Finance creates its own reality primarily through reflexivity, where collective human beliefs, perceptions, and market expectations actively shape economic outcomes rather than just passively tracking them. Why is this relevant through the frame of the AI trade? If $CRWV and the pure play infrastructure companies can’t fulfill on their commitments both debt and revenue, then what’s to say lenders are willing to lend to these business models after an inevitable default? Most of these businesses can’t work if their cost of capital is too high. Debt has gotten more expensive, and now their equity is tanking, making ATMs highly punitive to share count. If these businesses can’t scale without getting $ from Nvidia financing their GPUs, then how does the application layer (the Anthropic’s of the world) continue to scale ARR? That’s the issue I primarily see happening in 2027. Expectations have been built so high, the markets have reflexively priced businesses as if AGI has been achieved broadly and cash flows are imminent. That’s just not the case. There’s still a massive lead time on the building of power infrastructure. Everything from power transformers, gas turbines, water, grid connections, permitting, and politics get in the way. I’m incredibly bearish on these bottlenecks causing a prolonged slowdown if the democrats win the midterms. Stay vigilant and defensive for the next 18 months. Buying the dip won’t work. Think of all your favorite AI stocks down 50-75% from here over the next 12 months. That is all.

We’re about to enter one of the worst economic disasters in the history of capitalism and we’re only 1.5% away from ATH on the S&P. I’m buying a bunch of put spreads expiring late 2027 to hedge the portfolio. There’s about 8 risks I see: 1) Bombing resumes in Iran post midterms 2) oil spikes because of the former 3) cpi remains elevated because of the former 4) interest rates remain higher for longer 5) AI layoffs accelerate 6) negative market flows due to unlocks from IPOs, etc 7) negative wealth effect from the index correcting >10% early 2027 causes cascade selling into mid year 8) AI capex slowing due to 1-7 causing larger fear of entrenched recession

MACRO: I’m raising cash. Selling covered calls, buying low risk fixed income. I believe the next 18 months will be the most grueling and there isn’t much cushion in equities for it to make sense from a r/r perspective.