Following a dismal March and a fantastic April, May was polarising.
Oil prices retreated but remain ~50% above their 2025 levels. Although there is still no agreement between US & Iran, investors have priced in an imminent resolution. I’m naturally dubious about this as they’ve been “hours away” from resolution for months now. Call me a good old fashioned cynic but I don’t think the Israel-Iran conflict will ever be resolved. Neither government represents the will of their people, and neither state will back down until the other is wiped out. With Donald Trump’s popularity being at the lowest recorded level for a president in history (according to The Economist), perhaps we’ll see a populist refrain from “gunboat capitalism.” Either way, both sides of US politics will continue to side with Israel for reasons that are not relevant in an investment update.
Even if US & Iran come to an agreement, the region will not be stable until there is a complete regime shift. Resultantly I’m expecting Oil prices to remain elevated for years to come.
Unlike Gold, Bitcoin and “AI”, the world needs Oil. Take a look around you right now. 99% of what you see was made directly or indirectly out of Oil. This is true whether you are sitting in an office, a bus, a boat or walking down the street. Oil and petrochemicals are not just in everything, they are required to manufacture, power and transport everything. Without Oil, the world stops and people die. The consequences are immediate and real. That’s why I remain bullish on Oil and bearish on just about everything else.
Speaking of everything else, when I said in August 2025 that Bitcoin would crash in 2026 and MicroStrategy would need to start selling Bitcoin reserves, you can’t imagine the smug messages I received from the crypto bros. Well Bitcoin did crash ~50% (so far) and just yesterday Michael Saylor started selling Bitcoin for the first time since 2022 (when Bitcoin crashed ~77%). The most Uninvestable company in the world has taken another beating, just as tech stocks reach new heights. The Tech-Bitcoin correlation, to the extent one ever existed, is officially done & dusted.
Speaking of tech stocks, the irrational exuberance of so called “AI” has reached a new level. We are seeing the greatest divergence between macroeconomic / broader market conditions and a singular stock sector in history. Much of today’s mania is coming from the giga-IPOs coming up in July: SpaceX, OpenAI & Anthropic.
SpaceX’s target IPO valuation is LUDICROUS, even for a Musk company. They’re going for a listing valuation of $1,750,000,000,000. Last year’s earnings? $8,000,000,000. That’s an IPO valuation target of ~220x earnings. What many investors have not considered, but they really should, is not so much whether the IPO itself will be a moonshot but what happens next? Let’s say you’re expecting ongoing 10 year performance to be comparable to Amazon or NVIDIA’s rise. That’s what investors want to see, right? SpaceX’s market cap needs to grow to somewhere between $15,000,000,000,000 and $292,000,000,000,000 by 2036 to meet the ongoing demands of investors. That’s nearly triple the world’s GDP in a singular stock. Musk better find life out there, and hope they’ve got a spare quadrillion or two to invest.
Check out the current “Mag7” IPO valuations (actual) against the target valuations for SpaceX, OpenAI & Anthropic:
This is not a comparison against starry-eyed aspirational startups. We are comparing them to the most successful companies of all time… which themselves are also ludicrously overpriced.
But hey, at least SpaceX is actually making money.
OpenAI and Anthropic are losing so much money that they cannot be valued in traditional price to earnings ratios. Investing in these IPOs is literally buying into hype. The only way you’ll see a return on your investment is if someone else is pays more than you. (Kinda like a Ponzi scheme).
I’m not saying OpenAI and Anthropic are unimpressive or are incapable of achieving extraordinary revenue. Both companies (particularly Anthropic) do have strong revenue growth. My argument is simply that their valuations are absolutely bonkers. If you asked anyone 10 or even 5 years ago if they would pay more than the GDP of 97% of the world’s nations for a company that loses money, they would have laughed in your face. Today, the market behaves as if share price corrections will never happen again and that tech stocks are somehow immune to the laws of arithmetic… because its an AI revolution… right?
Rockets and Starlink satellites are pretty hard to compete with, but large language models? They may be shiny and new right now, but any kid with enough time and computing power can build one for free. In fact there are free open-source alternatives available right now (Ollama) and at the rate they are improving, it is all but certain that more people will turn to free versions at some point. Competition is not the biggest threat to LLM providers either. It is the cost of water, hardware and electricity, which are skyrocketing due to central bank inflation, “green” energy industrial complexes and oil constraints. The resources required to answer your ChatGPT prompts are enormous. LLM quality will need to come down and the prices will have to rise by orders of magnitude to cover costs. Even with some highly ambitious revenue expectations, OpenAI is not expected to turn a profit until 2030.
Our “sandwich” strategy has some exposure to earlier allocations to SpaceX via the Quilla private equity fund. I think the earlier stage investors will do very well out of the SpaceX IPO but anyone getting in now will be disappointed. As for OpenAI and Anthropic… its a massive gamble.
Speaking of our “sandwich” strategy, May was another great month. HUB24 internal rates of return:
Tuna Salad Wrap (VCo Defensive 50) +1.52%
Reuben Sandwich (VCo Growth 85) +1.78%
I always get a little excited when our Defensive fund beats the All Ords
All Ordinaries +0.87%
Australian Industry Super Funds were mixed. The ones with high exposures to S&P500 (particularly tech and energy) did well. The ones with higher exposures to All Ords and Government Bonds struggled. Most of them are still yet to report for May 2026.
Why I’m still bearish on most things...
We are in a two speed economy and have been for a long time. Governments, tech bros and mainstream economists all around the world are trying to gaslight us into believing everything is just fine and the bottom 99% are being looked after. The evidence to the contrary is becoming hard to ignore.
Today, in most Australian cities, to enter a comfortable middle-class lifestyle it costs ~$600k p.a. before tax. Less than 0.6% of Australian households earn this. It is the “upper middle” class that is most vulnerable, especially families with multiple school-age children who bought a 4 bedroom home in the last couple of years. Underneath the “AI” hype and rhetoric about “sustainable growth”, it is those on executive level salaries who are struggling the most – not that they’d admit it.
If arithmetic doesn’t convince, perhaps the anecdotes of business owners will. Every week I speak to dozens of small business owners. Real estate agents, car dealers, travel agents, e-commerce brands, builders, electricians, landscapers, developers – they’re all saying the same thing: Dirt cheap and high-end luxury products are selling. Anything in the middle is not. Such a two-speed society is problematic for reasons that will become apparent soon.
Australian Business & Consumer Sentiment has dropped off a cliff.
The US Consumer Sentiment hit it’s lowest level in recorded history.
Although I have abandoned Correlation Analysis as a reliable predictor (see my Gazette article Prediction Astrology for reasons why), it is hard to ignore the tendency of sentiment to crash in the lead up to a stock market crash and recession.
While the tech companies can prop each other up with circular financing, at the end of the day, 70% of consumption comes from the bottom 90% of wealth. You may not be a direct customer of NVIDIA, Intel or Oracle, but you are likely a customer of their customers (Microsoft, Meta, Google, Amazon). Even if you are not a customer of one of these, you are certainly customer of their customers’ customers (business customers that use Big Tech). If the consumption of the majority breaks down any more than it already has, corporate earnings will eventually disappoint, and the entire stock market index is in trouble.
Lets see if this time really is different.