Forget AI spending, the biggest risk to this market is speculation
Chicken and egg? Cart before the horse? Six of one, half dozen of the other? After a while, you realize there isn’t a simple phrase to capture the linkages between alternative investments that cloud the landscape of money-making opportunities. What kind of alternative investments am I alluding to? They could be any number of things: Attenuated power supplies to meet the demand of data centers, including uranium The handful of quantum companies, all of which are thought to be able to disintermediate the need for massive regular compute, with all of its attenuated power needs, or those that can crack into bitcoin Crypto-related companies, like Coinbase, Bullish, Circle, and Robinhood (which has a huge crypto biz) Alternative auto parts I want to focus on these for a moment because there is so much written about the amount of capital expenditure we see from the so-called hyperscalers and how that could be the end of the Magnificent Seven — and not nearly enough about these alternatives, including the double and triple exchange-trade funds that use leverage and have very few winners, although the winners are well-fed. Let’s throw in the zero-day options, and together we have a huge amount of money in a cul-de-sac, incapable of doing anything but moving around and around until it is all gone. Before I go any deeper, let me just point out that one of the reasons why I wrote “How to Make Money in Any Market,” was to point the way toward investing in equities rather than trading in these vehicles, all of which I find to be speculative and therefore very difficult to actually make a case for on a yearly or monthly or even a daily basis. I do not want to declare disappointment in the dialogue over the book, but I recognize it is too murky to have an actual conversation about the role of speculation in this market, a role that is as overwhelming as it was in 2000-2001. Except this time, it’s about both abstruse and likely failing companies that weren’t created for the tasks at hand, but had been around for a long time and caught the fancy of typically younger investors. In the book, I wanted to straddle indices, growth investing, and speculation, dividing your portfolio into 50% index, 40% growth, and 10% wise speculation (meaning looking for stocks that could become the next Nvidia , not alternatives that trade hourly). The radical nature of the text has been lost on many interviewers. You can do it yourself because, unlike in the past when individual investors did not have at their fingertips the insider tips the pros had, today’s investors have a wealth of good information. Thank a combination of Regulation FD (Fair Disclosure), which prevents public companies from selectively disclosing material to certain individuals, and the proliferation of sites and news sources for regular investors. Throw in the incredible chatbots (at least when prompted) and the idea that an individual can’t pick stocks has become ludicrous. Those who still preach index-only are threatened even by an investor with an index allocation of 50% — that’s how bought-and-paid-for they are by the asset gatherers, which shows you how pecuniarily dogmatic they really are. The case for the index fund, however, comes from the embrace of speculative junk and high-risk options by so many young people. I find it curious that no one at any serious level has really looked into the psychosis or addiction to these, at best, zero-sum instruments, other than to say that they are all linked. The question I want to ponder: How are they really linked? How does QuantumScape move with D-Wave ? How does Bloom Energy track so easily with the Direxion Daily Uranium Bull 2X ETF? Does anyone really know why Solana trades with Palantir ? I could easily list 50 of these relationships if asked, but I can’t name one well-traded index that links them. Yet we all accept that they are a group. It’s not a supposition; it is a reality. There’s so much energy spent talking about the so-called ridiculousness of a semiconductor company being the largest company on earth, and much more, that it has become a toxic cancer on the AI industry, as if there were an industry without Nvidia. I have yet to hear anyone embrace Nvidia CFO Collette Kress’s view that buyers of Nvidia chips are already making billions of dollars with them, so the cap-ex-as-deadweight-loss argument may not hold much water. But the idea that these alternative investments somehow create anything en masse is almost ludicrous. To wit: the alternative energy powering the data center is most likely to be natural gas, which is abundant and can be easily hooked up to the data centers at exceedingly low cost. Quantum science is best done at the university level or by Alphabet and IBM . Everything crypto, the whole darned edifice, could be taken down by the failure of Strategy, the old Microstrategy, and nobody of any consequence uses crypto transactions in any commerce, even as everyone of the entities involved claims there is, and it is in abundance. All of these flaws are conveniently overlooked by the purveyors of all of these instruments and done so in a way that is contemptuous of those who would contest it or even quibble with it. There is simply zero constituency that condemns what I regard as a much bigger threat to the investment landscape than the leveraged balance sheets of Meta Platforms and Amazon . So what to make of the overlooking of this corruption of the market? Like the major firms that coordinated the destruction of the so-called “little guy” in the 2000-2001 travesty, the big firms encourage every single bit of this anti-investing ethos. They have sensed what the individual wants and willingly gin up all of the leveraged ETFs that link what can be linked. They have gone all in on active ETFs, which, to me, are just another way to capture the fees that mutual funds no longer do. Their chieftains may look askance at crypto across all firms, but they are willing to pump out derivatives of any sort involving these alternatives, including equities that represent them. No one is suggesting that these aren’t the best way to grow wealth. They accepted because they generate massive fees, so they can’t be derided lest the quarters not be made and the bonuses not be doled out bountifully. You could say it’s always been like this. I come back and say, “That’s just not true.” We had it happen in 2000-2001, and now it is flirting with that same amount of obviously illegitimate garbage, except this time we have no excuse to look the other way because we have had it in our faces not that long ago. Or maybe that’s where I am wrong. Maybe 25 years ago is a long time, and we are just fated to lose another generation of investors like the last ones that were gaffed and mutilated, and it’s all just part of a process where the only people who really make money are the issuers, and everyone else, at best, breaks even, but at worst, loses it all. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
<
