Rotate or Retreat? And Prepare To Be Hacked

Hello from beautiful Lisbon.

I am here for the week for the Alpaca summit.

I was last here election night of 2016 (November 8) for the Web Summit. That seems like 150 years ago.

Oh my the world has changed since. Markets too.

Here is what I wrote here on the blog at the time…

After the initial retreat, the markets quickly rocketed.

It reminded me that yes the market is rigged but also that nobody knows anything.

for the last 10 years if you bought the market every time you complained about Trump or Biden you crushed it.

One big change since 2016 is how little anyone trusts media. Mostly for good reason.

That New York Times ‘election meter’ that dies in 2016 is the reason Kalshi and Polymarket exist and thrive today.

I long turned off the television news and CNBC, but now have no Twitter app on my phone. Twitter just turned out to be a louder, angrier and less entertaining version of television.

I have my Stocktwits community and prices for all my investing work and my only regular podcast listen is Conan O’Brien. As I often say…there is no such thing as information overload, only filter failure!

Onward…

The big question facing markets right now is do we continue with a rotation in stocks that has kept indices near all-time highs or does the retreat in AI stocks tip the markets over.

For the first time in history, nearly 60% of the S&P 500’s components are in a bear market, while the index trades 3% away from a record high.

My friend Michael Parekh had three recent posts that explain the stresses in the AI markets at the moment.

The first - many more trillions in investment are needed to be invested in AI in this ‘too big to fail’ moment. This reality is creating a freak out moment.

The second - when will Anthropic get public and what happens if it does not? They have a $750 million compute bill coming due and more bills ahead. My gut is they have to get public and soon. You may hate the idea, but in this too big to fail moment, actual failure would create a cascading problem that would crush liquidity and markets.

Three - How circular is all this revenue? The neocloud stocks are in full retreat and if Jensen at $NVDA ( ▼ 0.59% )  blinks, the whole AI trade could collapse. Michael notes that Nvidia has a $170 BILLION neocloud ‘safety net’, but that can get burned very fast in a market where trillions still need to be raised and spent.

Late this week a fourth issue created a panic and that is cyber security threats from rogue agents. I use this photo below from 2010 often (an electrician in Florence), but is a reminder is how little you or I can trust Open AI, Anthropic, Elon, China and Meta re AI agents and the wiring of all this AI and compute…

Shit is going to go wrong. There is no ‘off’ switch. Prepare to be hacked.

I know at Stocktwits we pay hundreds of thousands a year to Cloudflare ( $NET ( ▲ 7.29% ) - which we love) and other cyber vendors to keep our site up and running and still, we are battling attacks from Russia, China, Bangladesh etc as they try and bring our site down. Now I have to worry about these bad actors, their bots AND their agents!

No wonder Cloudflare and select cyber stocks continue to crush the markets.

Have a great rest of your weekend.