinges off investor expectations amid lots of ugly headlines. Public markets are on an absolute tear, but investors playing catch up and wondering how to get involved could be understandably wary. I’d be wary too, but in a more nuanced way. My sense is the out-sized influence and weight of big tech in public markets is troubling. Try these statistics for size…

     

    *AI chip superstar, Nvidia, at $4.6 trillion is now worth more than Apple, Saudi Aramco and the entire German stock market…combined.

    *The “Buffett Indicator” is a trusted temperature check on US stock market euphoria which tracks the ratio of total US stock market value to US GDP. Currently that metric is touching 217%, or about 70% above trend.

    *Another long-run measure of ‘value’ is the Shiller PE Ratio (CAPE) which divides the current value of US markets (S&P 500) by the earnings of its constituent companies over the previous 10 years. That metric is over 40x for the first time since the dotcom bubble of 2000.

    *Options markets are not for the faint-hearted. So, it was striking to see the September 19th expiry date attract over $5 trillion of notional option exposure. More striking was that the majority of options players (62% of S&P 500 volume) in August were seeking ultra-high risk “Zero Day” instrument exposure (expiry within 24 hours). That is seat-of-pants stuff.

    *Intel’s share price has rocketed 50% since September, Google is up 68% since April, and Tesla’s stock has doubled in the same period while making the DOGE-whisperer, Elon Musk, the world’s first half trillionaire. Yep, $500 billion.

    *Nvidia’s stock market value is now bigger than the GDP of 180 countries, including India and its 1.4 billion people.

     

    You get the ‘big tech’ picture. Now for some historical context. Remember Palm Inc and its PalmPilot?  When Palm listed as an IPO 25 years ago, it was worth more than Apple, Amazon, Google and Nvidia combined. There is a cautionary tale there, but not the key point of today’s article. The sheer intensity and speed of capital flows in the listed large cap arena is telling us there is a massive investment shift happening. However, it is possibly too late to ‘pick’ the winners in the public markets, and one could end up picking today’s Palm Inc. However, private equity and venture capital markets have been left behind by public markets. Private investment flows and deals have slowed (with the exception of AI deals) due to subdued exit, M&A, and IPO activity, further hampered by levels of geopolitical uncertainty we haven’t seen in 50 years. The critical point is that private markets are likely to ultimately benefit from the trickle-down impact of public markets hitting all-time-high valuations. I would highlight four interesting developments:

     

    1. The leveraged buy-out (LBO) of gaming giant, Electronic Arts(EA), at $55 billion is the biggest ever and beats the $45 billion KKR deal to buy TXU way back in 2007. This time the buyer consortium is led by the Saudi PIF and Silver Lake. The EA buy-out adds to a wave of M&A in Q3 which will have topped $1 trillion in total global deal volume for only the second time in history.
    2. The latest funding round of OpenAI was a sale of $6.5 billion of employee stock putting the valuation of the ChatGPT owner at $500 billion. That makes it possibly the most valuable private company in the world. For those thinking it’s just AI giddiness, it’s not the only $500 billion private opportunity…
    3. We have written before about the fast-approaching age of stablecoins. So, we were intrigued to see stablecoin platform, Tether, launch a funding round of $15-20 billion which would value the financial services player at $500 billion, overtaking the value of Bank of America(!).
    4. These are all big beasts in the private markets. What about the small guys? Well, if you thought tech(+11.6%) and the Nasdaq (+9.7%) had a great last 3 months, you might be surprised that smaller companies in the Russell 2000 index did even better (+13.5%). Note 50% of the constituent companies in that index LOSE money.

     

    Arguably, the smaller company index is the best proxy for the Spark Private world of start-up tech and smaller private equity deals. So, evidence of small company catch-up is a positive indicator. Furthermore, Spark Private investors have a real opportunity to gain exposure to the digital currency infrastructure, AI and private equity themes above in our upcoming deal pipeline. Note we are also entering EIIS ‘season’ so investors fearing they’ve missed out on public/pension opportunities will be able to use the private markets to balance out their risk budgets at highly attractive tax-assisted valuations.

    The public markets are clearly telling investors to think BIG, but valuation risks are rising rapidly. Our message is BIG too, but private as valuations (not risk) resume an upward trajectory. Watch closely, those BIG theme deals are coming very soon.

     

     

  • Have You Checked Your Pension’s American Assets Recently?

    Have You Checked Your Pension’s American Assets Recently?

    I’m nervous. This won’t win me a Nobel Peace Prize, a Pulitzer or a Green Card but it must be said. The United States is the richest, most successful and most powerful country in the world. On a global basis, we owe the United States on many levels, be it culture, sport, technology, education, medicine, defence, investment capital, tourism or friendship. Closer to home, our fortunes and miraculous recovery from a Troika bail-out are inextricably linked to US commercial supremacy. The vast majority of our pensions reflect that supremacy by holding significant amounts of US debt/bonds or stocks. EVERY pension should have exposure to US assets but risk radars are flashing red for a seismic investment shift. Behind the headlines and in the critical plumbing of the global financial system, there is increasing evidence of a global ‘exit’ from the US. That might sound odd and inevitably the counter view will cite current data which paints a record-rosy picture.

    US and global stock markets are regularly hitting record highs in recent weeks. However, the US stock markets have been clocking up vastly superior returns compared to other major bourses in the 16 years since the GFC. This outperformance of US assets has resulted in extreme levels of US weightings in global indices/benchmarks which your pensions are attempting to either track or beat. A recent Deutsche Bank research note flagged IMF data showing US equities now accounting for 67% of Bloomberg’s World Index. That’s quite the weighting for a country which represents 15% of global GDP. Go back 20 years, and the US actually accounted for a higher 19% of global GDP.  In 2005 US equities made up 51% of the same Bloomberg World Index. For context, Europe(EU) accounts for 12% of global GDP and 14% of the Bloomberg index. Of course, the big driver is technology stocks where the 6 top US tech companies are currently valued at $20 trillion, or more than the GDP of China. The AI/cloud (AI) revolution might be the more specific driver but is this hiding a bigger picture?

    According JP Morgan’s always interesting Michael Cembalest, “AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022.” AI is indeed the gift that keeps on giving for US markets. But there’s giving and then there’s giddy. I’m not sure if anyone can keep up with tech companies trying to out-do each other on the size of their investment spend announcements. It has clearly been noted by the tech C-Suite that, if you announce huge investment spend on chips, data centres or any AI related infrastructure, your share price and stock options go up. Microsoft says $100 billion, Google says $85 billion, Alibaba says $53 billion and Nvidia thinks they’ve a better twist. This week Nvidia promised to invest $100 billion in ChatGPT parent, Open AI. Excellent news but where’s the $100 billion going? Ah, that would be mostly going back to Nvidia whose AI chips will be used in Open AI’s data centres. Yep, readers might see the Baldrick-esque possibilities around circularity and vendors(Nvidia) financing customers like Open AI. Anyway, investors seem optimistic, for now. Moving away from AI, and the risk of over-investment, there’s a bigger worry for US corporates and their share prices.

    The S&P 500 broke another record in recent weeks. Valuations observed by investors these days seem to ignore earnings multiples (Tesla P/E of 200x anybody?) and focus on revenues. However, there’s a traditional metric, the price-to-book ratio, which compares the market value(price) of a company to net assets (total assets minus liabilities aka book value). Where the ratio exceeds 1x, the valuation of the company is capturing ‘intangibles’ like goodwill, brand and future investment/revenue acceleration. Currently, the S&P 500 is trading at a price/book of 5.3x. That’s higher than the peak of the TMT ‘bubble’ in 2000. For context, that metric dropped to 1.6x in 2009. Of course, many companies are more ‘asset-lite’ these days and enjoy higher price/book and revenue multiples. But… there is an intangible element in many US companies’ valuation which is critically important to their premium rating over competitor companies in other countries; goodwill and/or brand power. You can see the potential goodwill problem.

    I’m no Jimmy Kimmel so it’s best be straight rather than funny. Corporate America from Disney to Tesla to law firms is haemorrhaging “goodwill” and brand value. Two thirds of the global middle-class will come from India and China by 2030. Yet, right now the US assets of Chinese video platform, TikTok, are being seized/transferred to White House friendly oligarchs while India is dealing with punitive Ukraine-related tariffs (not Russia?) and a shake-down on vitally important H-1B visas for overseas technology professionals (70% of recipients are Indian). Friendly countries like South Korea are in shock after ICE raids on Hyundai’s plant in Georgia and the detainment of more than 300 Korean workers. Trump’s speech this week to the UN with “your countries are going to hell” could have been shortened to a simple message of “Go to Hell” to the rest of the world. Anecdotally, the news from Canada is a window into future “ally” consumer behaviour. Supermarket shelves are seeing a buyers boycott of many US products as car traffic across the US-Canada border craters by 34% according to latest August data. Meanwhile, corporate America and its leaders cower in silence while the Trump White House vandalises US institutions, global trade and sovereign alliances. The assault on US rule of law is captured in almost every headline emerging from Washington:

     

    Trump’s new ABC threat proves Jimmy Kimmel right – CNN

     

    Former FBI Director James Comey expected to be indicted on criminal charges – The Guardian

     

    Trump pressure on Bondi to charge political foes could backfire – NBC News

     

    US Supreme Court ruling lets Trump fire top official – BBC News

     

    The final headline featuring the Supreme Court is critical to the risk profile of the US. Investors are worried that the Supreme Court will let the Trump regime interfere with the Federal Reserve Board, the most important financial institution in the world. The Fed underpins the status of the US dollar as the world’s reserve currency. That credibility is under threat as the dollar’s value against a basket of major currencies has fallen by 10% this year. That ‘fallen’ bit is people selling the US dollar and buying other stuff. Like Gold. Lots of investors are liking bullion’s 40% increase in value year-to-date. I’m not so sure it’s a positive signal. I’m also watching deposits sitting in US money market accounts hit a record $7.7 trillion, treble the number just 8 years ago.

    These depositors are not the only ones not fully convinced about the US being the “hottest” country on the planet. Investors SOLD $3.8 billion of US stocks last week (Source: BofA Securities) with institutions and hedge funds the biggest sellers by far in one of the highest exit numbers seen this year. Oh, and if record US stock markets sound positive, context is everything. The whole world is up this year and OUTPERFORMING the US. The S&P World ex-US Index is up over 20% year to date compared to US equity markets up only 10%. But…it’s worse than that if you factor in US dollar weakness. Returns for overseas investors in US equities are closer to ZERO this year. To be clear, this re-rating of US assets will happen over years not weeks but commercial contracts, the law and international treaties require a high degree of confidence. Imagine how Canada and Mexico feel right now re-negotiating a deal which Trump himself shook hands on as recently as July 2020. His own deal. Investors will deal too, and consider a sea change in how the US attracts talent (H-1B, visas), investment capital (Fed, US dollar) and goodwill (premium equity ratings). Sadly, US-based investors might struggle for similar analysis in their media.

    Despite Trump railing against windmills (literally) and media bias, the awkward truth is that the wealthiest person in the world, Elon Musk, owns Twitter/X. The second wealthiest person in the world, Larry Ellison, owns Paramount(including CBS) and will now be taking over TikTok and CNN. Jeff Bezos owns The Washington Post and Twitch. Mark Zuckerberg owns Facebook and Instagram. Throw in Larry Page as Google’s controlling shareholder and that looks like the top 5 richest men in the world are ALL media owners. It also looks like oligarchy. US corporate leaders should also consider another consumer shift within the borders of the US.

    Research from Moodys using Federal Reserve data shows the top 10% of earners in the US now account for 50% of all consumer spending. In the early 1990s (before Fox News) that number was closer to a third of all spend. Disney just discovered (as corporate America said zippo) that the average person felt that taking a comedian off air after government threats was plain un-American, and proceeded to cancel in massive numbers their Disney+ and Hulu subscriptions. Maybe, the 90% will push back on other White House over-reach? I’m not so sure, and that’s not good for US assets or pensions in the long run. Investment securities, after all, are contracts and the undermining of the rule of law will end in tears. Or, something less oligarchic. As my favourite bear strategist, Albert Edwards, said this week when posting the Bloomberg chart below, “When I look at this chart, I look at my calendar and just wonder when I should pencil in the next revolution..”   The chart dramatically shows consumer sentiment splitting sharply between the ‘have yachts’ and ‘have nots’…..