Founder, Social Innovation Circle | LC Philanthropy | Adjunct Professor of Finance, Hong Kong University | impact investor supporting social entrepreneurs
Hong Kong
Joined February 2010
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I was wondering why shares would fall on a Dem victory. Normally shares rise as the markets see a divided Congress as being a check on an overreaching President.
Spoiler- it’s about public support for data centres
Mark Cheng retweeted
I remember during the early dot com era, when Facebook was the hot new app , there were thousands of startups that were all claiming to be niche versions of Facebook - the ‘Facebook for entrepreneurs’, the ‘Facebook for coders’, the ‘Facebook for Moms’ etc. Every pitch book literally started with that tagline.
Turned out that the next Facebook for all of these niches was just… Facebook. (at least until WhatsApp & Instagram turned up).
I think the same thing will happen with AI.
Right now we’re seeing every start-up trying to build itself as an AI wrapper around a classic market role: the AI lawyer, the AI doctor and so on.
And I think the general LLM‘s are going to eat them all.
You don’t need a specialist AI lawyer. Gemini or Claude will do a great job for you.
Same for medicine. And for pretty much any area of niche knowledge.
And the generalists like McKinsey? They’re all toast.
That’s why my team hasn’t made any investments in pure AI software plays up to now.
Not because we’re not seeing amazing applications but simply because it’s hard to see how any of these survive the increasing abilities of the general LLMs.
I think to be a successful AI start up today you have to have some real world moat.
Either access to proprietary data that no one else can read or being the interface to something physical or real that can’t be duplicated digitally.
Pure software is too easily eaten by general AI.
The market is bracing for a renewed assault on Iran by US & Israeli forces that could come as soon as this weekend (talk about “after the midterms” could be a feint).
Trump already cut short planned final rallies in Texas and was being briefed on military options in-person yesterday, which usually signifies that we’re in final stages of planning.
If / when the attack happens, they’re talking about going for Iranian civilian infrastructure, including power stations and water treatment plants.
The two leaders appear desperate for a distraction from the electoral woes that they’re both facing, as well as to engineer a ‘rally round the flag’ effect to bolster their flailing popularity at home.
The Iranians will probably retaliate by escalating attacks on US bases, as well as gulf energy infrastructure.
This will spike oil to well above $130, and send interest rates hurtling upwards.
In other words, it will crash the world economy and destabilise the Middle East, with ramifications that are difficult to project and be with us for decades.
I really hope I’m wrong on this but all the signs are pointing towards the escalation of this insanity.
The US tech giants have shed over $900 billion in market cap in the past 24 hours.
This chart shows why.
The enormous spend on AI capex, which shows no sign of slowing, has fully exhausted all available free cash from the big 4: Microsoft, Amazon, Google and Meta.
With free cash flow gone, all capex from here on out will need to be funded by investors, not profits.
But investors need to be repaid, with interest. And the price of that debt is getting way more expensive.
Which is why the shares of these companies are now falling.
Gen Z will probably remember him as Professor X but for me he was always the Captain of the Enterprise.
RIP Sir Patrick Stewart
The tech sell off is now underway.
Intel, the company handpicked by the govt to be a national champion to rival TSMC, crashed 20% yesterday.
But that wasn’t even the big story of the day.
Alphabet plummeted 12%, wiping $500 bn off its market cap, its biggest drop ever (and the second largest in stock market history).
The figure that freaked out investors?
$9 billion.
That’s how much cash the tech giant will have to spend even after using up all of its lucrative ad search revenues (which are still growing 12%) on data center buildout.
And the losses are just getting started.
“These are rookie numbers”.
Alphabet are committed to spending a further $200 billion over the coming months. They won’t be cash flow positive again for years.
They’re not alone.
Total AI capex spend from all hyperscalers for 2027 is projected to be around $1 trillion. There isn’t enough free cash flow from customers to meet that demand.
Which means that most of this capex will need to be funded from debt, which is at decades high levels, or by issuing insane amounts of equity.
Get ready for the great dilution.
60% of the S&P 500 is now in bear market territory, down more than 20% from their highs.
It’s just a handful of stocks that are doing all the lifting, and even those are starting to fray
There it is.
Over 60% of the S&P 500's components are now in bear market territory, down -20% or more from their record highs.
Four of the Magnificent 7 stocks are now in bear market territory, with these seven names erasing a combined -$4 trillion in market cap since their highs.
We are in a "stealth" bear market.
And, we believe it's a huge opportunity as we outlined below on October 15th.
The market knows that the Fed won’t dare raise rates again just before the midterms so it’s doing the job for it
The first way that most people encounter another culture is through food.
Restaurants are the most important embassies in the world.
Mark Cheng retweeted
U.S. Diesel Export Ban
The elimination of 1.67 million barrels per day of diesel exports will create a short-term domestic surplus which will have to then be sold at a discount thus providing short-term pricing relief for U.S. households and talking points for policy actors to claim that they are addressing a growing affordability crisis.
However, once one examines such a policy approach the ill-logic of a diesel export ban is all too easy to spot: a temporary increase in supply following such an export ban will quickly turn into a supply shortage and rising prices.
Because the U.S. exports it surplus production-total production is roughly 5.3 million barrels per day which is above the approximately 3.6 million barrels per day of domestic demand-once that inventory is absorbed by the domestic energy firms would then pull back on production until it reaches the new and lower equilibrium level which of course would result in lost revenues and a probable increase in industry unemployment on the back of that intervention into the marketplace.
An export ban intending to increase supply results in a shortage of not just diesel but also likely gasoline as the crude that was previously dedicated to the production of diesel then needs to be sold resulting in increased exports of raw crude at higher prices.
As a result a bifurcated price structure domestically that would ensue-there are multiple markets within the U.S. with the Gulf Coast seeing a lower price versus higher prices on the West Coast and prices remaining closer to the internationally set price on the East Coast-creating further uncertainty across the economy.
Even with the logistics constraint-the Jones Act-which required all goods transported by water between U.S. ports to be on American owned and staffed ships-being temporarily lifted this will not eliminate the bifurcated price structure that would ensure in the aftermath of such an energy export ban.
Increasing complexity within an antiquated energy infrastructure is in no one’s economic or policy interest.
Second, such a ban would result in the elimination of that 1.67 million in U.S. diesel exports reducing the total global supply by just over 18%.
That will send global prices higher creating conditions in which those costs will be passed along to the production of other goods which the U.S. imports.
Given global supply and inflation dynamics this would result in a negative feedback loop that would result in an already deteriorating international pricing environment that would likely cause global central banks to send policy rates higher than they already are prepared to do.
We’re at an incredibly dangerous moment.
Trump is staring down the barrel of a midterms wipeout, potentially losing both the House and Senate - a possibility that was considered remote a year ago.
The blame falls squarely on him: Iran war oil shock, trade war with Canada, interest rate rises, diesel price shock. All attributable to actions taken by this administration in the past few months.
The temptation for a desperate last minute Hail Mary pass must be huge, whether that’s a final shock-and-awe attack on Iran (perhaps with nuclear weapons?), some other madcap foreign adventure, or even a false flag operation to use as a pretext to call off the midterms or challenge the results.
I think any of those are an open possibility at this point.
Unfortunately true: this war has no off-ramp
THERE IS NO DIPLOMACY: PARSI SAYS THE WAR HAS NO OFF-RAMP
Trita Parsi, executive vice president of the Quincy Institute, just returned from the region after speaking with analysts and government officials across the relevant countries. He says he found no data point suggesting this conflict is turning toward a deal. Seven months after Washington expected a four-day fight, he argues there is still no diplomacy to end it — and no opening for one.
THE EMPTY TABLE
➡️ “There is no diplomacy to end it either, incidentally, which is very important to understand.”
➡️ Parsi says de-escalation is now the hardest scenario to connect, because the talks themselves are missing.
➡️ He heard a tremendous expression of concern. Almost no one wants what is coming. The train, in his words, is still heading that way.
➡️ Iran is frustrated that the Trump administration will not come to the table. Short of complete surrender, he says, Tehran cannot even see what Washington wants.
THE STRAIT IS A “NON-ISSUE”
➡️ Parsi says the administration will not discuss the Strait because it treats the Strait as a non-issue.
➡️ The blockade is being used to extract nuclear concessions from Iran, not to reopen a corridor.
➡️ Officials talk about opening only 30 to 40 percent of the traffic — oil volume, not LNG or other products — and holding that squeeze through the midterms.
➡️ Regional states tell him that share is not enough, and they do not believe it is stable. If it starts working, they expect Iran to counter-escalate.
WHY THE GULF IS FURIOUS
➡️ Twice in a single day, Parsi says, Mohammed bin Salman called Trump asking for help against Ansar Allah and did not get it.
➡️ Gulf officials hear supreme American confidence in a strategy nobody can explain, and they remember 2019 and 2021 the same way: Washington did not come.
➡️ Their primary security concerns, he argues, are simply not on the U.S. list.
NOTHING UNTIL A THIRD ROUND
➡️ Political will for a new regional architecture has collapsed.
➡️ “The expectation is that nothing is going to happen diplomatically until a third round has occurred.”
➡️ Escalatory options now go beyond infrastructure strikes. Parsi says Iraqi militias taking Kuwait is being seriously discussed in a larger blow-up — talk that was not even on the table weeks ago.
➡️ JPMorgan, he notes, has already admitted it does not know how to model the endgame. Red lines Washington was assumed to avoid have been crossed.
THE ONLY ACTOR WITH LEVERAGE ON BOTH SIDES
➡️ Parsi still sees no U.S. request for a mediator.
➡️ China, he argues, is the only country with real leverage over both Washington and Tehran.
➡️ Beijing’s instinct is to stay out. The cost of staying out, he says, is starting to look higher than the cost of stepping in — if Gulf states and Iran ask separately.
➡️ That is not diplomacy happening now. It is a last card if the next round wrecks the oil system.
THE BOTTOM LINE
Parsi’s regional read is blunt: the war is seven months old, the off-ramp is empty, and Washington is using the blockade instead of a table. Until someone opens that door, the only path he can see is more escalation first.
#TritaParsi #NoDiplomacy #IranWar #Hormuz #ThirdRound #GulfCrisis #ChinaMediator
HT: YouTube Mario Nawfal @tparsi
Mark Cheng retweeted
BREAKING: World oil inventories are projected to hit their operational floor of 6.8 billion barrels this month if the Strait of Hormuz stays shut, per JPMorgan.
Below this level, pipelines can't maintain pressure and refineries start failing, regardless of what price oil is trading at.
This would mark the first time in recorded history the world has had to worry about physical oil availability, not just price.
Apparently the US was all set to launch a major attack on the Houthis this weekend.
Trump called it off.
MBS not going to be happy.
BREAKING: Trump has called off US airstrikes on Yemen's Houthis, reversing himself in a last minute decision after already deciding to carry them out on Sunday, with commanders having approved target lists and troops loading bombs onto US warplanes as the large-scale operation was just about to begin, per NYT.
Trump told advisers on Wednesday he did not favor strikes, ordered the Pentagon to prepare them after MBS urgently called him again on Thursday, then pulled back on Sunday, with most of his inner circle opposed to opening another front given the strain the Iran war has put on the US military. It is the third time MBS has asked Trump to strike the Houthis this month.
Just two days ago Yemen's Houthis struck Riyadh's main airport, they now hold Bab el-Mandeb and Yemen's entire Red Sea coast, and the East-West oil pipeline, Saudi Arabia's only export route around Hormuz, is shut after being hit.
The US has already used more than half its most advanced Patriot interceptors and a third of its Tomahawks in the Iran war. A campaign in Yemen would draw on the same stocks while inviting retaliation on the Saudi energy infrastructure the Houthis are already hitting, and from Iran, which has threatened every US interest in the region. Saudi Arabia is facing the Houthis without the US.
The Saudis are in real trouble.
Not only have the Iranians cut off the straits of Hormuz, but now their allies the Houthis have seized the town of Mocha with barely a fight and are closing in on the strategic port of Bab-el-Mandeb on the Red Sea.
If they take that, which is likely if the US don’t intervene, then the Saudis would have lost their Red Sea tanker export route as well, leaving them with only one option left - direct pipeline to Yanbu. And you can bet that that will come under fire as well.
MBS has been placing frantic calls to Trump in the past few days begging for air support, which Trump has flat out refused.
The US have their hands tied up with the Iranians, and have no capacity to shift resources from the Gulf to the Red Sea.
The Saudis must be hopping mad. Trump launched a war which they did not want, and now the entire Gulf economy may very well crash as Iran and it’s allies slowly shut down all export routes, with 20% of the world oil production going off-line indefinitely.
This was the scenario which was completely unthinkable six months ago.
Kuwait has already effectively been entirely off-line for months.
Could the same thing happen to Saudi?
You have to wonder what this is going to do to GCC – US relations. Will the Saudis still be as keen to invest the US 1 trillion as promised?
Publicly they’re committed, but behind the scenes they must be spitting blood.