Pokemon Bubble Redux

The 2000 parallels are eerie.  

In 1999-2000, there was a mania in Pokemon cards that crashed in 2001.  It just so happens that Pokemon cards are in a even bigger bubble than 2000.  Ever since the Covid stimmies, Pokemon card prices have been rising, but lately, its been going parabolic.  Wages aren't keeping up with inflation.  White collar jobs are hard to get.  Those looking to make money without getting their hands dirty are turning to speculation.  Its a continuation of the Covid mania where asset prices went crazy, taking a break in 2022-2023, and restarting in 2024.  Meme stocks aren't as popular as they were in 2025, but Pokemon cards are as hot as ever in 2026.  

Even CNBC has noticed, as it made a recent video on Pokemon cards.  

Now, according to Pokemon card collectors, the mania has reached the crazy stage.

 

We also have the Beanie Babies bubble in the late 1990s, which popped in 1999.  You can draw a parallel to the Labubu doll bubble which burst in late 2025.  

 

Many may think that its nonsense to draw parallels between Pokemon cards and Labubu dolls with the US stock market.  But 2000 and 2021 has shown that when the stock market is in a bubble, the speculative animal spirits spill over into collectibles.  These ancillary bubbles tend to start after the stock market has already been going up for quite some time.  Unlike the stock market, these bubbles in collectibles like Pokemon cards are much briefer in duration.  And they tend to top out a bit sooner than stocks.  So they are a helpful timing tool in determining what stage of the bull market we're in at the moment.  Looking at what's happening in the Pokemon card market right now, it just reinforces the 2000 bubble replay thesis.  When the prices of Pokemon cards top out and star dropping, that could be a warning sign for the bigger casino, the stock market.

The money keeps pouring into AI.  On Thursday, Anthropic raised $65B in equity, and are looking to add $36B in debt to finance more AI infrastructure.  

 

It looks like the VCs are already spending the money that they plan to get from the Space X IPO sale.  They are all in on AI.  AI is the only source of growth in the global economy.  Without AI spending, the global economy is stagnant with very low growth.  That is why the popping of the AI bubble will have a much bigger economic impact than most expect, and will trigger a bigger bear market than 2022, IMO.  

But corporations are starting to rein in their AI usage, looking at their AI costs skyrocketing.  

This week, you saw a lot of the space related stocks go up, in anticipation of the SpaceX IPO.  Speculators are overestimating the retail demand for the SPCX IPO.  Investors are looking for pure play AI plays, not meme stocks with low value add AI exposure.  If it wasn't for the Elon Musk name value, SPCX would be valued way below $1T.  And since 2021, TSLA has been lagging the Nasdaq.  Eventually, you have to deliver earnings and free cash flow if you want to maintain a giant market cap.  This market has been so frothy for so long, its given Musk and TSLA a lot of rope to mess around, and not really affect the stock.  Now with SPCX adding a lot more Musk equity into the hands of retail, its going to be interesting to see how the supply/demand dynamics play out as SPCX insiders dump to the public.  

The meme stock/asset era peaked last year with bitcoin FOMO.  Now speculators are laser focused on AI, in particular hardware and semiconductors that weren't pumped in 2024, with a few AI beneficiary software companies thrown in.  That is why MU, SNDK, WDC, STX are surging while NVDA is stuck in the mud.  Investors are already heavily invested in NVDA.  They've only recently started accumulating MU, SNDK, etc, and haven't gotten nearly as big an allocation.  

With an estimated market cap at IPO of $1.75T-$2T for SPCX, it would already be valued greater than META.  It will take an enormous amount of buying from institutions to absorb all the insider selling that will happen once the lockup expirations occur, as they are spread out over 6 months, with a big chunk being freed after Q2 earnings (early August).  I would not be surprised to see retail bear the brunt of the selling, as they will be allocated a huge chunk (about 30%) of the IPO.  

Looking at positioning, according to GS Prime Broker data, L/S equity hedge fund net leverage is at 59%, the highest since the 2021 peak.  Net leverage has been rising fast since the March 30 bottom.  Mutual fund cash as % of assets is also historically low.

Retail continues to pile into this market.  

On the Iran War front, all week, you've had hints of a deal being made, then headlines walking that back, rinse and repeat.  On Thursday, it finally seemed like the market believes that a deal is imminent, just waiting for Trump's approval.  I would say a deal is basically priced in, and I would expect any news that a deal is done would only cause a small pop higher that would quickly be faded.  That positive catalyst is now all used up. 

We are finally seeing palpable signs that investors are feeling bullish, and positioned that way.  The daily put/call ratios are low.  You don't hear about private credit anymore.  You don't hear about AI killing software companies anymore.  Now you hear a lot of talk about how tech earnings are growing, justifying the move higher in the NDX and SPX.  This is exactly the kind of complacency that provides good risk/reward short opportunities.  

I am sure some of the paper napkin chartists will compare 2026 with 2025 and note that the market bottomed in early April in 2025, and kept going higher till October with barely any pullbacks.  Big difference was that you didn't see positioning go down as much during this March 2026 correction vs. the March-April 2025 correction.  So you don't have as many investors looking to buy back to get to a full equity allocation.  And you also didn't have a gigantic $76B IPO with an accelerated lockup expiry waiting to flood the market.    

The breadth of the speculation is more limited than last year.  Last year, you had bitcoin/ether making huge up moves, quantum, nuclear, AI data center, AI energy plays, AI software (APP, PLTR) all squeezing higher.  This year, the speculative focus is narrower.  Its direct beneficiaries of the AI capex spending such as semiconductors and hardware.  Throughout May, bitcoin has been struggling to go higher even as the Nasdaq has been going up almost every day.  I don't expect any meaningful rotation to the speculative favorites of 2025, as there is a ton of overhead resistance, with too many bagholders looking to exit gracefully.  It may look even more wild now than 2025 with the big moves in stocks like MU. But the speculation is going towards companies that are getting a huge earnings boost from all the AI spending, not just any meme that happens to be the flavor of the month like in 2025 (crypto alt season, ether mania, nuclear, quantum, etc.)

Big rally in bonds over the past week.  I was considering a long position if there was still Iran deal pessimism, but it played out the other way.  If you get another selloff in the bond market in June that takes it back towards the May lows, I will look to buy short term Treasuries.  I expect a 3-4% pullback in SPX in June, then probably another breakout to a marginal higher high in July, which could be the time to go for index shorts.  

I put on a starter short position in some speculative tech names on Friday.  I plan on adding to shorts throughout June.  We are close enough to the top that it looks better to short the higher beta tech sector than the overall market.  However, I will avoid shorting the most recent parabolic moves in stocks like MU, SNDK, etc. preferring to short stocks that are not direct beneficiaries of the AI capex boom.