• The most useful way to think about the current war in eastern Europe is not to frame it as a confrontation between Ukraine and Russia, but between the EU and Russia. And since Germany is the leading country in the EU, it’s ultimately a confrontation between Germany and Russia. These two have repeatedly clashed for hundreds of years. And every time, this has caused devastation for the entire continent and beyond. They are the deadliest neighbors on this planet.

• The West views Ukraine as a sovereign country which (like any other country) can freely choose who to partner with. Russia understands NATO as a military organization that was created with the sole purpose of antagonizing them. To lay down its arms, Ukraine demands permanent Western military presence, the prevention of which is the whole point of Russia’s campaign.

• The conflict keeps escalating with no negotiation solution in sight. Unrestrained by its Western allies, Ukraine keeps provoking the world’s strongest nuclear power with deep strikes. Eventually, this will lead to retaliation. Russia will strike Western targets outside of Ukraine. Then hell will break loose on the entire continent.

• Germany’s role is the most puzzling aspect of this conflict. It has little to gain from its loyalty to the Ukrainian regime. Yet, its political and media elites are Ukraine’s staunchest supporters. This support only makes sense once you understand that Germany is currently in economic and cultural decline which will trigger political unrest as various groups will fight for what’s left of the economic pie.

• In response to domestic crises, German elites will manufacture internal and external enemies to defend their position. Conveniently, this will also patch concrete economic issues. German industrial capacity is idling as its core industries are being outcompeted by China. The most realistic way to reactivate that capacity is to use it for military purposes. Make tanks, not cars. It has happened before. The best way to hedge World War III may be to buy Volkswagen shares.
  

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The power of the unexpected

What has shaped the path of our civilization most in the last hundred years? If you’re into politics, you might argue it’s the outbreaks of the two world wars. If you’re into technology, you might point to the computer and the internet. If you’re into demography, you might say it’s the birth control pill.

Most potential answers have one thing in common: they were events that changed trends or ignited new ones. History is shaped by unexpected turning points way more than it’s shaped by continuation of trends that most people understand well. We overestimate evolution and underestimate revolution. ‘Nothing ever happens‘ is a trader mindset that badly backfires over longer time horizons.

Nassim Nicholas Taleb popularized this idea when he wrote The Black Swan twenty years ago. He defined a Black Swan as a highly unexpected event with enormous impact which people then rationalize after the fact.

In September 2024, I wrote the article below, where I argued that all stock market drawdowns of the last one hundred years can be traced back to six distinct risk categories which caused unexpected shocks.

One of those categories is Violence. We haven’t had a major market drawdown due to violence in more than eighty years. Therefore, it isn’t front and center on the investor risk radar anymore. There is always some subtle risk of World War III. But nobody assigns serious odds to it.

I believe the Ukraine situation has the potential to catch all of us wrongfooted. We are currently sleepwalking into making large parts of Europe a war hotspot once again. Germans can’t fathom another destruction of their homeland. But Ukrainians and Syrians couldn’t either.

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No way out through negotiation

The West views Ukraine as a sovereign country which (like any other country) is free to partner with whatever country or group of countries it pleases. Russia’s interference with Ukraine’s foreign policy is therefore viewed as unrighteous.

Russia understands NATO as a military organization that was created for the sole purpose of antagonizing Russia. They also don’t look at countries at the individual level. They rather divide the world in blocks.

The strongest political block in the world is led by the US obviously. The US charges a high price for its leadership. It demands full economic and cultural submission from its allies. Any country joining the US block will eventually also deal with social phenomena originating from the US zeitgeist. It’s important to understand that when countries like Russia or China reject US hegemony, they are doing so in part to keep wokism outside of their borders for example.

Therefore, Ukraine is not an independent sovereign country from Russia’s perspective. It’s a member of a block that is either friendly or hostile. Russia will never accept permanent Western military presence in Ukraine.

There is really no way out of this conflict through negotiation. To lay down their arms, Ukrainians will demand Western protection, the prevention of which is the whole point of Russia’s campaign.

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No way out through military means

When a negotiation path to peace doesn’t exist, there might still be a military path of course. One party could simply win to dictate the terms of the subsequent peace. It’s hard to get any objective intelligence from the frontlines. Any information that gets out is heavily distorted by propaganda on both sides. But since frontlines haven’t moved much in more than four years, I believe it’s safe to say that both parties are likely in a stalemate situation.

Drones seem to have become the biggest obstacle for the success of a military offense. They are very cheap and very effective in hurting the enemy’s advancing equipment. They have made defense much stronger just like the machine gun did in World War I and caused years of frozen frontlines on the Western Front.

The Russian-Ukrainian war is a war of attrition that will only end once one of the parties runs out of the financial or mental resources to continue. Ukraine won’t run out of anything anytime soon. They have powerful financial support from Western allies. Just earlier this year, the EU has approved a new package which will provide €90bn to cover this year and next year.

And Russia seems to be fine funding this war via oil and gas exports which generate about $200bn annually. The ruble doesn’t indicate significant macro stress so far. Putin’s approval ratings also seem to remain fairly strong. I doubt he will eventually be replaced by someone with more willingness to give up on Ukraine. A full regime change would likely be needed to make Russia stop its Ukrainian campaign. Trying that on the worlds’ strongest nuclear power would obviously be insane.

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Irresponsible deep strikes

As the war progresses, Ukraine is more and more striking targets deep in Russian territory, often in Greater Moscow. These strikes are the core of the current escalation spiral.

Some people argue this is only fair. Since Russia is operating on Ukrainian soil, Ukraine should be allowed to operate on Russian soil as well.

Let me be very clear about this line of thinking: It’s incredibly infantile. What’s fair and just matters in child raising. It doesn’t matter for decision making in a war. A war only cares about incentives, interests and positions. There is only one criterion for every decision: If I do X, then the enemy will likely do Y. Do I want my enemy to do Y? Can I live with my enemy doing Y?

Deep strikes will most likely not break the Russian morale. Instead, they will increase the Russian willingness for aggression. These strikes are insulting Russians who are of the opinion that they have held back in this conflict so far. Deep strikes will likely rally the Russian people even more behind Putin and political hardliners generally. These strikes increase the likelihood of Russian strikes beyond Ukrainian borders.

And what are we going to do when Russian missiles start hitting Warsaw and Riga? The narrative of the past few years will force us to frame it as another step of Russian imperialism which has to be retaliated again. Even more weapons. Even more mobilization. And what is the end game supposed to look like? Do Europeans really want to take Moscow? The capital city of a country with more than 5,000 nuclear warheads?

If European leaders were responsible, they would tie financial and military support for Ukraine to the condition of not striking on Russian territory. We help you to defend yourself against an unjust invasion, but we take the steps to keep harm from our own population. It would be a minimum concession to Russia to at least signal some willingness to keep this conflict under control.

European leaders are not doing that, of course. Their minds are in ashes from the ideological fire that has been burning in their heads for too long.

Germany’s motivation

It’s easy to steelman Ukraine’s motivation. They seek partnership with the West to enjoy the prosperity that comes with it. It’s also easy to steelman Russia’s motivation. They don’t want another NATO member at their border, just 500km from Moscow. But what on earth is driving the warmongering in Germany, the political and media elites of which are the fiercest Ukraine supporters of all?

To some extent, this unconditional loyalty reminds of the ‘blank cheque’ that Wilhelm issued to Austria-Hungary in 1914. When Serbian nationalists killed Franz Ferdinand, Austria-Hungary wanted to punish Serbia. It was a local conflict that didn’t need to become a major war. It only did so because Serbia was under Russian protection and because Germany assured Austria-Hungary of full support. They sleepwalked into World War I just like they might be doing it with World War III right now.

Of all stakeholders, Germany should actually be the country most interested in a solution through negotiation. Its entire economic model depends on its partnership with Russia and access to its natural gas. Being cut off from that has accelerated Germany’s deindustrialization in the last few years.

Also, every German should know from history that nothing good can be downstream from fighting with Russia. Napoleon learned it the hard way, just like Wilhelm and Hitler did later.

What is there even to gain from defending Ukraine? Germany has no economic interest in Ukraine. In contrast to the US (which ties support to getting infrastructure and natural resource deals), Germany’s support for Ukraine is pure donation. Yes, the payments are technically loans. But there is no collateral and hence Ukraine will likely never be able to pay them back.

Some people argue that supporting Ukraine is crucial to avoid further imperialistic Russian attacks in Eastern Europe. I find that far fetched since the Russian aggression wasn’t proactive. It was a reaction to Ukraine’s attempt to join NATO and EU. German support for Ukraine is purely altruistic. At least it’s genuine in that. But it also seems completely irrational? Is there any way to explain it rationally?

To attempt such a rational explanation, it’s important to understand that Germany is currently in a period of economic and cultural decline. I have written about that in great detail in various articles, some of them linked above in the intro.

The country’s prospects are bleak. It’s facing the steepest demographic cliff of all major developed nations. A nonsensical immigration policy is unsuitable to address that cliff and will in fact burden the social welfare system even more. The education system is collapsing as collateral damage from that immigration policy. Core industries are being outcompeted by China. The Euro has been draining the country financially and has disincentivized important innovation via currency suppression. A nonsensical energy policy is accelerating the country’s deindustrialization.

Spirits are low as a result of this decline. National pride is generally not the Germans’ greatest forte. The current crisis is destroying what’s left of it. The economic malaise will also cause a significant drop in the standard of living. Political unrest will then arise as various groups will fight for what’s left of the economic pie.

As a response to that, elites will manufacture internal and external enemies to defend their position. Internally, they are already working on banning the leading opposition party or at least its major representatives. Various legislation efforts are directed at censoring and demonizing critical media.

Externally, Putin serves as the ideal enemy to rally against. He’s a distraction from the domestic corruption and mismanagement. If nothing is left of what made Germany strong after World War II, at least people can pat each other on the back for being the good guys, defending rebels against an overpowering empire.

And conveniently, a military confrontation with Russia also patches concrete economic issues. By 2029, Germany plans to spend more than €150bn annually on defense, up more than 200% from 2021. Chancellor Merz has repeatedly said that he wants to build ‘the strongest conventional army in Europe’.

Quite frankly, this goal freaks me out. His gang is on the wrong side in every decision they make. The more levers you give them, the more destructive they will be. It has given me comfort that they haven’t had any real military power so far. I really don’t want to find out what they will do with an actual army ready for combat.

I can imagine that defense budgets will be increased further should the war with Russia escalate further. Eventually, idle automotive factories will be repurposed into tank factories. The best way to hedge World War III may be to buy Volkswagen shares.

Sincerely,

Rene

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TLDR Summary

• There are cracks in both the AI Trade and in the Debasement Trade. The share prices of hyperscalers are falling. This is highly problematic for the AI economy as a whole. Falling share prices imply a rising cost of capital and a rising cost of capital disincentivizes spending.

• Gold and Bitcoin are in a bear market as well. Spot inflation is surprising to the downside. Inflation expectations are falling. The yield curve is flattening. Credit demand is cooling.

• GDP growth will likely disappoint. But that’s actually good news for Main Street because most of the recent growth is of speculative nature. It stems from massive corporate investment in a distinct corner of the economy with little ripple effect into the rest of the economy.

• Interest rates will fall once the penny drops in consensus opinion. And that will provide much needed relief for US households. I know I keep repeating myself here. But this is the most important narrative pivot in the making in a long time. Waiting for that to unfold requires patience.

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Performance summary

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• Buying the right stocks at the right time is hard. But selling them is even harder. You don’t just have to form an opinion on a stock at a given point in time. You are also haunted by the past. You are anchored to a random entry price from months or years ago which brings greed and fear into the equation.

• To the extent that circumstances allow for it, selling should in my opinion be entirely removed from an investment process. Ideally, an investor should merely worry about buying into viable companies during times when they are neglected by others. Buy the dip. Unless everyone else is doing it.

• There are several ways how to incentivize ‘hodling’. You could buy an asset that is naturally hard to liquidate. A rental property for example. Or you can diversify. The smaller each position in your portfolio, the more likely will you be able to bear its potential failure.

• An investor following this approach can only reap the benefits of his investment success by receiving dividends. However, getting dividends immediately should not be the primary goal of an investment. Many pure dividend stocks underperform because they are owned by investors who are hiding from volatility. Instead, the stock must be analyzed with respect to its potential to pay large dividends in the future, even if it doesn’t yet.

A bit on my own journey

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Since late 2023, Momentum has been outperforming all other investment factors with a persistency and a dominance that has rarely been observed before. The convergence of three feedback loops makes that possible:

1. Interest Loop: Interest expenses are now accounting for 60% of the Treasury’s deficit. This converts the fiscal impulse from a means of countercyclical liquidity creation to one of procyclical liquidity creation: The higher the Treasury’s interest rate, the higher its deficits, the higher the growth of nominal GDP, the higher the interest rate…

2. Corporate Loop: Bull markets and times of prosperity are usually driven by household consumption. Companies earn more when household incomes are rising or when households are borrowing to spend. The bull market of the 2020s is different. Companies are creating their own demand: The more debt and equity they raise, the more they will spend, the more will corporate earnings grow, the more will investors demand their debt and equity, the lower their cost of capital will fall, the more debt and equity they will raise…

3. Flow Loop: Trillions of investment dollars are being converted from active into passive mandates. In contrast to active investing, passive investing is valuation indifferent. That makes previous price performance the best predictor for prospective performance: The more the price of an asset appreciates, the higher its share in the most popular ETF baskets, the larger the share these ETFs will allocate to that asset, the more it appreciates…

Momentum, Momentum, Momentum

In August 2025, I wrote the article below describing the Momentum Bubble, where I linked the remarkable outperformance of the Momentum factor to fiscal liquidity creation and to the rise of passive investing. The Treasury’s excessive deficit creates savings for investors which these are then increasingly allocate into valuation-insensitive passive mandates. As a result, trends become stronger and last longer, fertile ground for Momentum factor investing.

This theme keeps dominating, in fact it seems to be escalating. The current Momentum regime started in late 2023. Before that, Momentum didn’t systematically outperform for many years.

The S&P 500 Momentum Index is up 160% since then (+44% p.a.), while the S&P 500 is up ‘only’ 72% (+23% p.a.). More than 20% outperformance per year for a single factor. I’m not sure if any factor has ever dominated that much, but certainly not in the last 15 years.

For Momentum to perform and to sustain, there must be circularities in place that reinforce existing trends. Outputs of a mechanism must become inputs for the same mechanism. In my opinion, there are three of such feedback loops that are driving the current momentum regime.

1) Interest Loop

US GDP is currently closing in on $32tn. At the same time, the US Treasury net spends $2tn per year. That’s still more than a 6% deficit, unprecedented outside of recession periods. The 2020s have to be viewed as a fiscal experiment of gargantuan scale.

The Treasury deficit is actually designed to act countercyclically. Tax receipts typically grow in proportion to nominal GDP growth (i.e. real growth plus inflation) . Outlays typically grow in proportion to inflation because much of the spending is subject to price adjustment clauses. Therefore, the deficit typically shrinks during times of positive real growth, acting as a counterforce to potential overheating. Likewise, it typically expands during recessions when tax receipts falter and costs for unemployment insurance increase.

In the current fiscal dominance regime, this is not the case anymore because of the rising importance of interest payments, which now account for $1.2tn annually or 60% of that deficit. They have more than doubled since before the pandemic.

Why does that matter? Because fiscal deficits are first and foremost private sector savings injections. The type of deficit may matter out of fairness/justice considerations. At the aggregate level it doesn’t matter. Social security payments or military spending accomplish the same thing as interest payments: They give money citizens, companies or foreigners with an economic interest in the US. And those counterparties will then use that money to create demand in other pockets of the economy. Deficits drive nominal GDP, whether its real growth component or its inflation component.

And that nominal GDP is also the main driver for interest rates. Bond investors demand interest to compensate them for opportunity cost (they could have invested in assets with a higher beta to real growth) and for inflation (the debasement of their principal). This closes the circle: The higher the Treasury’s interest rate, the higher its deficits, the higher the growth of nominal GDP, the higher the interest rate…

2) Corporate Loop

Generally speaking, businesses will do well when their customers are spending. Customers can either spend their current income or their savings (or going into debt). Therefore, corporate earnings typically rise either when household incomes are rising or when households are borrowing. The 2010s were an example of the former, the 2000s were an example of the latter.

The bull market of the 2020s is different from the 2000s and 2010s in that it’s not being led by household spending. It’s being led by corporate spending. B2B businesses are leading this bull market, primarily in the AI space. They do well when other companies are spending. Absent of a demand impulse at the end customer level, these companies can only increase their spending by tapping into equity and debt capital.

They are encouraged to raise equity or debt when the cost of that capital is low. And the cost of that capital is low when there is a lot of investor demand for it. Investors are the new customers in the 2020s. This closes the circle: The more debt and equity companies raise, the more will corporate earnings grow, the more will investors demand their debt and equity, the lower their cost of capital will fall, the more debt and equity they will raise…

3) Flow Loop

Active investors are valuation sensitive. They won’t buy an asset if they deem it to expensive for the cash flows it generates. In contrast, passive investing is valuation indifferent. It validates any prior price because it simply enters ‘market buy’ orders for every asset weighted by its current market cap. This amplifies mispricing to both upside and downside. Stocks don’t run out of buyers/sellers when they rise/fall too much. Instead, a rising stock automatically gets a larger bid the next day. This closes the circle: The more the price of an asset appreciates, the higher its share in the most popular ETF baskets, the large the share these ETFs will allocate to that assets, the more it appreciates…

Sincerely,

Rene

• If I ask you to name the worst decade for the US stock market after World War II, you’d probably tell me it’s the 2000s. After all, there were two monster crashes, in each of which the S&P 500 fell more than 50%, and it took a good 12 years for the index to surpass the 2000 top for good.

• There are good reasons though to consider the 1970s equally bad or even worse. It took the S&P 500 14 years to surpass its 1968 top for good. An when it finally did in 1982, it was still 60% (!) below 1968 in real terms because inflation was brutal during that period. To recapture their loss of purchasing power, investors had to wait another 12 years until 1994. That’s when the country’s major stock market index had finally caught up with its consumer price index. Zero real price performance for 26 years. Feels unimaginable today, doesn’t it?

• Fundamentals didn’t justify such a poor performance, at least not for so long. S&P 500 earnings tripled between 1968 and 1982 (+8% annually). Similar growth was observed in the decades before and after. The problem was the stock market had gotten ahead of itself on valuation. A massive multiple contraction killed the returns for investors.

• Just like today, the bull market of the 1960s had its must-own darlings. Companies that were sporting much higher P/E ratios than the rest of the stock market. As the bull market matured, these popular companies started squeezing returns through shrewd financial engineering. Their favorite method was bootstrapping, which artificially generated EPS growth and allowed for value creation from thin air. Bootstrappers exploited the preferences of investors who considered assets more valuable in their hands than in the hands of others.

• Michael Saylor started using the exact same principle when he transformed MicroStrategy into a Bitcoin Treasury company in 2020. He created the famous Bitcoin Yield. As long as MicroStrategy’s mNAV was greater than one, it could create value by simply buying more coins. Bitcoin was worth more in the hands of Michael Saylor than in the hands of anyone else. The value proposition of a Bitcoin Treasury company.

• Now, Elon Musk is taking this to another level by tying asset values to his personal brand. You can’t come to a fundamentally driven valuation conclusion on SpaceX. Either you believe in Elon’s godlike ability to create shareholder value or you believe he is a con. Whatever your opinion on Elon is also your opinion on SpaceX. Right now, the consensus opinion on his entrepreneurial abilities is sheer infinite. He uses that to raise ungodly amounts of capital to buy less ambitiously valued assets, knowing that their values will simply rise from being blessed with getting Elon glitter sprinkled on top.

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Buying in 1968 was arguably worse than buying in 2000.

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TLDR Summary

• Inflation is dead. There’s no excessive amount of it in measures that matter. Long-term inflation expectations are falling. The yield curve is flattening, even while investors don’t care about buying long duration bonds.

• The majority of investors is hopelessly behind the curve on this. No rate cuts are priced in. Instead, investors are preparing for higher interest rates across all tenors.

• The next step is blatantly obvious: There will be a downward impulse to interest rates which will liberate consumers and boost the revenues and earnings of those companies that serve them.

• The corporate capex party will end because investors will drop the shares of the big spenders to chase the stocks of companies that will have a sustainable earnings acceleration from bombed out levels: B2C.

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• Medicare Advantage (MA) has become the sweetest honeypot for the entire US healthcare industry. It’s growing faster than overall Medicare spending, which itself is growing faster than overall federal government spending, which is itself growing faster US GDP. Having access to this is like owning a money printer.

• MA was established in 1997. It…

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TLDR Summary

• The original advantage of the US was that it was the first country to understand the potential of fully unleashing human entrepreneurial spirits. It was the first and the most serious to establish a democracy based on liberal values which – in combination with its geographic advantages – allowed it to create the most successful economy in the world.

• Once its success became obvious, it started offering a deal to other nations: Join our way, accept our leadership and get a piece of our success. Many nations agreed to that deal, in most cases voluntarily.

• Over time, America played its hands more aggressively. In a second iteration of the deal, it started charging these nations for its leadership. Partner countries had to invest in the US. This capital created jobs and income for Americans. And draining it from partner countries impeded their own economic growth. As a result, the US economy kept outperforming its peers further.

• We are now witnessing the third iteration of that deal. Other nations still pay to play. But now playing is not voluntary anymore. They are coerced to. It’s the most aggressive way America has ever played its hand. It’s a regime shift that likely won’t end with Trump. Understanding what Americans are doing and why they are doing it will be crucial for anyone with the ambition to build a macro opinion.

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What is liberalism?

In its literal definition, ‘liberalism’ is about the value of freedom. It’s one of the most butchered and most misunderstood terms in the dictionary though. Today, ‘being a liberal’ has little to do with the original meaning of liberalism. Its definition also changes based on where you are and who you talk to. For example, liberalism is associated with the political left in North America while it’s associated with the political right in Germany and other parts of Europe.

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Selling consumer product stocks to investors is arguably even harder. Nobody cares about B2C. It’s all about B2B. The problem with that is that B2B can’t exist alone. Every economic process requires a human at the end of it who is willing and financially able to buy.

There is a major rotation incoming from overhyped and overpriced B2B assets to neglected B2C assets. This is one of my strongest contrarian beliefs right now. I don’t know whether that rotation will happen as an extension of the current bull market or whether it will happen inside of a market consolidation. But either way, I have high confidence that it has to come eventually.

Once the tide turns, the most hated stocks in the most hated market segments will likely perform best. Like mismanaged and financially struggling burger chains for example.

This is the story about a company that has been frying burgers in the US for 75 years. That has pioneered drive-thru fast food and grew rapidly during the postwar rise of American suburbia. That has gambled its assets away in multiple financial engineering experiments. And that now has an opportunity to fix itself.

This the story about Jack in the Box.

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TLDR Summary

• The stock is down more than 90% from its all-time high, in part due to unfortunate circumstances, in part due to poor decision making.

• GLP-1s, record high beef prices and the cost of living crisis generally are spoiling the appetite of Americans for burgers. All fast food chains are struggling with that. But JACK has a bunch of company-specific issues on top.

• The company overdid its financial engineering efforts that worked so well in the 2010s and backfired so badly in the 2020s. They levered up too much and retired too much stock ($2.4bn between 2013 and 2024, 10x its current market cap!). They executed a major acquisition very poorly and lost 80% on the purchase price in just four years. A capital burn that would make even Silicon Valley proud.

• Short sellers are smelling blood. JACK is now one of the most shorted stocks in the US. These short sellers have a problem though: The company is still profitable even during this difficult time. It’s trading at just 2x P/E. That is an actual GAAP E in the denominator by the way, can you believe it? And based on an earnings level that is depressed from cyclicality and the company’s current restructuring efforts.

• I hate to say it because I don’t want to be a pumper: a major squeeze seems to be only a matter of time.

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Company roots

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TLDR Summary

• Institutional investors seem fairly desperate in chasing the current rally, in part because they are afraid to miss out on the technology boom (AI Trade), in part because they fear another inflation wave (Debasement Trade). Portfolio imbalances feel severe enough once again to trigger a significant correction.

• Both the AI Trade and the Debasement Trade ultimately depend on a resurrection of the (US) consumer. Corporate capex can only be sustainable if it creates products that customers are willing and financially able to buy. And that’s also the only scenario where a lasting inflationary impulse could occur.

• Interestingly, investors don’t expect anything from actual consumers. Betting on AI and monetary debasement while at the same time holding an ultrabearish view on consumers is a disconnect that will in my opinion ultimately drive a consolidation in the assets leading this bull market.

• Various market segments look hopelessly overbought. Some are getting interesting though. B2C generally of course. But I’m also closely watching the capitulation in healthcare for example.

• The momentum factor still rules the US stock market. Buying call options or levered ETFs is the technically the same as hedging an oversized stock portfolio with put options. The greatest single day crash in US stock market history happened when investors did exactly that.

Performance summary

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Homeowners are trapped by ultralow mortgage rates which they don’t want to give up.…

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• Root posted strong 1Q26 results. They achieved a record profit with record margins, driven by a record low loss ratio and a record low operating expense ratio. Underwriting growth is reaccelerating. Management seems to be gaining confidence that the industry cycle is turning sweet again.

• The structural growth story remains fully intact. And now, the stock might be on the cusp on receiving cyclical support again. Consensus opinion on insurance is poor. Institutional investors are afraid of rising competition and another inflation wave. Both risks are overblown. Consumer sentiment in the US will improve. And no trade war or actual war has so far caused a new inflation wave in the categories relevant for Root.

• Lemonade is still hopelessly overvalued. There is a ton of dumb money engaged in this space. However, I am not so afraid anymore that this is spilling over to Root. The current valuation is driven by fundamentals in line with the industry.

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Setting the stage for this quarter

In my 4Q25 earnings review, I appreciated Root’s continued resilient performance against weak industry trends. However, while I considered the investment case fully intact for the long-term, I feared that the deceleration of the company’s topline growth might weigh on sentiment in the near-term, esp. since many insurtech investors will likely have to capitulate on the fraudulent competitor Lemonade soon. Their incoming capitulation could hurt Root as well.

Both stocks have essentially gone nowhere for the last three months. Let’s see how the latest earnings keep shaping the story. I don’t want to waste too much of your and my time on Lemonade. But since both companies are playing on the same field, I believe it’s relevant to keep an eye on Lemonade as well.

Root

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I had always been wondering why everyone seems to believe that urban robotaxis should become the first commercial application of autonomous driving. The global freight trucking market is about 10x the size of the global taxi market, cargo freight is much less needy than human freight, and…

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TLDR Summary

• NVIDIA originally developed GPUs for video game graphics. It’s a coincidence that this technology turned out to be so powerful for the deep learning that we simply refer to as ‘AI’ today. Therefore, GPUs are likely not the most optimal hardware to run AI on.

• Video game graphics require a ton of parallel processing. That’s helpful for AI as well. But it’s not necessarily the limiting factor for AI chip performance. Cerebras management contends that the bottleneck for AI is in fact latency. Since communication is thousands of times faster on-chip than across chips, they developed a huge chip that is made from an entire wafer.

• Getting that done with an acceptable yield is extremely difficult. The probability of a chip defect scales exponentially chip size. Power and heat management is challenging as well. It seems that Cerebras has successfully overcome these challenges. Their chip is greatly outperforming NVIDIA in tests on popular open-source models. Partnerships with leading AI companies such as OpenAI and Amazon add to credibility.

• The company is at a very early stage. But if they can scale the business properly, they are the first who can potentially challenge NVIDIA’s dominant position. A monster narrative might be in the making here with trillions of Dollars of market capitalization at stake.

• They have started their investor roadshow today and they plan to raise up to $4bn at a $40bn valuation. This would value the company 10x higher than the original IPO plan from two years ago. Momentum is clearly on their side.

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Original IPO plan

In 2024, Cerebras announced its intention to go public when they filed an S-1. I covered that attempt in the article below:

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• If you want to sell branded products, you need to get your customers excited. Nike’s reinvention of road running shoes in the late 2010s is a perfect example. After Eliud Kipchoge won the 2017 Berlin Marathon in the freshly launched Vaporfly 4%, its stock ran more than 200% over several years. And then it topped shortly after Nike’s shoe dom…

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In spite of continued restrictive monetary policy, bank lending is currently growing at an annual rate of 7.5%. It’s growing at the fastest rate in ten years (if we ignore pandemic borrowing volatility). It’s growing faster than on average over the last 50 years (6.8%). And the growth rate is even accelerating further.

This is happening while consumer sentiment is at record lows, while the US economy has barely created any new jobs in over a year and while the housing market is effectively frozen. What is going on? How is this possible?

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TLDR Summary

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• Homebuyers and real estate investors are capitulating. Not because they are forced to sell as part of a margin call, but because they are enviously looking at the stock market where returns are much higher. This sentiment is reminiscent of the late 1990s. A megabid into real estate followed when stock market returns started disappointing.

• The…

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In my March 2026 Market Strategy, I argued that we need recession fears before a buyable bottom can occur. These recession fears would then move Treasury yields and investor positioning to more balanced levels. The Treasury’s tax drain could facilitate that sentiment shift. Let’s see how the picture has evolved since then.

TLDR Summary

• So far, markets are defying fiscal seasonality. They have staged a stunning comeback, also completely seeing through any uncertainty associated with the Strait of Hormuz standoff. I believe this is risky for anyone vulnerable to high oil prices. US assets are not vulnerable to high oil prices. As I discussed in my recent piece on crude oil, this energy crisis can act as a catalyst to move capital back into the US.

• The US Treasury has drained $164bn from the US economy in April so far and will likely drain another $100bn until the end of the month. Fiscal seasonality will then turn sweet and remain supportive until May 15, the next Treasury interest payment.

• Over the last month, institutional investors have rotated from international assets to US assets. But there is still plenty of room left for further rotation. I expect continued strength in US assets and US Dollar.

• From a sector perspective, investors love B2B industries and they hate B2C industries. Consumers are always the final demand. B2B can’t live without B2C. If everyone loves the former, the latter likely has positive inflection ahead. I consider this sector positioning a pristine signal to bet on the American consumer.

Performance summary

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• Since July 1, 2023, is up 93%. is up 150%. is up 103%. is up 98%. is up 207%. These companies run very simple, actually dull business models. They own physical locations where consumers can get their staples. Yet they have handily outperformed the S&P 500 which advanced ‘just’ 50% during that period. And they didn’t start this run from distressed valuations. Most of them had performed very well for years before.

• This is not normal. Some of these stocks have charts like Biotech companies that found cancer cures. For the most part, their businesses haven’t even inflected positively. Many of them haven’t grown faster recently than before the pandemic. Margins haven’t expanded either. The majority of their share price performance is multiple expansion.

• The change is mostly in value perception. The post-pandemic bull market has coincided with a dramatic value shift among B2C businesses. Successful brick-and-mortar retailers have captured value previously owned by large consumer brands. Value is not assigned anymore to those who give products their identity. It goes to those who actually deliver them to paying customers.

• Well-managed brick-and-mortar retailers get that value because they are perceived as more defensive than other B2C businesses. They have also rerated due to their suitability as inflation hedges. They have great customer bargaining power, fast inventory turnover and their private labels win when consumers are hit by an unexpected inflation surge. Some of them have also demonstrated strong cash management with falling inventories in relation to their revenues which releases cash and boosts profits.

• We are living in a K-shaped economy where many B2C businesses struggle to find willing and financially able customers. They need help from distributors. That’s why the ad businesses of Meta and Google work so well in the digital world. Retailers are doing well in the physical world for the same reason.

• There is no bear case for Walmart and Costco. Everyone loves them. And that is in my opinion the bear case. There are tons of possible reasons why either their operating performance might disappoint in the future or why one shouldn’t pay more than 40x for their earnings. I have discussed five of those reasons in this article.

It’s November 2021.

Imagine you are the most average investor who always holds the deepest in-consensus opinion. We’re at the peak of the pandemic bull market. You observe that physical distribution channels are still aching from lockdowns and their aftermath. Online distribution rules. You believe it was anyway destined to conquer the economy. The pandemic just accelerated the process.

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