AI All the Time

They only care about the AI stocks.  There are a few meme stocks that people still talk about (TSLA, flavor of the week names like HTZ, etc.), but those are sideshows.  Almost all of the bandwidth is spent on memory, storage, semiconductors, optical, data center, etc.  Its an obsession with tech stocks, in particular, high beta tech stocks.  The higher the beta, the more interest there is.  That's why you're seeing much more interest in MU and SNDK than NVDA on Reddit.  The stock market has turned into a mega sized online casino.  

There is a mind meld of the YOLO and FOMO mentality.  Almost everyone believes that this AI capex boom will continue for years. They expect handsome profits on their high beta AI names as the earnings keeps growing bigger and bigger.  They think this boom is a perpetual motion machine, with vague logic backing their conviction.  Something about hyperscalers spending as much as possible to be the first to achieve AGI.  Or scaling laws, about how AI capabilities will grow exponentially, rather than flattening out.  Or how productivity will soar as AI is used everywhere.  Great talking points, if you are trying to raise capital from VC firms, but sparse on concrete details.  

Investors have bought into the AI story.  They have been undeterred by the tech pullback in June and July, as the Schwab STAX index shows.  

 Top net buys at Schwab looks like retail doubling down on stocks that were the weakest in July.  

Tech fund flows show the investor FOMO into tech. 

 Record breaking inflows lately.  

These inflows are happening as stock buybacks are being reduced and equity issuance is massively increased.  Net demand is lower than the SPAC frenzy of 2020/2021.  Anthropic IPO is about to flood the market with more supply in September/October.  OpenAI probably coming soon afterwards.

Margin Debt / GDP ratio have been making all time highs in 2026.  It is when the parabola ends that you get the sell signal.  The margin debt data is lagging so it may have already rolled over.  

Latest FINRA margin data are out, and July margin debt went down vs. June, even though market was basically flat.  If we get a couple more months of lower margin debt, it will probably confirm that we've reached a peak in investor speculation and equity prices.   

Hedge funds bought aggressively last week.  

As investors go hog wild getting super long tech, especially AI stocks, they are forgetting the little detail about hyperscalers eventually wanting a return on their investment.  Or how all this spending will be recouped through AI demand from non-circular financed sources.  The hyperscalers are thinking their AI infrastructure will be even bigger than what they make from cloud hosting.

AI is a different animal.  It is speculative.  It hasn't proven that it can generate long term returns on investment.  The speculation is that it will massively increase overall productivity to justify the huge capex.  These hyperscalers are making a big bet that AI data centers will generate even bigger profits than their regular data centers.  It is a risky bet given the greater competition in the AI data center space, as well as the questionable economics of using AI at unsubsidized prices (currently AI compute is sold way below cost by money losing OpenAI and Anthropic), and most of all, finding enough practical uses for AI at unsubsidized pricing.  

A look at the profit margins of the SPX 500 sans Mag7 show margins have gone nowhere over the past couple of years.  Maybe the era of agentic AI will unleash a huge profit wave for the end users.  That is unlikely, IMO.  

For those wondering why real world inflation seems sticky, despite what the CPLie says, the answer is simple.  M2 money supply is increasing at the fastest pace since the 2020-2021 money spew.

This is the main reason that the US economy is resilient even as you have almost no employment growth, and almost no population growth, due to the reduction in immigration.  It is why the bond market is trading weaker, because inflation is not under control.  You are also getting tons of corporate bond issuance to fund AI investments, which is crowding out some demand for Treasuries.  And the 2026 fiscal deficit is on pace to blowout last year's deficit levels.  The OBBBA tax cut package, tariff refunds, war spending, more spending on SS/Medicare, some grift, etc have each contributed.  Government spending is out of control.  It is the main reason inflation is so sticky.  Without QE, there just isn't enough natural demand for all this paper.  Bond yields going higher and higher after a long bull market is reminiscent of 2018 and 2022.  

The volatility in ordinary tech companies is extreme.  MSFT and AMZN traded like meme stocks after their earnings reports.  The day to day volatility in memory stocks, AI hardware, and semiconductors is obscene.  Look at PLTR. It went from 160 to 110 in June, and recently went from 120 to 175 in a week.  After an extended bull run, this kind of up and down volatility in the megacap names is flashing a big warning sign.  It is what you saw in 2000.  In the 2nd half of 2021.  And in 2026.  

COT Data as of August 11 shows big moves among small speculators, who have added heavily to their longs in both SPX and NDX.  

NDX Small Speculator Net Position

SPX Commercial traders have their biggest short in the past 52 weeks.  

Seeing the opposite in NDX, as commercial traders have their biggest net long in the past 52 weeks, coming mostly from dealers.  Dealers probably are hedging a lot of short call positions by going long NDX futures.  

NDX Commercial Net Position

Despite the high single stock volatility, the SPX is trading placidly.  Like its just a normal sleepy market.  Its a huge deception created by continued sector rotation.  If you look at the intraday price action in SPX, it is nothing like what you saw for most of 2024, or even 2025.  These days, it is common to see sudden up thrusts and air pocket down drafts. The price action is similar to 2000.  Similar to 2021.  The speculative fervor is similar.  The fund flows are similar.  If it quacks like a duck, and walks like a duck, its probably a duck.  

Based on what I hear on podcasts, see on Fintwit, CNBC, Bloomberg, etc., there seems to be unbridled enthusiasm and belief in the AI trade.  They view it as a no brainer.  This is quite different than the skepticism that was more prevalent in 2025, when people were questioning its actual use cases.  As a technology, the internet was a no brainer.  That's why the bubble got so big, because everyone was using it and realized how life changing it was.  And the SPX still dropped 50% after the bubble popped.  AI can't hold a candle compared to the productivity and efficiencies that the internet brought.  AI generated images, chatbots/search, coding, and a few other niche uses is not revolutionary.  And the internet was deflationary, because it reduced energy usage.  AI is the opposite.  It consumes so much power that no one wants a data center in their backyard.  Which is why its so hard to believe that you have so many drinking the AI Kool Aid.  There is so much malinvestment ongoing, the unwind will be brutal.  It will take down the US economy.  Anyway, that's something worth playing for after the stock market tops out.  

While I don't believe Iran is a big factor in financial markets, it's not nothing.  It is a minor factor that can nudge the market in either direction.  Time is on Iran's side.  They need to control the Strait to have leverage against future US attacks.  Going back to pre-war conditions without a blowout offer from the US is not happening.  Markets are getting complacent about Iran, as it hasn't stopped the markets from going to all time highs.  Long positioning in crude oil futures is back towards the low end of the historical range.  The futures market is not positioned for a sustained supply disruption.  The barrel math still applies.  Global inventories are steadily declining, and the pain is being buffered by SPR releases.  Those SPR releases have a limited capacity, so when they stop, energy markets could panic and we could see another surge higher in crude, without an active war.  

Added to shorts earlier in the week.  Now up to a full position short in SPX and NDX.  Despite being early and wrong so far, I have more conviction on the short side this time vs. July.  Looking to hold for longer, looking for a bigger downdraft this time around, as we head towards more equity AND debt supply in September/October.  I expect to see more secondaries out of the blue from tech companies like INTC which raised $20B this week.  Also expecting some de-risking going into the midterm elections.  It is looking like a big win for Democrats in November, and the stock market definitely prefers Republican control over Democrat control of Congress.  

Seasonally, we are right on the cusp of a weak window that lasts about 2 months, with the Street heavily long.  It sets up an asymmetric risk/reward opportunity.  While I am hearing more calls for price targets above 8000, I feel like this market is so stretched to the upside, and positioned so long, that the mere anticipation of big equity supply coming soon will be enough to knock it down.  Similar to what happened right before the SPCX IPO in early June.  Could see that happening ahead of Anthropic IPO this fall.  Initial target on the downside is SPX 7400.  And I give it about a 50% chance that you get down to 7000 before November.