The Aristocracy of Pull

Spend any time on Twitter and you will usually come across someone who is upset about crony capitalism—the government doling out favors and money to the politically connected within the business world. Yes, that happens, and it is happening more than ever. So, you get these hardhats on Twitter who like to say that we don’t have real capitalism; we have crony capitalism, and the next logical conclusion from that statement is that we should try socialism instead because, clearly, capitalism is failing.

This is dumb, of course. Yes, we do have crony capitalism, and we always have—in some way, shape, or form—but I will tell you that almost capitalism, while not pure capitalism, has done a pretty amazing job of lifting all people’s standard of living over time… certainly better than socialism. Trust me, people were complaining about crony capitalism in the late 1990s, which was the point in history when we were probably the closest to pure capitalism that we have ever gotten. Some people are just never happy. No, Trump should have never sunk money into Intel (as we found out last week), or any of the other 30-odd companies that the government has taken equity stakes in, but if you bitch about crony capitalism enough, you will end up with socialism, and that is what is happening—slouching toward Gomorrah, as Robert Bork might have said.

It is my hope that in 2028, we will end up with a less-corrupt form of capitalism. Even after the midterm results, I am optimistic and, in fact, think the midterm results were perhaps the best-case scenario for getting someone like Marco Rubio or Ron DeSantis in charge of the country (i.e., anti-communists). I could be wrong about both of these guys—political expediency will always supersede principles—but I hope not. Anyway, I am not a political analyst, but I am pretty good at seeing around corners on a long-term basis.

Data Center Delusion

Many years ago, Ayn Rand talked about the aristocracy of pull, the men who deal in favors rather than merit. I don’t want to get too down on the American system, but by and large, the best products and the best companies win. We still have some semblance of a free-market system. Trump, for all his faults, has been very pro-AI and pro-data centers, and this is a good thing.

I have a friend who is a very heavy AI user, and I would characterize his politics as center-left, but his entire livelihood depends upon AI, so I would not be surprised if he voted Republican in this cycle.

Remember net neutrality? Talk about picking winners and losers. I’m glad we escaped that one unharmed. Here, the stakes are high—if you have a group of people who are opposed to perhaps the most transformative technology, it could set us back decades, possibly forever, and from a national security standpoint, it would be a very bad thing. But people are worried about their electric bills. Well, there are solutions to that, too, that don’t involve halting construction of data centers.

I can tell you here in South Carolina, the data centers figured prominently in campaign ads. In the purple district of Mt. Pleasant, a woman Navy vice admiral (fired by Hegseth) went on to defeat a bottled blonde real estate drone who was very pro-data center. The data center thing is an extraordinary popular delusion. People have told me that the Democrats will warm up to data centers eventually (after extracting any toll they are going to collect), but I certainly don’t want to bet my life savings on it, especially not after last Thursday.

Trapdoor

Anyway, this is an investment newsletter, so we should talk about what happened last week. Wednesday, the day after the election, the market rallied. Why? Well, all the smart money was short going into it, the NDX was down 8%, and they all had to cover. Squeeze. But then reality set in, and people looked around and said, Gee, we have these very anti-data center people in power now—oops. Get me out of these semiconductor stocks. 

I have a feeling that this is the beginning, not the end, of these tech fears. It might have popped the AI bubble. You know that I have been bearish for a while, and now the charts are broken. There is a little bit of support that comes into play soon, particularly at 7,000 in the S&P 500, but beyond that, the trapdoor opens.

You do not own enough bonds.

If this really is the end of the road for the stock market, there are going to be few places to hide over the next two years. Bonds at 5% look pretty attractive to me. If you do some cowboy math, bonds going from 5% to 3% are going to earn you 30% in capital gains, not including coupons. My brokerage account was up on Thursday. Not many people can say that.

Of course, I have been underperforming for about a year, and not many people can say that either. As the saying goes: When they’re yellin’, you should be sellin’.

P.S. You know I am a musician, and I recently put a new mix out. It’s called “Halcyon,” and it’s a banger. I have a hard nucleus of subscribers that regularly click on my mixes, but if you’ve never tried it before, I suggest you do—especially if you are going for a long drive or sitting down to do some work at the computer. Check out “Halcyon” here.

Also, if you are in the Nashville area, I am playing at Night We Met this Saturday, November 14, in support of Fahlberg, a Nordic melodic house producer. Set time 11:15 pm–12:30 am. I’ll be in the Moon Room. Come up and say hi.

Poll

To those who wrote in arguing that additional answer options should have been provided last week, thank you. You’re not wrong.

A couple I got:

1. No, just a correction. Not buying the dip. Current exposure is enough.

   
   

2. It may turn out like the dot-com bust. Some of the companies are likely to vaporize money/assets in a spectacular fashion while others come through very nicely for those who have, and are able to exercise, Warren Buffett-like patience.

Heard—your feedback is always appreciated.

As for this week’s question…

Dumbest Thing I Saw This Week

Rate hike expectations are soaring, and markets are now pricing in the possibility of a 50 basis point rate hike in December.

The Fed is literally full of insane people. Reasons not to hike rates here.

Jared Dillian, MFA