That’s a huge move for a three trillion dollar company.

At first glance, it looked like an earnings reaction. But the numbers themselves weren’t that bad. Revenue and profits both came in ahead of expectations.

So why the selloff?

The answer has less to do with Microsoft’s quarter and more to do with a much bigger question investors are suddenly grappling with: what happens to business software as AI improves?

What Investors Didn’t Like

Let’s start with Microsoft’s latest earnings report. While the headline numbers were slightly above expectations, investors were turned off by two things.

First, Azure, the company’s cloud computing division, grew 39% instead of the 40% a lot of people were expecting.

Second, capital expenditures jumped 66% year over year to $37.5 billion.

Azure is where Microsoft captures a lot of the benefit from booming AI demand, since it provides the cloud infrastructure companies use to train and run AI models.

So some investors are looking at these two numbers and saying, “Microsoft is spending a lot more on AI investments, but growth in its main AI business is slowing. That’s not great.”

The company pushed back on that narrative. It said that some of the AI computing capacity it’s building is being used internally for products like Copilot, which now has millions of subscribers. As a result, less capacity was available for Azure customers, which held the division’s reported growth down.

That explanation makes sense. And a one-percentage-point difference in Azure’s growth rate, or a surge in capex at a time when nearly every major tech company is spending aggressively on AI, doesn’t really explain a double-digit drop in the stock.

Instead, it’s pretty clear that something bigger is at play. After all, it wasn’t just Microsoft that fell on Wednesday. We’ve seen sizable drops across the industry, from Salesforce to ServiceNow to CrowdStrike. And these stocks have been under pressure for weeks.

The Bigger Question Hanging Over Software

There’s clearly been a shift in how investors are thinking about the entire software industry. And it centers on a deeper question about the role of business software in an AI world.

Right now, that debate is front and center, and the bearish narrative seems to be winning out, at least for now.

The most bearish view is that as AI improves, companies will increasingly be able to build and maintain their own internal tools rather than pay recurring fees to software vendors.

If AI can generate code and create, update, and maintain systems automatically, traditional software products might not be needed anymore. Everyone just builds their own software.

But not everyone agrees with that pessimistic take.

The Bullish Counterargument

Box CEO Aaron Levie argues that AI could actually strengthen enterprise software rather than undermine it.

Even before AI, companies had the ability to write software themselves. They chose not to because it wasn’t core to their business, and specialist software firms could do it better and more reliably.

Why would a company spend valuable resources building HR or payroll software when it can just pay a specialist to handle it?

Levie also argues that AI isn’t well suited to the kinds of tasks traditional software handles.

AI is inherently probabilistic. As we’ve all seen, you can ask ChatGPT the same thing twice and get different answers each time. That makes it great for things like analysis, summarization, and content generation, but not for systems that require precision and predictability.

From this perspective, AI doesn’t replace enterprise software. It works within it.

AI still needs trusted systems where data lives. In fact, Levie argues that as AI-driven activity increases, the importance of those systems could actually grow rather than shrink.

He also says AI could expand software markets by shifting pricing away from simple seat counts toward the value of work performed.

Today, a company might pay for legal software. But if that software starts replacing some of the work lawyers used to do, they might be willing to pay even more.

A More Uneven Future

There are also several middle-ground scenarios.

One is that traditional software doesn’t disappear, but becomes less valuable. Core systems that store data and keep records would still exist, but a growing share of value could shift to AI companies providing agents, automation, and intelligence on top of those platforms.

Another increasingly popular view is that software deeply embedded as systems of record will fare better than thinner, more replaceable software, which may be easier to displace.

Along similar lines, even if most companies don’t actually build their own software, AI could still meaningfully increase competition. If software becomes easier and cheaper to create, barriers to entry fall, opening the door for more AI-native tools, some of which may be better than what today’s incumbents offer.

Regardless of which view proves correct, change seems inevitable. And the impact of AI is unlikely to be evenly distributed.

It could be a boon for some software firms and a serious headwind for others. Some will successfully integrate AI and get stronger. Others, especially those with weaker products or slower adoption, may struggle.

Personally, I think Microsoft ends up on the winning side.

It’s diversified, it’s aggressively incorporating AI into its products, it has a deep partnership with OpenAI, and it benefits through Azure as other companies use AI.

At under 24 times forward earnings, the stock is trading at what’s historically been a pretty reasonable valuation. I added on the pullback.

That sounds ridiculous at first glance. Nvidia is worth roughly $4.4 trillion, after all. But despite that size and dominance, the stock is cheaper than the market.

Based on 2027 earnings estimates, Nvidia trades at about 18x earnings. The S&P 500 trades closer to 19x. In other words, Nvidia now carries a lower valuation than the stock market as a whole, which is something we haven’t really seen since around 2015.

So why are investors suddenly so skeptical of the company?

The Memory Bottleneck

The first reason has to do with memory.

Nvidia is known for its GPUs, the chips that do the heavy number-crunching for AI. But what the company actually sells to data centers are AI accelerators, which combine those GPUs with large stacks of high-bandwidth memory, or HBM.

HBM is critical because it feeds data to the GPU fast enough that the chip doesn’t sit around waiting. Without it, all that compute power is wasted.

Right now, HBM is a massive bottleneck. The major memory suppliers, including SK Hynix, Samsung, and Micron, are effectively sold out of HBM capacity through this year. As a result, prices have surged.

For Nvidia, that creates two problems.

First, it caps how many accelerators the company can ship. Even if demand is enormous, Nvidia simply can’t sell more units if there isn’t enough memory available to bundle with its GPUs.

Second, it pushes costs higher. Nvidia has a lot of pricing power and can pass some of those increases on to customers. But if it can’t pass through all of them, margins could take a hit.

Rotation

Related to this is what you could call rotation.

In markets, short-term traders tend to gravitate toward whatever has momentum. Over the past couple of years, different parts of the AI trade have taken turns leading as new bottlenecks emerge.

Right now, the money is flowing into memory stocks. If you look at a chart of Micron, it’s basically a straight line up.

Momentum and narrative matter a lot in short-term market moves. At the moment, both are supporting memory and, as a result, sucking some oxygen away from Nvidia.

Competition

The other, more important piece of the puzzle is competition.

Nvidia has been the biggest winner of the AI boom. It’s been charging very high prices and earning extremely high margins because its GPUs became the default infrastructure for training and running large AI models.

But a few months ago, perceptions started to shift.

Google unveiled Gemini 3, an AI model that was trained and runs on Google’s own custom chips, known as TPUs. Gemini 3 was widely viewed as state of the art, and it didn’t rely on Nvidia GPUs.

That changed the narrative. It introduced the idea that you can do cutting-edge AI without Nvidia.

There have even been rumblings that Google could eventually sell its TPUs to other companies rather than keeping them entirely in-house. If that were to happen, it would almost certainly eat into Nvidia’s market share at the margin.

There’s also a third, background concern that resurfaces periodically. It’s the idea that the AI boom is peaking, that demand may not materialize the way people expect, and that the massive infrastructure build-out might not end up being worth the cost.

That concern has been around for a while, and AI stocks tend to pull back whenever it resurfaces, then rebound when it fades. It’s not Nvidia-specific.

My Take

So those are the main factors weighing on Nvidia right now.

Personally, I think the memory bottleneck will fade over time. I’m also a believer that AI is here to stay. Hundreds of millions of people already use AI products, and that number is only going to grow.

The more consequential long-term question is competition.

Custom chips like TPUs could chip away at Nvidia’s market share over time. That said, Nvidia is still in a unique position. GPUs are far more flexible than TPUs, which matters a lot when model architectures are still evolving.

On top of that, Nvidia doesn’t just sell hardware. It sells a tightly integrated platform of software, tools, and networking that makes its chips usable at scale, and that’s something that’s much harder to replicate.

All of this is why I think sentiment toward Nvidia may be a bit too bearish right now.

Of course, the question is, what changes the narrative?

Here’s one possibility.

Most of today’s top models outside of Gemini, including those used by ChatGPT, Claude, and Grok, were trained on Nvidia’s older Hopper generation chips. Models trained on Nvidia’s newer Blackwell chips are expected to be released in the first half of this year.

If those models end up being clearly superior to what’s already out there, the narrative could shift back in Nvidia’s favor fairly quickly.

Micron makes memory chips, a product category that for most of its history has been defined by brutal cycles, weak pricing power, and repeated periods of overcapacity. When memory stocks rally the way they have recently, experienced investors usually start nervously eyeing the exit.

Is this time different?

How AI Changed Memory

To understand why Micron suddenly matters so much, it helps to look at how modern AI systems operate.

Over the last few years, technology companies have been racing to build massive data centers to power tools like ChatGPT, Gemini, and Claude. These systems don’t run on conventional computers. They are made up of thousands of chips working together, continuously moving enormous amounts of data.

That data has to live somewhere while the system is operating, and the speed at which it can be accessed increasingly determines how much work the system can do.

Most computers use different types of memory for different jobs. Some memory lives directly on the processor and is extremely fast but limited in size. A larger pool of short-term memory sits nearby, holding data that is actively being used. Beyond that is long-term storage, which is slower but cheaper.

That basic structure still exists today, but AI places an unusually heavy burden on the middle layer in particular. AI models constantly move huge amounts of data in and out of memory. As models grow larger and conversations last longer, the volume of data moving through the system increases dramatically.

HBM Becomes The Bottleneck

This is where high-bandwidth memory enters the picture.

In AI systems, short-term memory increasingly comes from HBM, which is a specialized type of memory that is stacked vertically and placed directly next to the processor. This physical proximity allows data to move between memory and processor far faster than in traditional designs.

In modern AI systems, the processor is most often a GPU supplied by Nvidia, though there are competing GPUs from AMD and custom AI chips from other large technology companies, such as Alphabet’s TPUs.

HBM effectively fuels these processors by keeping them supplied with data quickly enough to operate efficiently. Without HBM, AI chips would be far less effective, regardless of how powerful they are.

The importance of HBM has been a major benefit for the companies that manufacture it. Today, only three companies produce HBM at scale. Micron is one, and South Korea’s SK Hynix and Samsung Electronics are the others.

As demand has skyrocketed, prices for HBM have surged. Micron is expected to generate close to $50 billion in profit next year, up from less than $10 billion last year.

Those fat profits are motivating Micron and its competitors to expand capacity, but doing so is not trivial. HBM is more expensive to produce, more complicated to manufacture, and more tightly integrated with the AI chips it serves than traditional memory.

The enormous demand for HBM is having spillover effects as well. As more memory production is diverted toward HBM, less capacity is available for the memory used in smartphones and PCs.

According to IDC, this shift is already putting upward pressure on memory prices for consumer devices, forcing phone and PC makers to either raise prices, cut specifications, or accept lower margins as supply tightens.

This represents a meaningful change in the memory market’s center of gravity. For decades, consumer electronics were the primary driver of memory demand. Today, AI data centers are increasingly setting the terms, and they are far less sensitive to price than consumers buying phones or PCs.

Cyclical or Structural?

None of this eliminates the risks associated with memory stocks. The industry has historically been cyclical. Prices rise, companies build capacity, supply eventually catches up, and prices collapse. That cycle has burned investors repeatedly.

The open question is whether AI has altered the structure of the market enough to change how that cycle plays out.

Some investors argue that high-bandwidth memory is no longer a true commodity. It is more complex and performance-critical, which could make pricing more resilient than in past memory cycles.

Others remain skeptical and argue that memory is still memory, and that given enough time, capacity expansion and competition will erode pricing power just as they always have.

Micron’s stock reflects both sides of this debate. At a roughly $400 billion valuation, the company is trading at about 8.5 times projected 2027 earnings. That valuation may appear low on the surface, but it reflects the historical cyclicality of the memory business.

The chart below shows how volatile Micron’s earnings have been over time. As recently as 2023, the company lost $4.89 per share.

Despite the debate, most observers agree that the current memory bottleneck is likely to persist at least through the end of this year. Beyond that, visibility becomes far less clear.

Nvidia’s Big Bet

One development worth watching involves recent moves by Nvidia. In December, the company struck a $20 billion licensing deal with a startup called Groq, which makes LPUs, or language processing units.

LPUs are AI chips designed to run AI models extremely fast and consistently. What’s interesting is that they don’t rely on HBM in the same way GPUs do. Instead, they use a different design, with more memory embedded directly on the chip.

LPUs are great for running certain AI tasks efficiently, but they’re not a replacement for the general-purpose systems that pair GPUs with HBM.

But the deal does send an important signal. It suggests that Nvidia is exploring alternative chip designs, either because they’re better for specific tasks, or because they reduce reliance on scarce, expensive high-bandwidth memory.

The Bigger AI Trade

Zooming out, the surge in memory stocks like Micron fits a pattern we’ve seen throughout this AI boom. New bottlenecks keep emerging in the AI supply chain.

First it was GPUs. Then it was power. Then cooling. Now it’s memory.

Each time a new bottleneck appears, stocks tied to that part of the supply chain surge. Right now, demand is strong enough that nearly every part of the AI supply chain has pricing power.

But over the long run, only the companies with real, durable competitive advantages will be able to sustain it.

The challenge for investors is figuring out which parts of the AI supply chain have those advantages, and which are simply benefiting from a temporary bottleneck.

Everyone sounds confident, but almost no one agrees.

One person will tell you the only sensible approach is to buy index funds and hold them forever. Another will insist you need to actively pick stocks to keep up. Someone else will argue that the real opportunity is in crypto or options.

Each camp speaks with certainty, and each sounds reasonable in isolation. But taken together, it’s a mess.

That confusion isn’t limited to beginners. I hear it from people who’ve been investing for decades. I see it in emails, comments, and conversations all the time. People are struggling to reconcile advice that comes from fundamentally different worldviews.

That’s the backdrop for why I wrote (Don’t) Invest Like a Pro.

I’ve spent most of my career around markets. I started creating investing content more than 20 years ago, back when message boards were the main outlet. Over time, that turned into writing for financial publications, and eventually into my role covering markets professionally at ETF.com.

More recently, that’s included videos and writing aimed at a broader audience on TikTok and in this newsletter.

Across all of that, the same questions keep coming up. Not just the usual “should I buy this fund or stock,” but more foundational questions about how investing actually works, why advice conflicts, and what matters versus what doesn’t.

What has changed, though, is the environment.

Markets today look nothing like they did 20 years ago. While index investing has become a dominant force, for many investors, meme stocks, crypto, options, and a growing array of new products now sit alongside traditional stocks and bonds in the same brokerage account.

At the same time, there’s a deluge of financial advice, and it isn’t just coming from professionals anymore. It’s coming from everywhere.

Some of that advice is thoughtful and well-intentioned, but a lot of it isn’t. And even the good advice often falls short because investors don’t have the framework to make sense of it.

That’s where this book starts.

(Don’t) Invest Like a Pro is about separating the investing landscape into two distinct worlds: the passive, long-term, index-oriented world, and the active world of professionals, traders, and people trying to outperform. Most confusion comes from blending those two together and pretending they’re playing the same game.

They’re not.

Each world has its own logic and language. Advice that makes sense in one can be harmful in the other. The book walks through both sides carefully, without assuming there’s a single right answer for everyone.

It’s also not just a beginner’s guide. I wanted to avoid oversimplifying investing. I explain how stocks, bonds, and alternatives work, how funds are structured, where risk and returns come from, and how behavior and emotion shape outcomes, all in a way that’s accessible without being shallow.

A lot of investing books have one of two shortcomings. They’re either simple and reassuring but gloss over the details, or they’re detailed and technical but unreadable unless you already speak the language. I tried very hard to avoid both.

Finally, the book is intentionally modern. It doesn’t pretend meme stocks, crypto, private markets, or new fund structures are side curiosities. These are part of how people encounter investing today, and ignoring them doesn’t make them go away. The book doesn’t hype them, but it does put them in context.

If you’ve ever felt overwhelmed by conflicting advice, unsure which voices to trust, or uneasy about whether you’re doing the “right thing,” this book is my attempt to put everything in perspective. Not by telling you what to buy, but by giving you a framework for understanding the landscape you’re navigating.

(Don’t) Invest Like a Pro is out now on Amazon. If this sounds like something you’d find useful, you can find it here.

P.S. If you do end up picking it up and have time to share an honest Amazon review, it genuinely helps. No pressure at all.

Gold just hit an all-time high above $4,500 an ounce. Silver surged to more than $80 for the first time ever. Platinum is at a record too.

Social media is buzzing with theories trying to make sense of the move. I have a view of my own. But first, a quick walk down memory lane.

Echoes Of 2011

I started working as an analyst in early 2011 at a now-defunct commodities investing site called Hard Assets Investor. It was a good time to be in that business. Commodities were one of the hottest corners of the market, and investor interest was intense.

But 2011 wasn’t really the start of the story. It was closer to the end.

Commodities had already peaked in 2008 on the back of the China and emerging-markets boom. They collapsed during the financial crisis and then rebounded sharply. By 2011, prices for oil, copper, corn, and a long list of other raw materials were back near their pre-crisis highs.

One group of commodities, though, went well beyond its 2008 peak: precious metals.

Gold didn’t just recover from the financial crisis. It surged from around $1,000 in 2008 to over $1,900 an ounce by 2011.

Silver was even more extreme, climbing from roughly $20 at its 2008 high to nearly $50 three years later.

With gold and silver going vertical again, the action in precious metals today reminds me of what happened in 2011. The circumstances are different in many ways, though there are some important similarities.

What’s Different This Time

Back in 2011, the precious metals rally was unfolding alongside a broader commodities boom. That’s not what’s happening today. Most commodity markets are nowhere near record highs.

It was also easier to point to clear catalysts back then. In the aftermath of the global financial crisis, central banks around the world slashed interest rates to zero, stoking fears of inflation (ironically, deflation would end up being the bigger concern for much of the following decade).

The world felt fragile. First came the 2008 financial crisis, then the European sovereign debt crisis between 2010 and 2012. For a stretch, the global economy seemed like it was being held together with duct tape. Investors stampeded into precious metals as a hedge against an economic system that felt perpetually on the brink.

The big symbolic moment came in August 2011, when S&P downgraded the credit rating of U.S. government debt, pouring fuel on the precious metals rally. Gold peaked about a month later.

Today, there’s no single visceral crisis to point to. The stock market is closing out 2025 near record highs, and the economy, for all its flaws, is holding up reasonably well. This doesn’t feel like a panic environment.

Instead, the backdrop is defined by a collection of slower-burn concerns. Government debt continues to balloon in the U.S. and elsewhere. Geopolitical tensions simmer across multiple regions. Inflation has proven stickier than expected, even if it remains well below the highs of 2021 and 2022.

Add in questions about Federal Reserve independence, a weaker dollar, and growing unease about the long-term appeal of U.S. assets, and you have a mix of forces putting upward pressure on precious metals.

The Trade War Trigger

Personally, I think a major catalyst this year was the trade war and tariff escalation that unfolded early in 2025. The dollar fell sharply during that period and remains down nearly 10% on the year.

For many investors, especially outside the U.S., that episode reinforced concerns about overreliance on the dollar and U.S. Treasuries as the backbone of the global financial system. Gold, in particular, began to look more attractive as a neutral store of value sitting outside the U.S. financial system.

That wariness had been building for years, but it wasn’t a meaningful factor during the last precious metals mania in 2011.

Back then, central banks had only just become net buyers of gold after nearly two decades of steady liquidation. Today, they account for close to a quarter of total gold demand.

Countries like China, Russia, Turkey, and India have been buying aggressively, even at record prices. They’re not doing this because they necessarily expect gold to keep surging. Rather, they’re reducing reliance on the U.S. dollar by holding an asset that is far harder to freeze or sanction.

According to Deutsche Bank, gold now makes up roughly 30% of global foreign-exchange reserves, up from about 15% just a few years ago. The U.S. dollar remains the largest reserve currency at around 40%, but its share continues to shrink.

That’s a meaningful shift.

What’s The Same

While many things are different this time around, one important element looks very familiar: the outsized role investors are playing.

The launch of SPDR Gold Shares (GLD) more than two decades ago transformed the gold market by making it easy to buy gold through a brokerage account. The fund was an immediate hit, becoming the fastest ETF ever to reach $1 billion in assets, just three days after launch. That record stood for 17 years, until the ProShares Bitcoin ETF (BITO) broke it in 2021.

ETF inflows introduced a powerful new source of demand, particularly during periods of stress. During the financial crisis, investors poured money into gold ETFs at a staggering pace. In 2009 alone, gold ETFs absorbed roughly $20 billion of gold, accounting for about 18% of total global demand, according to the World Gold Council.

Demand spiked again during the eurozone debt crisis and later during the 2020 COVID pandemic, when nearly $50 billion flowed into gold ETFs globally.

This year, gold ETF demand is following a similar pattern, just on a much larger scale. Roughly $82 billion has flowed into gold ETFs globally so far, by far the largest dollar amount on record.

On a tonnage basis, 2020 still holds the record, with about 893 metric tons absorbed by ETFs, compared with roughly 749 metric tons this year. That gap largely reflects higher prices today, with gold now trading at double or triple its 2020 levels, meaning each dollar buys less metal.

Even so, ETF demand alone represents roughly 15% of total annual gold demand. Add in physical investment demand through bars and coins, and investment demand could account for more than 42% of total gold consumption this year, up from about 26% in 2024.

Jewelry demand, which made up roughly 44% of demand in 2024, may fall closer to one-third in 2025. In other words, investors are increasingly crowding out other sources of gold demand.

Why Silver Is Surging

While gold has driven the broader precious metals rally, silver has captured even more attention in recent weeks. There are two competing (or perhaps complementary) explanations for silver’s move.

The first is that silver is acting like “cheap gold.”

Silver has badly lagged gold for years. When gold hit a then-record high above $2,000 an ounce in 2020, silver was still roughly 40% below its 2011 peak and hadn’t set a new high since 1980.

The gap became extreme. The gold-to-silver ratio, which measures how many ounces of silver it takes to buy one ounce of gold, surged to a modern-day record high of about 120.

There were reasonable explanations for silver’s underperformance. Unlike gold, silver is heavily tied to the real economy. Roughly 50% to 60% of total silver demand has come from industrial uses in recent years, according to The Silver Institute, compared with a single-digit share for gold.

As gold increasingly established itself as a central bank asset and a portfolio diversifier for investors, silver was largely left behind. Its industrial nature made it more economically sensitive, and less attractive as a store of value.

That changed this year.

As gold continued to surge, silver finally found a bid. More than $10 billion has flowed into silver ETFs globally this year. Because silver is a much smaller market than gold, those inflows have had an outsized impact on prices.

Silver’s supply-and-demand dynamics amplify that effect. A large portion of demand is industrial, and much of it cannot be switched off in the short term. When investment demand for gold spikes, higher prices can eventually draw out sellers. Jewelry purchases can be deferred, and central banks can slow or pause buying.

That’s less true for silver.

The Silver Growth Story

That brings us to the other narrative circulating to explain silver’s surge. This view holds that silver isn’t just playing catch-up with gold, but has its own growth story tied to rising industrial demand.

Unlike gold, silver plays a critical role in modern technology. It is prized for three core properties: the highest electrical conductivity of any metal, excellent thermal conductivity, and strong resistance to corrosion. Those characteristics make silver valuable in applications where efficiency, heat management, and durability matter.

One of the largest sources of industrial demand for silver is the solar industry, where silver is used in photovoltaic cells to conduct and collect electricity generated from sunlight.

Solar demand for silver has grown rapidly. Photovoltaic consumption more than doubled from roughly 89 million ounces in 2021 to about 198 million ounces in 2024, making solar responsible for around 17% of total silver demand, according to The Silver Institute. That share has been climbing steadily as solar installations expand globally.

Electric vehicles are another source of growth. EVs require more silver than traditional internal combustion engine vehicles due to their heavier use of electronics and power-management systems. Industry estimates suggest battery-electric vehicles consume roughly 25 to 50 grams of silver per vehicle, or about 67% to 79% more than internal combustion cars.

Then there’s data centers and artificial intelligence. Large-scale data centers rely on dense networks of servers, switches, and cooling systems, all of which use silver in electrical contacts and connectors. High-performance chips such as GPUs and TPUs also incorporate small amounts of silver in internal connections and packaging.

Taken together, this narrative argues that rising industrial use, particularly from solar, EVs, and data centers, is pushing the silver market toward a structural deficit.

Cheap Gold or Speculative Mania?

So both narratives are out there: silver as cheap gold, and silver as a growth metal.

I lean much more toward the first explanation as the main driver of this year’s move. The investment flows into silver have been enormous, and they look strikingly similar to what we saw during previous speculative spikes, including 2011. That framing also better explains what’s happening across the broader precious metals market.

This isn’t just a silver story, or even a silver-and-gold story. Platinum and palladium have surged as well. If this rally were primarily about silver-specific fundamentals, it would be hard to explain why metals with very different demand profiles are all exploding at the same time.

Palladium is almost entirely an industrial metal, with demand heavily concentrated in autocatalysts. Platinum has a more diversified base, spanning jewelry and industrial uses such as chemicals, glass, and refining.

Yet all these precious metals are moving together.

That kind of synchronized move across metals with very different end markets isn’t a coincidence. It’s what speculative episodes in commodities tend to look like.

A Familiar Pattern in Commodities

That doesn’t mean the silver growth story is wrong. It’s a coherent argument, and it may well shape the market over the long run.

We see compelling commodity growth narratives all the time. Oil has had several, including most famously, the “peak oil” story, which argued that supply constraints would drive permanently higher prices.

Lithium went through its own version more recently, fueled by fears that EV adoption would overwhelm global supply. Copper has a similar narrative today, tied to electrification and grid expansion.

These stories are often grounded in real trends. But in commodities, prices rarely move in straight lines. As prices rise, demand gets destroyed or substituted away, supply responds, and the cycle eventually turns.

We’ve also seen isolated bull markets within precious metals themselves. For much of the past decade, palladium dramatically outperformed gold as tightening emissions standards boosted demand for autocatalysts.

But eventually, substitution, weaker auto demand, and improving supply ended the squeeze. Palladium is still roughly 50% below its all-time high, despite this year’s rebound.

If you’re investing in silver, or any commodity, primarily on a growth story, it’s worth keeping that history in mind.

Gold Is Different

Gold is the exception. It has increasingly become a portfolio and reserve asset, held by central banks and investors as a diversifier with historically low correlation to the broader economy and financial markets. That’s what makes gold different, and more interesting, than a cyclical commodity riding a demand narrative.

That said, in the near term, all of these metals look extended, gold included. At this point, they’re largely momentum trades.

Some investors believe that momentum will continue. Silver’s breakout above $50 cleared a long-standing ceiling from 1980 and 2011, a move that technical traders see as opening the door to much higher prices.

Others point to the gold–silver ratio, which has fallen into the low 60s and could, in theory, move back toward its 2011 low near 32, implying substantially higher silver prices. Still others argue that silver could revisit its inflation-adjusted 1980 peak north of $200 an ounce.

Maybe that happens, maybe it doesn’t. It’s all highly speculative.

I’m not interested in playing that game. There’s always something going vertical somewhere in the market. Silver doesn’t particularly excite me from a long-term portfolio perspective (maybe that’s apathy from watching too many commodity manias over the years).

Gold, on the other hand, does interest me as a portfolio diversifier. But especially after its recent run, it’s something that requires a longer time horizon, and not a bet on what it’s doing this month or this year.

A week ago, I wrote a post unpacking a whacky conspiracy theory that claimed President Trump was crashing the economy on purpose to bring down interest rates so he could refinance the national debt at lower yields.

It was a dumb theory. But I humored it because Trump amplified it on Truth Social and because it helped illustrate some key concepts about interest rates and the Treasury bond market.

Now, after this week’s market mayhem, even the conspiracy theorists have gone quiet. Let’s break down what happened.

Bond Yields Surge Despite Stock Market Panic

Let’s rewind to last weekend. After two brutal days in the stock market on Thursday and Friday, investors hoped President Trump might soften his tariff stance before markets reopened on Monday.

Surely, he’d recognize the damage his “reciprocal tariffs” were doing to business confidence and the broader economy—right?

Nope.

“We have massive Financial Deficits with China, the European Union, and many others. The only way this problem can be cured is with TARIFFS,” Trump posted on Truth Social on Sunday.

By that evening, panic was creeping in. CNBC’s Jim Cramer even floated the possibility of a 1987-style crash (In October of that year, the S&P 500 dropped more than 20% in a single day).

When markets opened on Monday, it wasn’t quite that catastrophic. But it was ugly. The S&P 500 fell nearly 5% at its low, adding to last week’s 5% and 6% drops.

Initially, the bond market behaved as expected: the 10-year Treasury yield fell to 3.87%, its lowest level since October, as investors fled to the safety of government bonds.

But then something flipped. Yields started climbing. Slowly at first, then suddenly. By day’s end, the 10-year had spiked to over 4.2%. On Tuesday it climbed to 4.25%. By Wednesday, it topped 4.5%.

The 30-year Treasury yield followed a similar trajectory, jumping from 4.32% on Monday to more than 5% by midweek, just shy of its highest level since 2007.

Investors were stunned. Why were bond yields rising as recession fears were mounting and stocks were tanking? This wasn’t how things were supposed to work.

Trump Blinks

The speed and scale of the bond market’s moves caught the White House off guard. Treasury Secretary Scott Bessent, a former hedge fund manager, was reportedly rattled and conveyed his concerns directly to the president.

This time, Trump listened.

Hours after Wednesday’s yield spike, he abruptly reversed course—announcing a delay on many of the tariff hikes he had introduced just days earlier (China, notably, was the exception. Levies on Chinese goods were raised even higher, pushing tariff rates on that country into the triple digits).

Trump’s announcement lit a fire under the stock market. The S&P 500 surged 9.5%, while the Nasdaq-100 soared 12%, both notching their biggest single-day gains since 2008. Bond yields dropped in tandem, with the 10-year yield falling from 4.5% to 4.25%.

But the relief didn’t last. By Friday, the yield on the 10-year briefly jumped to 4.59%, even higher than before Trump hit pause.

So What Happened, Why Did Yields Surge?

There’s no single answer; just a growing list of things going wrong at once.

Start with foreign demand. Trump’s on-again, off-again trade war isn’t exactly boosting global confidence in U.S. assets. Foreign investors are a key pillar of demand for Treasuries; they currently hold around $8.5 trillion in U.S. government bonds, nearly 30% of all publicly held federal debt.

There’s been some speculation that China—or another large holder—might have sold Treasuries during this week’s chaos. There’s no hard evidence of that, but it almost doesn’t matter. Even the possibility of foreign buyers backing away is enough to spook the bond market.

Then there’s Trump’s obsession with shrinking America’s trade deficit. If he somehow succeeds, that could actually reduce the flow of dollars back into U.S. financial markets.

Remember, the flip side of America’s large trade deficit is its massive financial account surplus. Last year, foreigners invested over $2 trillion into U.S. assets. Those capital inflows help finance the government and support bond prices.

If we import fewer goods, we send fewer dollars abroad. And if fewer dollars end up overseas, there’s less foreign money coming back in to buy Treasuries.

And then we have inflation.

Tariffs will put upward pressure on consumer prices in the coming months. If they stick around, they could lead to longer lasting inflationary pressures by raising the cost of imports or shifting production back to higher-cost U.S. factories.

For decades, cheap goods from abroad kept inflation in check. That era may be ending.

Consumers seem to think so. Inflation expectations, according to the University of Michigan’s latest survey, just hit their highest level since 1991.

That’s a problem. Once inflation expectations start to rise, that can lead to actual inflation, as workers demand higher wages and businesses raise prices in anticipation of more price gains.

All these inflation concerns are causing the Fed to hold its ground. Normally, markets would be pricing in Fed rate cuts with stocks plunging and recession risks rising. But with inflation still a big deal and no clarity on where Trump’s trade war is heading, the Fed doesn’t want to move too quickly.

And here’s another Fed angle to consider. The Supreme Court is reviewing a case that could allow presidents to fire the heads of independent agencies, including the Fed.

If the U.S. central bank’s independence is undermined, it could shake confidence in U.S. monetary policy, and that would almost certainly put more upward pressure on bond yields.

Add to all that some unwinding of leveraged hedge fund trades, investors de-risking by shifting from longer-term to shorter-term Treasuries, and a looming tidal wave of borrowing from Trump’s proposed tax cut extensions, and you’ve got a perfect storm pushing bond yields higher.

What the Markets Are Saying

So yeah, there are a lot of reasons why yields might be rising.

The good news is that this could all reverse quickly if Trump strikes a deal with China or walks back some of his more extreme tariffs. That’s the bet stock investors seemed to be making late in the week. On Friday, the S&P 500 closed more than 7% higher than its low point of the week.

The optimism was fueled by headlines suggesting Trump was open to negotiations with China (as well as hints from the Fed that it was ready to step in if markets got out of control).

Investors were also reassured by the fact that Trump delayed some of his most draconian tariffs. It showed at least some willingness to deal, not just escalate.

Inside the White House, two camps had been battling it out. One favored free trade and deal-making. The other wanted to wall off the U.S. economy and force a return to domestic manufacturing. This week, it looked like the dealmakers won.

That said, bond markets don’t seem to be entirely convinced that everything will just go back to the way they were.

Despite the 90-day pause on some tariffs, levies remain significantly higher than they were before Trump’s “reciprocal tariff” push last week. The 145% tariff on Chinese goods is still in effect. And even with some rollbacks, the average U.S. tariff rate is still at levels not seen in decades.

And what happens three months from now, when the pause ends? No one knows. There’s still a ton of trade policy uncertainty.

Looking Ahead

Hopefully, Trump backtracks further on tariffs and makes some sort of deal with China sooner rather than later.

But even if that happens, at least some damage has already been done. Investors have been shaken, and bond yields are reflecting that.

Unless Trump fully reverses course, we’re probably looking at higher yields going forward than we otherwise would have seen. Weaker foreign demand, stickier inflation, and mounting deficits all point in that direction.

That doesn’t mean Treasuries have lost their role as a safe haven. If the economy truly rolls over, the Fed will cut rates and yields on Treasuries will come down.

Still, it’s a shame that a reckless trade war is undermining faith in what’s supposed to be the world’s safest asset.

For decades, the United States has benefited from something economists call exorbitant privilege, the unique advantages that come from issuing the world’s reserve currency.

It allows the U.S. to borrow cheaply, run persistent trade deficits, and attract massive capital inflows, giving America more financial flexibility than any other country on Earth. That privilege depends on trust in the dollar, and by extension, in Treasuries.

But this week, that trust showed signs of strain.

Yields on Treasury bonds rose at the same time that the U.S. dollar plunged. That’s not supposed to happen. Higher yields usually strengthen the dollar, not weaken it.

Some saw the move as a signal that foreign investors may be losing trust and pulling back from dollar-denominated assets.

And when trust in the dollar slips, attention naturally turns elsewhere.

It’s probably no coincidence that gold surged to a new record high this week, just as the Treasury market was flashing red. The yellow metal is up 23% this year, following a 27% gain in 2024.

Gold was already gaining traction as a reserve asset. Central banks, from India to Poland to China, have been quietly accumulating it for years. In 2024 alone, they bought nearly 20% of the world’s total gold supply.

If the dollar’s status as the undisputed global reserve currency begins to wobble, gold becomes an obvious fallback.

It’s neutral. It’s stable. And it has a thousand-year track record.

That’s the 11th-largest uninterrupted decline going all the way back to 1940.

From its highs, the market is now down around 19% (based on Tuesday’s close)—just a hair away from entering official bear market territory.

So what’s an investor supposed to do in a moment like this?

First things first: Don’t panic.

Yes, markets are spiraling. Yes, Trump’s trade policies are single-handedly driving this chaos. But before you make any emotional moves, let’s take a step back.

This is one of those gut-check moments.

A chance to look at your portfolio and ask: Am I invested the right way?

As I said, the market is down 19%. Maybe it hits 20%. Maybe it doesn’t.

Honestly, that 20% number is kind of arbitrary. If we cross that line, headlines will scream about how we’re in a bear market, but it doesn’t necessarily mean anything about what happens next.

For all we know, we’re close to the bottom right now. The market could rebound tomorrow and never look back.

Or… it could drop another 10%, 20%, or more.

No one knows. Not me, not your favorite financial influencer, and definitely not the guy yelling on TV. Anyone who claims to know what happens next is lying.

That said, let’s look at some historical context to help frame the possibilities.

The Last Three Bear Markets

If you go back a few years to 2022, surging inflation and interest rates caused the S&P 500 to drop 25% before it bottomed out. It took about 14 months for the market to get back to its highs.

A couple years before that in 2020, COVID cashed the market, leading to a 34% decline in the S&P 500. But the rebound was extremely fast; within five months the market was back to its highs.

Now let’s rewind all the way back to 2008. This was one of the most brutal bear markets of all time. The financial crisis caused the S&P 500 to drop 57%, and it took about four years for the market to fully recover.

So yeah—there’s a wide range of outcomes. That’s the nature of stocks: volatile and unpredictable in the short run.

But over the long run, they’ve consistently rewarded patient investors. Risk and reward go hand in hand.

So, with that said, what should you do right now?

Well, step one is to check your exposure to stocks.

You don’t want to panic-sell. But you also don’t want to be investing money you’ll need soon (or money you can’t afford to lose).

Make sure your portfolio matches your risk tolerance and your time horizon. Stocks are long-term investments, so don’t park your short-term cash in the stock market.

Once you’ve done that gut check, you can think about potential moves. And what you do depends on what kind of investor you are.

For Passive Investors

If you mostly hold broad index funds, like those tied to the S&P 500, you’re probably fine doing… nothing.

That’s the whole point of passive investing. Stay the course. Let the market do its thing.

But even passive investors have a few options right now:

1. Put idle cash to work

If you’ve got money sitting on the sidelines that you won’t need for several years, this could be a good entry point. Something like the Vanguard S&P 500 ETF (VOO) is a solid long-term bet.

2. Rebalance your portfolio

If you hold both stocks and bonds, recent market moves have probably skewed your allocations.

Rebalancing means selling some bonds (which have held up better) and buying stocks (which have plunged). It’s a disciplined way to buy low and sell high.

3. Reconsider international exposure

This is a very hot topic in the investing world right now. For nearly 15 years, U.S. stocks have trounced international ones.

But this year, that trend has flipped. International stocks are outperforming, as investors worry that Trump’s trade policies will hit the U.S. harder than other countries.

Now, I’m not saying you should chase performance, but it’s worth asking: Going forward, do you want more international exposure than what you get through U.S. multinationals in the S&P 500?

If the answer is yes, you might consider adding something like the Vanguard Total International Stock ETF (VXUS), which holds a broad, diversified mix of stocks from developed and emerging markets around the world.

You could also take a more targeted approach. Europe, for example, has become a popular destination for some investors this year. Two well-known funds in that category are the iShares MSCI Eurozone ETF (EZU) and the iShares MSCI Germany ETF (EWG).

On the other hand, maybe you believe U.S. stocks will continue to dominate. Or you’re comfortable with the international exposure already baked into the S&P 500 (about 30% of revenue for companies in the index comes from overseas). In that case, you might not feel the need to add more.

4. Take a look at gold

The yellow metal is up 13% this year, on top of a 27% gain last year. It’s proven to be a solid hedge and portfolio diversifier, especially in times of uncertainty.

Just like with international stocks, I’m not saying you should run out and buy gold today just because it’s been outperforming. But building a small position—say 1–2% of your portfolio—over time is a totally reasonable long-term strategy.

Personally, I don’t own gold right now, but I can definitely see the benefits.

For More Active Investors

Now let’s shift gears and talk about some more aggressive plays you might consider in this market.

This part isn’t for passive investors. It’s for folks who like taking a more hands-on approach to investing and don’t mind taking on a bit more risk.

1. European defense stocks

One narrative gaining traction lately is that Europe is ramping up defense spending—largely in response to President Trump urging NATO allies to contribute more, while also signaling that U.S. military support might not be guaranteed.

European governments seem to be taking that seriously, and it’s been a major tailwind for defense stocks across the region.

A fund that’s benefited from this trend is the iShares STOXX Europe Aerospace & Defense ETF (EUAD), which is up roughly 30% this year.

I don’t own it, but I can definitely see why it’s been popular.

2. Big tech

European defense stocks are the hot trade right now, but not long ago, the spotlight was somewhere else entirely.

All anyone could talk about was Big Tech, the Magnificent Seven, and AI.

Those stocks have cooled off recently, with most of the big names taking big hits. But in my view, there’s still a ton of long-term promise there.

This is where I’ve personally been putting money to work.

If you want broad exposure to tech, one option is the Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100. It’s packed with names like Apple, Microsoft, Nvidia, and other tech giants.

There’s also a dedicated Mag-7 ETF, the Roundhill Magnificent Seven ETF (MAGS), that equally weights the seven mega-cap stocks and rebalances them quarterly.

3. Individual stocks

Of course, you can also go the direct route and buy individual stocks—whether it’s one of the Magnificent Seven or other names you’ve been watching.

Many are well off their highs, so now could be a chance to scoop them up at more attractive prices.

For what it’s worth, here are a few picks I’ve made recently:

Chipotle (CMG) and Cava (CAVA) – I think both of these companies are filling a real need for healthier fast food options.

Axon Enterprise (AXON) – The maker of Tasers, bodycams, drones, and software for law enforcement has been doing an impressive job weaving AI into its platform. There’s a lot of opportunity for growth ahead.

Anyway, I hope this gives you a few ideas as we hover on the edge of a bear market. The key is to have a strategy you can stick with. And remember: Don’t take on more risk than you can handle.

President Trump is purposely trying to crash the stock market and tank the economy to bring down interest rates.

Why? Apparently, it’s all part of a master plan to refinance the national debt at lower rates and save the country billions in interest payments.

It’s so stupid: this is basically the economic equivalent of lighting your house on fire so you can renegotiate your mortgage.

At first, this was a fringe theory. But it got a major boost when Trump reposted a TikTok video talking about it, calling it a brilliant 4D chess move.

But here’s the thing: it’s complete nonsense.

The stock market is crashing because recession risks are skyrocketing. And interest rates are going down for the same exact reason.

Through his new wave of tariffs, Trump has basically launched a trade war against the entire planet. If these tariffs stay in place, the U.S. average tariff rate could reach its highest level in over a century.

That means prices on everything—from coffee to car parts—will spike, choking off consumer spending and business investment, the two engines that keep the economy running.

Two Forces Driving Rates

Let’s talk about how interest rates actually work. In the U.S., they’re shaped by two main forces: the Federal Reserve, which sets short-term interest rates, and the bond market, which determines longer-term rates based on what the Fed does plus expectations about inflation, economic growth, and other macroeconomic factors.

Right now, long-term rates are falling because investors are piling into bonds. And they’re doing that for two reasons.

First, they think the Fed will start cutting rates to cushion the economy from Trump’s trade policies. Second, they’re worried the tariffs could push us into a full-blown recession.

In a typical recession, demand drops, inflation cools, and that puts downward pressure on interest rates.

But this time’s weird. Trump’s tariffs could push inflation up even as economic growth slows down.

You might’ve heard the term stagflation. That’s what we’re talking about here: the toxic combo of high inflation and low growth. And it’s exactly why rates aren’t falling even faster—there’s still inflation anxiety baked into the bond market.

Let’s Enter the Conspiracy Zone for a Second

But fine, let’s humor the crazy theory that’s going around. Let’s say Trump is trying to crash the economy to bring interest rates down so he can refinance the national debt.

Could he actually pull that off? No. Here’s why.

The U.S. is currently paying an average interest rate of about 3.3% on its $36 trillion national debt. That’s already lower than where market rates are today. For instance, the 10-year Treasury is yielding around 4%, and the 30-year is closer to 4.4%.

So for this plan to even begin to make sense, interest rates would need to plunge well below current levels—down to 2% or 3%.

And even if that happened, it wouldn’t be some game-changing win. Sure, over time, some of the debt matures and gets rolled over. Refinancing that portion at lower rates—say, 3% instead of 5%— could help around the edges.

But here’s the problem: you can’t just call up America’s creditors and refinance the entire $36 trillion like its a mortgage. That’s not how any of this works.

Most of the national debt is in short-term Treasury bills and notes that are constantly rolling over.

Even if rates fall, you’d still be refinancing gradually, over time, as debt matures—not in one big bang.

And you definitely can’t shift all that short-term debt into 30-year bonds. The demand just isn’t there. Long-term Treasuries—those maturing in 20 to 30 years—make up only about 17% of the total market. Try cramming trillions into that, and you’d blow up the bond market.

Not to mention, even if you could refinance everything, crashing the economy to do it would backfire massively.

Recession means people lose jobs, businesses go under, and tax revenue falls. All of that leads to deficits going up and the national debt increasing.

So instead of saving money, you’ve made the problem worse.

As you can see, this theory going around isn’t some genius financial play. It’s a reckless gamble built on a total misunderstanding of how debt markets work.

Trump is promoting this theory because he wants people to believe there’s some brilliant strategy behind the economic pain from his tariffs. That there’s a reason you’re taking a hit.

But there isn’t.

This isn’t 4D chess. It’s just reckless policy.

And unless Trump backs off the tariffs—or someone stops him—we’re in for a lot more pain.

He’s slapping tariffs on stuff we literally don’t make—and almost certainly never will.

Take coffee. We don’t grow it here. Aside from a little bit in Hawaii, the U.S. just doesn’t have the climate.

Same with bananas. We import nearly all of them from Latin America.

And it’s not just those two things—we import a whole range of goods that simply aren’t produced here.

So when you slap tariffs on these imports, you’re not protecting American industry—because there’s no American industry to protect. And there won’t be, either, because we lack the climate, natural resources, and cost advantages to ever make it viable.

All you’re doing is making coffee, bananas, and a bunch of other essentials more expensive. It’s just a tax on consumers, plain and simple.

As Joey Politano quipped, Trump basically saw a giant red button labeled “make groceries more expensive” and he slammed it down.

It’s stupid. And he didn’t have to. He could’ve carved out exemptions—coffee, bananas, Chilean sea bass, whatever.

But he didn’t. And no one knows why.

I mean, I have my theory: Trump’s not a detail-oriented guy. He likes the simplicity of one big tariff number for every country.

It might sound good to him, but it’s economically destructive.

And that brings me to the next point:

These tariffs are going to be utterly ineffective at accomplishing whatever Trump wants to accomplish.

They won’t achieve anything beyond creating chaos and uncertainty.

And a big reason for that is... you can’t trust Trump.

No Strategy, Just Vibes

This is the same guy who negotiated the USMCA—the new version of NAFTA—during his first term, and now he’s like, “Who’s the idiot who made that deal?”

Uh… you did, man.

Then he slaps tariffs on Canada and Mexico—our closest trading partners—in violation of his own agreement.

He says these new tariffs are to “retaliate” against unfair trade.

But the truth is, the Trump tariffs aren’t based on trade barriers.

They’re based on whatever Trump’s feeling that day, which in turn is loosely based on trade deficits—which, for some reason, Trump seems to hate.

So now Brazil, known for high tariffs on U.S. goods, gets hit with lower Trump tariffs than Switzerland, which barely has any trade barriers at all.

It makes no sense.

And you’ve got Australia and the U.K.—countries with which we run trade surpluses—getting hit with tariffs too, for basically no reason.

Again, completely nonsensical.

A Fantasy of 1800s America

What I’ve noticed is that Trump seems obsessed with this fantasy version of America from the 1800s. Yes, the 1800s.

He’s praised William McKinley—president from 1897 to 1901—who was all about tariffs.

But seriously… does anyone actually want to go back to that world?

Low wages. Far less global trade. And good luck finding an avocado.

Earlier this week, Trump announced 46% tariffs on Vietnam and 37% on Bangladesh.

Never mind that those numbers are based on a completely asinine formula. What exactly does Trump want?

Does he want Nike factories in Ohio?

Does he want to bring back clothing assembly lines to Alabama?

There was a tweet that really captured the absurdity of this whole thing from Balaji Srinivasan:

“Vietnamese women grind in factories to produce Nikes, while Uncle Sam sends them printed money in return. Who is ripping off whom?”

We’re Not Bringing Back Toaster Factories

I mean seriously—there is no way in hell we’re going to start manufacturing toasters and T-shirts and phone chargers at scale in the U.S.

It’s just not going to happen.

So if these tariffs stick, what’s going to happen is simple: prices will go up. We’ll pay more for everything, and it’ll be a direct hit to our purchasing power.

The U.S. economy could even fall into a recession.

And for what?

To bring back some fantasy version of American manufacturing?

To make everything at home and cut ourselves off from the rest of the world?

It’s backward, mercantilist thinking—the kind of stuff people believed in over a century ago.

This Isn’t Targeted; It’s Reckless

Now, I’m not completely anti-tariffs.

If you’re using targeted tariffs to protect and encourage the growth of critical industries—like advanced technologies and medicines—there’s at least a case to be made.

But this? This isn’t that. Not even close.

To make matters worse, no one even knows what Trump is actually trying to do.

I’ve speculated in this piece about some of his motivations.

But within his own circle, you’ve got people on one side saying the tariffs are a negotiating tactic to bring down trade barriers around the world, and people on the other side saying they’re permanent and meant to bring back American manufacturing.

Trump himself has said both of those things—plus something about fentanyl, and even replacing income taxes with tariffs.

So yeah… there’s no clear goal here. Just absolute chaos.

And all while this confusion is going on, these tariffs will hurt the American economy—which, by the way, has been dominant for decades thanks in large part to open markets and predictable policies.

That’s now being undermined by the president of the United States himself.

And the irony is that even U.S. manufacturers—the ones these tariffs are supposedly helping—are going to get hurt too, because they rely on imported parts, materials, and international supply chains.

You can’t just remake a global production system overnight.

You can’t force every part of this system to come back to the U.S. through tariff policy that is changing every day—nor would you want to.

It would make the country poorer overall.

One Last Hope

I’m not completely out of hope.

Maybe Trump quietly walks some of this back after declaring a fake victory.

Or maybe, just maybe, some members of his party step up before the real damage is done.

For now, the Canada-Mexico tariffs have been put on hold after some last-minute wheeling and dealing by Trump. We’ll see what comes next, but one thing is clear: Trump’s love of tariffs isn’t going away anytime soon.

My take is that when used sparingly and strategically, tariffs can be a powerful tool. But used recklessly, they can backfire—hurting businesses, consumers and the economy broadly.

I’d love to be optimistic about Trump’s approach to trade, but some of the things he says give me pause. Take, for instance, his belief that trade deficits are some sort of scam.

He’s been saying this for years—and he did it again right before hitting Canada and Mexico with tariffs.

You can see it in this tweet from 2018:

And in this post from Truth Social earlier this month, where he even implies that our trade deficit with Canada is a subsidy:

Either Trump has no idea how trade works, or he’s deliberately misleading people. The idea that a trade deficit is a subsidy is absurd!

A trade deficit simply means we buy more from a country than we sell to them. That’s it.

To illustrate, let’s imagine the U.S. and Canada only trade two things: maple syrup and barbecue sauce.

• The U.S. sells $800 million worth of BBQ sauce to Canada

• The U.S. buys $900 million worth of maple syrup from Canada

• That means the U.S. runs a $100 million trade deficit with Canada

• And from Canada’s perspective, they run a $100 million trade surplus with the U.S.

But here’s the key point: That $100 million isn’t a handout to Canada. We got something in return—delicious maple syrup. It was a voluntary exchange. No one forced us to buy anything.

Now, in reality, the U.S.-Canada trade relationship is way more complex than just syrup and BBQ sauce. Hundreds of billions of dollars in goods and services flow between the two countries every year.

And despite Trump’s rhetoric, our actual trade deficit with Canada is small—it was just $45 billion last year, which is about 4% of the total U.S. trade deficit.

Not to mention, the deficit with Canada is mostly due to oil and gas imports. Without those, the U.S. actually runs a trade surplus with Canada.

So, that’s point #1: trade deficits are not subsidies.

Now let’s talk about something else that Trump never mentions—the fact that the flow of money between countries always balances out.

In economics, this is called the balance of payments, which consists of two main parts:

• The Current Account, which tracks trade in goods and services (like our syrup and BBQ example)1
  

• The Capital and Financial Account, which tracks investment flows2

These two accounts always balance out. If the U.S. runs a current account deficit, it also runs a capital account surplus—meaning foreigners invest more in the U.S. than we invest abroad.

That’s not a bad thing. The U.S. is one of the most attractive places for investment in the world. People want to buy American assets—whether it be stocks, bonds, real estate, or factories—so they need U.S. dollars. To get them, they sell more goods to the U.S. than they buy from us.

This is one big reason why the U.S. has consistently had trade deficits since the 1980s.

So, trade deficits aren’t automatically bad—it depends on the context. In fact, some countries with large trade surpluses, like Germany, Switzerland, and South Korea, have seen weaker economic performance than the U.S.

Whether a country runs a trade surplus or a trade deficit isn’t a measure of economic success on its own. It’s just one piece of the larger economic puzzle.

When Trade Deficits Do Matter

While trade deficits aren’t necessarily bad, not all of them are created equal. Some reveal deeper economic issues—like the case with China.

The U.S. runs its largest trade deficit with China, but that’s not just because China makes cheap stuff.

It’s because the Chinese government heavily subsidizes key industries, allowing Chinese companies to sell goods below cost (a practice known as dumping). That undercuts foreign competitors and distorts global markets.

China has done this for decades, devastating the U.S. manufacturing industry in the process. So, in the case of China, tariffs might actually make sense to level the playing field.

That said, I think industrial policy—where the U.S. subsidizes key strategic industries (essentially matching what China is doing)—is a more effective way to compete with China than tariffs. But you can certainly make a legitimate case for tariffs against China as well.

In any case, that’s a very different situation than the one with Canada, where our trade deficit is small and there’s no clear justification for tariffs.

Why Is Trump Targeting Canada & Mexico?

So, if the economics don’t back up Trump’s tariffs on Canada, what’s really going on? Why is he targeting the country?

Well, Trump has other grievances.

With Canada, he’s complained they don’t spend enough on defense and that they free-ride on U.S. military protection. He’s even floated the idea of making Canada the 51st state—so, maybe tariffs are his way of strong-arming them into submission.

As for Mexico, Trump’s justification for tariffs has been immigration and drug trafficking. Stopping illegal immigration into the U.S. was one of Trump’s top campaign promises, so it’s not that crazy that he’s using tariffs as a way to achieve that.

Now, if Trump wants to use tariffs as leverage for issues like border security or defense spending, that’s one thing. But there’s no reason to mislead people by calling trade deficits a "subsidy."

He can make his point without misrepresenting the facts about trade.

To his credit, Trump was ahead of most politicians in calling out China’s unfair trade practices. That’s where his focus should continue to be—not dragging Canada into this for no good reason.

Even Mexico might be a real trade issue—but not in the way Trump usually frames it. There’s growing concern that Chinese companies are setting up shop in Mexico to evade U.S. tariffs on China. That’s something worth keeping an eye on.

Trump has a real opportunity here. There are legitimate concerns about the trade practices of some of America’s trading partners, particularly China.

I just think that if he ditches the misleading arguments and focuses on the real threats, he could make a much stronger case.

If you haven’t heard, DeepSeek is a Chinese company that’s developed AI models that are rivaling—and in some ways, surpassing—those from American companies like OpenAI, Google, and Meta.

What’s remarkable about this is DeepSeek is achieving this while reportedly spending far less money than its U.S. counterparts.

For example, when the company released DeepSeek-V3 on Christmas day, it claimed that it cost under $6 million to train. For comparison, U.S. companies like OpenAI and Meta spent at least ten times that amount— if not more— to train comparable models.

A few weeks after Christmas, DeepSeek dropped another model, DeepSeek-R1, a powerful reasoning AI model that’s comparable to OpenAI’s o1 model.

And once again, the claim was the same: DeepSeek didn’t need a gigantic budget to achieve its stellar results.

Over the past few days, as it’s become clear what DeepSeek has accomplished, the internet has lit up with debates, speculation, and excitement.

I’m not exaggerating when I say this has completely upended perceptions about the AI industry.

For years, the narrative was that the U.S. was way ahead of China in AI. But suddenly, it’s starting to look like China isn’t just catching up—it’s right there with the U.S., if not ahead in certain areas.

But here’s the big question: Is this story as straightforward as it seems? Or is something else going on behind the scenes?

The DeepSeek Debate

Let me be upfront: I’m not an expert on large language models. But I’ve been digging through analyses from AI experts, and the consensus is that DeepSeek is legit.

They’ve achieved real breakthroughs in training efficiency and model performance.

But while there’s agreement on DeepSeek’s technical prowess, the controversy lies in the cost of its models.

I mentioned earlier that the company claimed that it spent under $6 million training DeepSeek-V3— which is a stunningly low figure that’s well below the cost of similar AI models developed by others.

How did it manage to do that?

One explanation is that necessity leads to innovation: Due to U.S. export controls, DeepSeek hasn’t had access to the full arsenal of cutting-edge hardware, so it’s had to be smarter and more resourceful in its approach.

Remember, the U.S. has restricted exports of the most advanced semiconductor technologies to China, including Nvidia GPUs—the gold standard for training AI models.

Despite this, DeepSeek claims they’ve managed to work around these restrictions and deliver world-class results.

But not everyone believes them.

For example, the CEO of Scale AI, Alexandr Wang, has alleged that DeepSeek has access to over 50,000 Hopper GPUs— a massive quantity of some of the most powerful AI chips designed by Nvidia.

Semiconductor analyst Dylan Patel made similar claims on X, while adding that at least some of the chips may have been acquired by evading sanctions.

This fits with other reports suggesting that Chinese companies have been able to get their hands on restricted U.S. chips despite export controls. If that’s the case, then maybe DeepSeek’s success isn’t as impressive as it seems on the surface.

This blog post by Nathan Lambert, an AI researcher, reaches that conclusion:

“Tracking the compute used for a project just off the final pretraining run [like DeepSeek did] is a very unhelpful [and deceptive] way to estimate actual cost,” he said.

Lambert estimates that DeepSeek’s “cost on compute alone (before anything like electricity) is at least $100M’s per year.”

This skepticism has opened the door to even more speculative theories about DeepSeek’s operations and motivations, like the wild idea that DeepSeek could be part of a psyop— a psychological operation— orchestrated by the Chinese government.

The idea is that China might be exaggerating DeepSeek’s efficiency to raise doubts about the value of building expensive AI infrastructure, with the aim of discouraging U.S. companies from making massive AI investments.

Now, that’s obviously a conspiracy theory; there’s no hard evidence to back it up— but, it’s out there on X.

The conspiracy theorists are in the minority, though. Most AI researchers believe that what DeepSeek has done is noteworthy and a testament to what a talented team can accomplish with fewer resources than the well-funded AI labs in the U.S.

Even Lambert admits that, while the cost of a year of operations for DeepSeek AI is probably “closer to $500M (or even $1B+) [rather than] the $5.5M numbers tossed around,” that’s a success considering they are relevant in an industry where American tech giants are spending “what is approaching or surpassing $10B per year on AI models.”

Why It Matters

The stakes here are enormous. AI is likely to be the defining technology of the next few decades, shaping everything from economic growth to military power. How this race shakes out could have big implications for the balance of power between the U.S. and China, and determine which country emerges as the global leader over the next several decades.

Frankly, I have no idea how this is all going to play out from a geopolitical standpoint.

But I will say that all the panic surrounding DeepSeek kind of reminds me of what happened a couple years ago when China’s largest chip maker, the Semiconductor Manufacturing International Corporation (SMIC), was found to have manufactured 7 nm chips for Huawei.

That discovery shocked the world and triggered a wave of concern about China’s technological capabilities, but upon further inspection, it turned out that the process behind those chips was far less advanced and far more expensive than initially thought.

Is it a similar story in this case? Are people overreacting about DeepSeek the same way they did with SMIC before the full picture emerged?

We’ll find out soon enough.

Is Bigger Always Better?

But this story isn’t just about geopolitics; it’s also challenging long-held assumptions in the technology industry about what it takes to develop cutting edge AI models.

For years, the conventional wisdom was that more computing power translates into more powerful AI models. That’s why companies like Microsoft, Meta, Alphabet and Amazon have collectively spent hundreds of billions of dollars building increasingly powerful computers so they can train these models using enormous amounts of data.

And it’s why Nvidia, the undisputed leader in GPUs—the chips that power these computers—became the world most valuable company in the world in 2024.

There was— and, at least for now, continues to be— an insatiable demand for Nvidia’s AI chips.

But over the past several months, even before DeepSeek arrived on the scene, concerns arose that the “scaling laws”— the idea that more computing power and data leads to more powerful AI capabilities—were reaching their limits.

OpenAI is reportedly finding it more challenging than expected to develop GPT-5, the successor to GPT-4 released in early 2023. The scaling techniques that worked well in the past are now proving less effective at improving model performance.

DeepSeek adds another winkle to this by suggesting that state of the art AI models can be developed with far less computing power than once thought.

Confidence in Scaling Laws

All of this puts Nvidia in an interesting spot. On the one hand, the company is currently benefiting from record-breaking demand for its GPUs. But on the other hand, doubts about scaling laws—and new, cheaper approaches like DeepSeek’s—are creating uncertainty about the longer-term outlook for the company.

Nvidia’s CEO, Jensen Huang, doesn’t seem worried. He’s argued that while the improvements from pre-training scaling—essentially the gains achieved by making models larger and training them on more data—might be slowing down, they’re not going away.

He’s also said that there are other types of scaling— like post-training scaling and time-test scaling—that can also make AI models more powerful, and that all of these alternative approaches still require significant computing power.

Nvidia’s CEO isn’t alone in thinking that expensive supercomputers will remain essential for driving advancements in AI.

Microsoft has committed to spending $80 billion in capital expenditures this year, up significantly from last year. And Meta came out this week and said it will spend $60-65 billion in capex this year, also a big increase from 2024. Much of that money will go towards gobbling up Nvidia GPUs.

And let’s not forget about the Stargate project— a collaboration between OpenAI, SoftBank, Oracle and MGX—that aims to invest $500 billion in AI infrastructure over the next four years.

All these moves suggest that U.S. tech leaders don’t believe scaling laws have disappeared, which could bode well for Nvidia.

Murky Outlook

That said, things get murkier as we look beyond 2025. Yes, this year will likely be a strong one for Nvidia, fueled by major capex commitments from its biggest customers—a bullish signal.

But what happens after that?

Will the traditional scaling laws continue to hold? And if not, will advancements shift to other dimensions of innovation?

I think it’s highly likely that AI models will keep advancing, one way or another. But who stands to benefit if the approach to improving AI changes?

Nvidia owes much of its success to its dominance in training AI models. But, from what I gather, while it’s still strong, its position in inference—the stage where AI models are deployed to make real-time decisions— isn’t as commanding.

So, if scaling through inference (time-test scaling) is the next frontier of AI innovation, will Nvidia be as successful there? That’s the big question.

In fact, many of Nvidia’s customers have begun designing their own AI chips in collaboration with companies like Broadcom and Marvell because they see an opportunity to gain an edge in inference, where they believe Nvidia’s dominance isn’t as firm as it is in training.

We’ll see what happens with that.

How I’m Thinking About Nvidia

Overall, I think Nvidia is in a strong position, but it’s understandable that investors might feel uneasy given the concerns I’ve outlined—especially following the massive surge in its stock over the past few years.

Since June of last year, Nvidia’s stock has been largely flat as it digests those big gains and investors weigh the sustainability of its growth story.

So, here’s how I’m thinking about Nvidia right now: In the long term—looking 5 to 10 years ahead—I think the stock will do well. It’s led by a visionary CEO, Jensen Huang, and has consistently proven itself to be a highly innovative company operating at the forefront of massive industries.

Whether it be generative AI, autonomous vehicles, or robotics, Nvidia is going to be a big player.

But the short-to-medium term outlook is more uncertain. If we see an AI bubble—I’ve been on the record as saying an AI bubble is very much possible given that most transformative technologies tend to fuel speculative bubbles early on— Nvidia is in prime position to rise with that wave.

On the flip side, if investor enthusiasm for AI starts to cool or concerns about Nvidia’s dominance in the market become more pressing, then then stock could face headwinds.

Nvidia’s profit margins are unusually high right now relative to its own history and that of other big tech companies. I think those margins will eventually normalize, and when that happens, it could act as a drag on the stock.

So, while I like Nvidia long term, I’m not sure about it shorter-term— I can see it going either way. I’m a buyer on big dips, but I wouldn’t be chasing it.

A Boon for Meta

DeepSeek may have complicated Nvidia’s narrative, but I see these new developments as a positive for another area: AI applications.

If the cost of AI dramatically declines, that’s good for companies that are creating products that leverage AI— whether it’s productivity apps that help people work more efficiently, video editing tools that simplify content creation, or generative AI platforms that unlock entirely new creative possibilities.

And one of the biggest beneficiaries of a decline in the cost of artificial intelligence is Meta.

In fact, Meta has been driving for this. The company develops the Llama family of AI models, which, like the DeepSeek models, are open source— meaning anyone can use them for free.

Meta’s goal with Llama isn’t to profit from it— because, after all, it’s free— it’s to drive down costs for the company and ensure that it’s never dependent on proprietary, closed-source models like those from OpenAI.

To the extent the achievements of DeepSeek prove that high-quality AI can be developed at a lower cost, it basically validates Meta’s strategy.

In the long run, a lot of the value in AI is going to come from applications, and Meta is in prime position to benefit from that since it already owns a family of highly-popular social media apps used by billions of people worldwide.

The company has started incorporating AI into its products, making them more engaging for users and useful for advertisers. As AI continues to advance, we’re going to see many more AI capabilities added to these apps, making them even more lucrative for Meta.

The $500 Billion Stargate Project

On Tuesday, President Trump unveiled Stargate, a $500 billion initiative to build AI infrastructure in the U.S.—primarily massive data centers equipped with cutting-edge supercomputers.

The ambitious project is designed to maintain America’s leading position in artificial intelligence, but its eye-popping price tag has raised eyebrows.

Standing alongside Trump during the announcement were three tech heavyweights: Oracle founder Larry Ellison, SoftBank boss Masayoshi Son, and OpenAI CEO Sam Altman. These companies, along with MGX—an Abu Dhabi-based investment firm—are supposed to provide the initial funding for Stargate.

But here’s the problem: even though these companies are big names, they may not have anything close to the kind of money they’re claiming to have.

After OpenAI tweeted about their involvement in Stargate, Elon Musk jumped into the conversation. He asserted that the Stargate collaborators actually don’t have the necessary funds.

In fact, according to Elon, they’ve secured well under $10 billion—a far cry from the $125 billion per year they’ve pledged to invest.

Elon isn’t the only one casting doubt. Tech investor Gavin Baker called the $500 billion figure “ridiculous” and said, “no one should take it seriously.”

His post on X broke it down like this: SoftBank has $38 billion in cash right now; Oracle has $11 billion; MGX might have $10 billion; and OpenAI has none (they’re burning through their cash to build their AI models and apps like ChatGPT).

That’s “nowhere close to $500 billion,” he said, while adding that the group “might be able to put together $50 [billion] in equity funding over several years.”

The Altman vs. Musk Showdown

In addition to Elon and Gavin, many others on X expressed skepticism about how big the Stargate project will really be.

But Open AI CEO Sam Altman didn’t let those comments go unanswered. He fired back at one of Elon’s tweets, calling Musk’s claims wrong while defending Stargate as “great for the country.”

Then, he went for the jugular, as you can see from the Tweet below:

Ouch. That’s a pretty pointed jab, and it’s clear there’s some bad blood between these two. Remember, Elon and Sam were both among the 11 founders of OpenAI, but Elon left in early 2018 after an internal power struggle.

Then in 2023, Musk launched xAI, a direct competitor to OpenAI. And in 2024, he even sued his former company, accusing it of abandoning its nonprofit mission and prioritizing profits.

So, there's definitely some history between Elon and Sam, and it might be influencing how these two AI heavyweights view each other’s moves.

Skeptical but Hopeful

Beef aside, when it comes to the Stargate venture, I’m with Elon: I’m skeptical that they will be able to invest $500 billion over four years like they say they will.

That said, I’m keeping an open mind. Maybe SoftBank’s Masayoshi Son will be able to raise huge sums of money from outside investors like he did for his $100 billion Vision Fund several years ago. Altman also has a reputation for being a great salesman and fundraiser, so maybe the two can pull off something extraordinary together.

Whether or not Stargate achieves its ambitious goals, the effort itself is commendable. I applaud the Trump administration and the companies involved—OpenAI, Oracle, SoftBank, and MGX—for uniting to pursue such a bold vision. This kind of initiative is exactly what’s needed to ensure America remains a global leader in AI innovation.

And regardless of what happens with this particular project, one thing is certain: AI investment will continue to boom.

America’s biggest tech companies, including Google, Microsoft, Amazon, Meta, and Oracle, are expected to spend a combined $311 billion on capital expenditures this year—up from $253 billion last year. Much of this spending will go toward AI infrastructure.

So, while Stargate’s $500 billion target might be a stretch, there’s no denying that hundreds of billions of dollars will be invested in AI in the coming years.

So, what’s going on? Let me break it down.

Trump’s Latest Venture

Donald Trump just launched a meme coin. Yes, days before his second inauguration, he decided it was a good idea to create his own crypto token and hype it to his millions of followers.

Even the crypto community—which loves a good meme coin—is cringing at this one. Why? Because it feels like a shameless cash grab.

The leader of the free world is hyping up what is, let’s face it, a glorified instrument for gambling.

If you’re just catching up, here’s what happened.

A $75 Billion Frenzy

Late Friday night, the Trump coin launched on the Solana blockchain. At first, people thought it was a scam.

Did Trump’s social media accounts get hacked? Why was he suddenly pushing this random crypto thing? But as time passed, the realization hit: this was legit. Trump had actually launched his own meme coin.

Once that became clear, the frenzy began.

From an initial value of basically nothing, the Trump coin’s fully diluted market cap hit $10 billion within three hours of its release. Four hours later? $20 billion. And by Sunday morning? A staggering $75 billion.

Now, we don’t know how much of the Trump coin Trump himself owns, but we do know that entities associated with him own 80% of it.

That means that at the highs, Trump’s personal stake in the coin was worth as much as $60 billion. You heard that right: Sixty. Billion. Dollars.

That’s almost a 10x jump in his net worth in under 34 hours.

Not Illegal

As absurd as this situation is, it’s not technically illegal. Every day, countless meme coins launch. Most of them fade into obscurity; some pump and then dump; and a rare few actually stick around.

There are actually entire platforms, like pump.fun, that allow anyone to launch their own meme coin in minutes—no technical expertise required.

You see, meme coins live in this weird legal gray area. Are they securities and thus subject to securities laws? Or are they not? Nobody really knows.

Under the Biden administration, the head of the Securities and Exchange Commission, Gary Gensler, had a reputation for being relatively hostile to the crypto industry. But even under Gensler, meme coins thrived.

And now with Trump coming back as president, things could get even crazier.

Trump has promised to be a champion of the crypto industry. He’s floated the idea of creating a strategic reserve of digital assets—where the government itself would buy up crypto assets like bitcoin.

Could the Trump coin be a part of this hypothetical strategic reserve? It sounds ridiculous today, but with Trump, you never know.

Feels Shady

Let’s not forget, this isn’t Trump’s first foray into crypto. Remember his digital trading card NFT collection? How about the “World Liberty Financial” project? He’s been dabbling in crypto for a while.

Still, there’s something about the Trump coin that feels… different. Those other crypto ventures had at least the pretense of being valuable for those who participated in them.

The Trump meme coin does away with all that. It has zero intrinsic value—it’s pure hype, with no attempt to disguise it as anything else.

To put it simply, meme coins facilitate a form of gambling where early buyers can get rich, while latecomers are often left holding the bag.

The more hype a meme coin generates—luring in buyers with dreams of quick profits—the more money those early investors stand to make.

It can feel a bit exploitative, but as long as everyone involved knows what they’re getting into, it’s considered part of the game. The problem is, some buyers don’t fully understand the risks—they get caught up in the hype and end up taking significant losses.

And with the Trump coin, you can bet this issue will be amplified to an entirely new level due to the sheer scale of its reach and the weight of Trump’s name behind it.

The timing of the Trump coin launch makes it feel especially shady as well, taking place just days before Trump enters office. Why would you start your presidency with a decision that feels so transparently self-serving? What purpose does it serve other than to enrich Trump at the expense of his followers?

And the fact that Trump allocated so much of the coin’s supply to himself makes it feel even more questionable.

A Pandora’s Box for Politics

Some have also suggested that while the Trump coin probably isn’t illegal per se, it could set a dangerous precedent.

It opens a Pandora’s box where politicians could use meme coins as tools for bribery or influence-peddling, further blurring the already hazy lines between political power and personal enrichment.

But let’s be real—this is classic Trump. He’s made a career out of being outrageous and constantly shifting the Overton window.

Not to mention, he’s always found a way to capitalize on any opportunity to make a quick buck.

From hawking Trump-branded watches to selling bibles during his presidential campaign, this is just another chapter in the Trump playbook. The only difference is, this time, the stakes are in the billions.

A Semi-Positive Spin

Now, to be fair, there’s a positive spin some of this.

While meme coins are often seen as little more than fun gambling tokens named after internet memes or celebrities, some in the crypto community hold a more idealistic vision for them.

They imagine a future where these tokens go beyond pump-and-dump schemes to become utility tokens that offer real-world benefits to their holders—like exclusive access to events, merchandise, or digital platforms.

The PENGU coin associated with the Pudgy Penguins brand is an example of this.

But, like I said, the Trump coin project doesn’t even pretend to be useful. It makes no attempt to provide value beyond hype and speculation. And even if it did, I don’t think it would make it any more appropriate.

Don’t get me wrong: I’m all for crypto experimentation—even meme coins if you’re into that. But do we really want the president of the United States launching one?

There’s a reason that presidents have historically divested from their personal businesses or placed their assets in blind trusts—it’s to avoid conflicts of interest or even the perception of conflicts of interest.

Trump not only threw that tradition out the window but lit it on fire.

That’s why, while I do think meme coins are here to stay (I’ve written about how Dogecoin, the original meme coin with the Shiba Inu mascot, has stood the test of time and retained value), it’s hard not to feel uneasy about the Trump coin.

The Golden Age of Grift

The “crime is legal” joke on X captures this sentiment perfectly. Of course, crime isn’t literally legal—at least not for the rest of us.

But it definitely feels like we’re entering the “golden age of grift”—which is another sentiment that’s gaining traction across X as well.

If Trump can launch a self-serving venture like this with no real consequences, then any bad actor might be encouraged to follow suit. Under the Trump administration, the SEC isn’t likely to do much to stop them.

In other words, we’re swinging from the restrictive policies of Gensler’s SEC to what might be a complete free-for-all.

The Trade Off

Now, I acknowledge that there’s a trade-off between investor choice and innovation on one hand, and investor protection on the other. Perhaps Gensler’s SEC went too far in cracking down on crypto, stifling innovation and preventing people from using their money as they saw fit.

But now we’re swinging over to the other side, where there might be plenty of innovation, but also a lot of fraud and cases of unsuspecting investors getting burned.

Hopefully, the good outweighs the bad— but there’s no guarantees that that will be the case.

Anyway, we’ll see what happens; for now, crypto still feels like a casino. The truly useful applications of blockchain haven’t hit the mainstream yet.

I’m optimistic they will—eventually. But I’m highly skeptical that the Trump coin will be one of them.

The 80% of the Trump coin supply held by Trump and his associates is currently restricted from being sold, but they’ll have the chance to cash out in stages over the next three years.

The question is: will they take the easy gains and run, or will they hold onto their stakes to create something with lasting value? Only time will tell—but I wouldn’t hold my breath.

To make this even more striking, TikTok’s U.S. revenue isn’t far behind the $36 billion that YouTube brought in globally for Alphabet in 20241. In fact, if TikTok were to continue operating unimpeded, it has a great shot at surpassing YouTube in revenue this year.

But that’s a big if.

TikTok is hurtling towards a ban in the U.S., and even if it somehow avoids that fate, the app’s American operations may be sold off—potentially without its prized recommendation algorithm.

Losing the algorithm, which powers TikTok’s addictive content discovery, would fundamentally alter how the app functions.

For ByteDance, the stakes couldn’t be higher. The potential loss of TikTok in the U.S. would be a devastating blow to the company. After all, we’re talking about a business that could have generated $100 billion or more in annual revenue in the not-too-distant future.

If TikTok’s U.S. operations are sold, maybe it still hits those numbers, but ByteDance wouldn’t benefit from any of that growth. And if the sale happens under duress and without the algorithm, ByteDance would be forced to accept a fraction of TikTok’s true value.

On the flip side, any buyer of TikTok’s U.S. operations could land an incredible bargain—especially if the rumored $50 billion price tag is accurate. At that price, TikTok’s U.S. business would sell for less than 2x its 2024 revenue.

That sounds like a steal, but there’s a catch. Any buyer would need to replicate TikTok’s magic—its algorithm—for the app to maintain its dominance. If they can pull that off (or even come close), TikTok’s U.S. business could eventually be worth $1 trillion.

For comparison, take a look at Meta, the world’s most valuable social media company. Meta trades at more than 9x its 2024 revenue, far outpacing ByteDance, which trades at a mere 1.5x revenue2. Much of that valuation gap stems from the “China discount.”

Chinese companies, no matter how successful, tend to trade at much lower valuations than their U.S. counterparts. Geopolitical tensions, regulatory risks, and concerns about governance and financial transparency weigh heavily on their valuations.

If TikTok were owned by a U.S. company, that discount would disappear overnight. The app’s value would skyrocket.

We’ll see what happens. For now, TikTok’s future remains uncertain. A ban, a sale, or the status quo—any outcome seems possible.

You might have heard that recently, Elon Musk became the first person ever to reach a net worth of $400 billion.

Elon has a great shot at becoming the world’s first trillionaire, but he’s not the only one in this race.

This week, Elon’s net worth swelled to as much as $486 billion, according to the Bloomberg Billionaires Index— just short of half a trillion dollars.

• $339 billion of his wealth comes from stocks and options tied to Tesla
  

• $136 billion comes from his stake in SpaceX
  

• Another $25 billion comes from his ownership position in xAI
  

• And then he has some less valuable stakes in companies like X, the social media platform formerly known as Twitter ($7 billion); The Boring Company, which is focused on underground tunneling ($3 billion); and Neuralink, a company aiming to connect brains with computers ($2 billion)1

Because Tesla makes up such a significant portion of Elon’s wealth, and because the company’s stock is so volatile, Elon’s net worth is also extremely volatile.

Earlier this year, Tesla’s stock plunged because the electric vehicle market was struggling and there were a lot of concerns about competition from other automakers.

In April, as shares of Tesla dropped, Elon’s net worth fell as low as $164 billion.

But since then, Tesla’s stock has bounced back hard, reaching a record high for the first time in three years.

Investors’ focus has shifted to a potential reacceleration of Tesla’s EV sales in 2025, and they’ve started speculating that some of Tesla’s more futuristic bets— like its autonomous robotaxis and its humanoid robots— will pay off.

Since April, Tesla’s stock has tripled, which is similar to the increase in Elon’s net worth in that time.

But while Tesla has been the biggest contributor to the increase in Elon’s net worth, it’s not the only contributor.

Elon has also benefited from gains in his other ventures.

For instance, in its latest funding round, SpaceX— the maker of rockets, satellites and spacecraft— was valued at $350 billion, double what it was worth a year ago.

At the same time, xAI, the company behind Grok— a competitor to OpenAI’s ChatGPT— was valued at $50 billion (which is incredible considering that xAI was founded by Elon just last year).

So, if Elon is going to add another half a trillion dollars to his net worth, the gains are probably going to come from an increase in the value of these three companies— Tesla, SpaceX, and xAI.

This is a big advantage for Elon in the race to become the world’s first trillionaire: he has three high-growth companies driving his wealth, which is something that’s unique among centibillionaires.

That said, it’s not a foregone conclusion that Elon wins the race to trillionaire status. Right now, Elon is by far the richest person in the world with a net worth that’s double the next-richest person, Amazon founder Jeff Bezos, who has a net worth of almost $250 billion.

But $250 billion is obviously still an incredible sum of money, and puts Bezos a quarter of the way to a trillion dollars.

Meta CEO Mark Zuckerberg is also up there with a $220 billion net worth, and then there’s a bunch of other people— like the founders of Google and Microsoft, as well as members of the Walmart family— in the $100 billion to $200 billion net worth range.

Now, getting from $100, $200, or 300 billion to $1 trillion is no small feat. These people have to 3x, 5x, or 10x their wealth to get there.

In order to accomplish that, they have to own assets with a lot of upside potential, and ideally, assets that could appreciate quickly in value if they want to be the first one to reach the trillion-dollar milestone.

A guy like Bernard Arnault, the founder of the luxury goods conglomerate LVMH, isn’t in that category. His companies— like Louis Vuitton and Sephora— are great, but I don’t think they have the type of growth potential needed to multiply his wealth quickly enough to reach the $1 trillion mark first.

The same goes for the Walton family. Walmart’s stock has performed incredibly well recently, almost doubling from where it was at the start of the year.

But again, Walmart isn’t a high growth business, so the stock likely won’t keep surging at that same pace.

Someone like Jeff Bezos, on the other hand, has a shot. He’s No. 2 on the list right now, and Amazon operates in some fast-growing, high-tech industries, like AI and robotics.

That said, I think the biggest competition for Elon is Mark Zuckerberg.

Meta has all the ingredients to be an incredibly massive company. Obviously, it already is— but I think it could become substantially bigger if some of its major investments in AI, AR, and VR pay off.

So, I think the first trillionaire is going to be one of these two guys— Elon or Zuckerberg. Which brings us to the next question: when might we see the world’s first trillionaire?

I think that depends on whether the first trillionaire is either Elon, Zuckerberg, or someone else.

If it’s Elon, I think it’s going to happen relatively soon. The stocks of all his companies have a ton of momentum right now and the market environment is ripe for them to continue appreciating.

On the other hand, the high valuations of Elon’s companies are predicated on optimism about future growth. If that growth fails to materialize or investors turn more pessimistic about his companies, Elon’s net worth could tumble, just like we saw in April (as private companies, shares of SpaceX and xAI won’t be nearly as volatile as those of Tesla).

But let’s say all of the stars align for Elon; in that case, he could reach trillionaire status in the next few years—heck, maybe even in 2025.

Shares of Tesla and SpaceX have doubled over the past year, while xAI has gone from nothing to a $50 billion valuation.

I’m certainly not saying that kind of performance will necessarily repeat itself, but given that we are in an increasingly exuberant market environment, it’s not out of the question.

For Zuckerberg, it’ll probably take longer. He owns roughly 13.5% of his company, so Meta’s stock would need to reach a market capitalization of around $7.5 trillion for Zuck to become a trillionaire.2

That’s a fivefold increase from where it is today. At a 20% growth rate, that would take nine years; at a 30% growth rate it would take six years.

So, if Elon’s companies falter, Zuck has a great shot at being the first trillionaire.

An Inevitability

Of course, there are no guarantees and it’s possible that neither of these guys become a trillionaire (or at least, the first trillionaire).

But even if that’s the case, I think it’s almost a certainty that the world will eventually have not only one trillionaire, but multiple trillionaires.

Most of the people who are billionaires today are going to grow their wealth over time. Their companies are going to get bigger and more profitable, making them more valuable.

A 15% return compounded over a decade quadruples someone’s wealth, while a 15% return compounded over 15 years leads to an eightfold increase.

So, anyone with a net worth of around $125 billion today could conceivably become a trillionaire in the next decade and a half if they can generate those types of returns.

That’s why I think there will be a world of multiple trillionaires— and those trillionaires will include people who are currently among the richest people on Earth and other people who will rise the ranks in the future.

Trillionaires are inevitable.

In fact, we’d probably already have a trillionaire today if Bill Gates, the founder of Microsoft, didn’t decide to sell most of his shares.

When Microsoft went public in 1986, Bill Gates owned just under half of the company. If he kept that stake, it would be worth $1.7 trillion today.

But of course, Bill Gates didn’t hold onto those shares. He’s been steadily reducing his position to the point where he now owns less than 1% of Microsoft.

That said, there’s no need to shed any tears for Bill. He’s still worth $165 billion and a lot of his money has gone to charity.

It’s a similar story for Bill Gates’ good friend, Warren Buffet. If he continued to hold the nearly 500,000 shares of Berkshire Hathaway that he owned two decades ago, he’d be worth $341 billion today.

Instead, he’s given away over half of his shares and has plans to give away almost all of them eventually.

I think Bill Gates and Warren Buffet are well aware that past a certain number, the amount of money you have doesn’t matter all that much.

$1 billion is already an unbelievable amount of money. At a 5% interest rate, that’s equal to $50 million of income per year.

You could essentially buy anything you want.

$1 trillion— or 1,000 billions— is an ungodly amount of money, equal to $50 billion of income per year at a 5% interest rate, or more than the GDP of half of the world’s countries.

A trillion dollars is also more than the current market value of Walmart, as well as all but ten companies in the world.

So, to have this ridiculous level of wealth in the hands of a single person would be absolutely insane. But what could they do with this trillion that they couldn’t do with $1 billion, $10 billion or even $100 billion?

Well, if you’re talking about consumption goods, nothing changes. Beyond a certain level of wealth, it doesn’t matter how much money you have.

At $10 billion, someone can already buy all of the houses, private jets and luxury yachts that they want.

Where it potentially changes things is the level of influence that someone can have in society. Rich people have always been able to shape politics and culture— whether through campaign donations, lobbying efforts, or owning media outlets like newspapers and TV stations.

But with a trillion dollars, that level of influence could be amplified dramatically.

Instead of spending a few million dollars to influence an election, they could spend hundreds of millions, or even billions, of dollars.

Instead of owning a newspaper that reaches a few million people, they could own a social media platform that reaches hundreds of millions.

With the enormous resources they have, they could spread their influence far and wide—not just across America, but the entire world, shaping public opinion, government policies, and even cultural norms on a global scale.

We’ve already seen this happen to some extent with everything that Elon Musk has done over the past year.

Elon is obviously a one-of-a-kind figure, but I don’t think he’ll be the only ultra-wealthy individual who uses their wealth to reshape society and influence global events on a massive scale.

As the ranks of centibillionaires— and eventually trillionaires— grow, we’ll likely see others use their resources in similar ways.

Things are going to get interesting.

We’re in uncharted territory when it comes to the level of wealth that an individual has.

No human in history— not even titans of the past like John D. Rockefeller— has had the level of wealth that Elon and other centibillionaires have today.

Maybe you could say some authoritarian rulers of relatively large or wealthy countries (like Russia’s Putin or Saudi Arabia’s MBS) have similar levels of wealth. And in a certain sense, they might even be richer— but it’s hard to quantify that.

In terms of private individuals, though? We’ve never seen anything like this.

Dialysis patients— there are about half a million of them. We actually spend 1% of the federal budget on the dialysis program. Not 1% of Medicare— 1% of the federal budget is the dialysis program.

That’s a quote from Jetson Leder-Luis speaking on Bloomberg’s Odd Lots podcast about how one out of every hundred dollars that the federal government spends each year— or almost $70 billion— goes to 500,000 dialysis patients.

Now, this is not to say that those patients shouldn’t get the care that they need— I think that they should.

But the fact that the government spends something like $140,000 per year on dialysis for each of those patients goes to show how expensive health care in this country is and makes you wonder whether the money is being used wisely or not.

Actually, this is the type of question that the new Department of Government Efficiency (DOGE) headed by Elon Musk and Vivek Ramaswamy was created to address.

I’ll admit, when I first heard about DOGE, I was skeptical— and don’t get me wrong, I still am to some extent.

But as I’ve learned more about how much money the government spends and what it spends its money on, it’s become clear that there could be real benefits to shining a light on government spending.

Let me give you another snippet from the podcast with Jetson. Here, Jetson explains the massive amount of fraud that is associated with the dialysis program:

We do not, in general, pay for ambulance rides or taxi rides for these people to go to and from the visits. They are responsible for getting themselves to the clinic— three times a week for a few hours. And that’s in perpetuity; it’s very challenging to get a kidney and therefore get off of dialysis.

We had this system— and this is sort of the canonical Medicare fraud— we build in a little thing for the few people who need it and that turns into a loophole through which bad actors drive a truck.

So, we built in this provision, which is, if the only safe way that you can get to the dialysis clinic is in an ambulance, Medicare will pay for an ambulance. And they pay for it at a competitive rate for the ambulance companies at, say, $250 for a one-way ride. Now, that’s not a lot of money for an ambulance, but it’s a heck of a lot money for a taxi.

And what happened is, thousands of firms around the country opened with the express intention not of giving people serious medical care, but of becoming an expensive ambulance taxi.

[They] billed the government— we have 100% data from the dialysis system; we can see all of these payments— more than $7 billion for nonemergency ambulance transportation over the following ten years. $7.7 billion [to be exact], and a lot of it was fraud.

The government cracked down; the government really tried to crack down. And in particular, they used a number of tools. The first one is they started throwing people in prisons.

But it’s so easy to start an ambulance company, that we see these stories where someone gets busted and their family member goes and opens a company next door the next day. And this persisted for years, with thousands of companies and billion of dollars of spending just down the drain.

Wow! That’s some pretty eye-opening stuff. And this is just one example of fraudsters taking advantage of the government to the tune of billions of dollars.

Jetson says that there are many other examples of widespread fraud in the health care industry, and that by reducing this fraud, the government can save as much as $100 billion.

Not only that, he says that if this same scrutiny is applied to other categories of government expenditures, like defense spending, there could be additional savings of tens or hundreds of billions of dollars.

Jetson isn’t the only one saying this.

The U.S. Government Accountability Office— which is the federal agency responsible for auditing government spending— estimates that the federal government could be losing as much as $521 billion per year due to fraud, and over $200 billion per year due to improper payments (where the government accidentally sends too much money to someone or sends money to someone they’re not supposed to send money to).

If Jetson and the Accountability Office are right, then that’s a big opportunity for Elon and Vivek’s Department of Government Efficiency.

In a recent op-ed on the Wall Street Journal, the duo wrote that they would find a way for President Trump to cut government spending dramatically by rooting out waste, fraud and abuse in the federal government.

So, the fraud that Jetson and the Government Accountability Office identified is exactly the type of thing that DOGE is seeking to eliminate.

That said, Elon and Vivek are targeting much more than just fraud.

They’ve said that they also want to dramatically reduce the federal government workforce and cut expenditures that aren’t explicitly authorized by Congress— like grants to international organizations and to Planned Parenthood.

Those are obviously more controversial things that you may or may not agree with.

But regardless, there does seem to be the potential to reduce government spending significantly in ways that almost everyone agrees on— like rooting out fraud and cutting out waste.

And that’s interesting to me because my initial assumption was that it’d be impossible to move the needle on government spending without drastic reductions in entitlement programs.

If you look at what the federal government spends money on today, of the $6.75 trillion of total spending, over 60% of it is mandatory— that is, it’s required to be spent based on existing laws. This is spending on things like Social Security and Medicare.

Another 13% is spent on interest on the federal debt— which also must be paid.

That leaves another bucket called discretionary spending, and that includes expenditures on national defense, education, transportation, and other programs that Congress approves through annual appropriations bills.

Of this discretionary spending bucket, defense makes up around half of it— and as you probably know, most people don’t want to touch defense spending; it’s widely seen as politically off-limits.

So, my thought was that unless the government made tough choices by cutting Social Security or Medicare benefits, you couldn’t reduce government expenditures significantly; there just wasn’t enough meat in that non-defense discretionary spending bucket to make a difference.

But it turns out that the government can potentially save a bunch of money even without cutting entitlement programs— and that’s a good thing.

Of course, just tackling fraud and waste might not be enough if you’re worried about runaway government deficits.

Cutting a few hundred billion dollars in government spending is great, but the U.S. federal government now spends nearly $1 trillion per year just on interest on the national debt.

And if the current trajectory persists, that amount is only going to get bigger, which could lead to a fiscal crisis down the line if nothing is done about it.

So, if we want to address that, maybe more drastic actions must be taken— like reforming entitlement programs or even raising taxes.

That’s a related but different topic. The point of this post is that there is an opportunity to save a lot of money by making the government more efficient, and that’s a worthy goal that could have a positive impact on the U.S. economy broadly.

After all, federal government spending represents around a quarter of GDP. Making the government more efficient makes our entire economy more efficient.

This is particularly true when it comes to the health care industry, where the government plays a major role through programs like Medicare and Medicaid.

The U.S. spends around $4.5 trillion, or $13,500 per person, on health care per year. The federal government accounts for a third of spending; so, to the extent those dollars can be used more efficiently, the better off the economy will be.

Granted, there’s probably a limit to how efficient you can make the government; incentives in the public sector are different than they are in the private sector. The government is never going to operate like a private company— nor should it.

Not to mention, identifying and rooting out fraud and waste is easier said than done— but it doesn’t mean we shouldn’t try.

The Government Accountability Office and the more than 70 Inspectors General that work in federal agencies have thousands of open recommendations for how to improve the government’s performance.

They say that those recommendations could quickly be implemented, saving the government hundreds of billions of dollars.

Given Elon and Vivek have close ties with Trump, they could help push these recommendations through, as well as come up with their own solutions to reform government spending.

On the other hand, Elon and Vivek aren’t necessarily neutral parties in all of this. They have a political point of view that you might not agree with, so you might take issue with their approach.

Maybe they want to cut government spending much more than you’re comfortable with. Or they want to cut things you don’t want to be cut.

And that’s completely fair.

But regardless of whether you support the exact methods that they propose, it’s still encouraging to see the topic of government efficiency gaining such prominence.

Cutting things like waste and fraud in government is a bipartisan issue and now that it’s out in the open, both partes can address it in the way they see fit.

So, we’ll see what happens. Elon and Vivek have said that they intend to complete their work and shut down DOGE by July 4, 2026— about a year in a half from now.

It’ll be interesting to see how much they can accomplish in that relatively short period of time.

Saylor’s net worth has soared to more than $10 billion this year, making him one of the 250 richest people on the planet.

But Saylor’s rise into the upper echelons of wealth has come with a lot of controversy.

Recently, he’s claimed that his company, MicroStrategy, is the most profitable company in the world— that it’s making $500 million per day— more than Apple, Amazon, Microsoft or any of the mega companies that we’re all familiar with.

Not only that, Saylor claims that he and MicroStrategy are just getting started, and that every company— and every person in the world— needs to copy his strategy or risk being left behind.

Is there any truth to this or is it all just a scam?

Judging by what’s going on in the stock market, investors seem to believe what Saylor is saying.

MicroStrategy’s stock has been going through the roof. It’s now valued at around $100 billion, up from just $10 billion at the start of the year.

So, what’s going on here? Has Saylor really created a perpetual money machine?

That’s what I’m going to talk about today. First, let’s lay out what MicroStrategy actually is.

Software Origins

Founded in 1989, MicroStrategy originally developed software for business intelligence. Interestingly, the company was a big winner during the internet bubble of the late 1990’s.

When that bubble peaked in the year 2000, MicroStrategy’s stock soared to astronomical heights, catapulting Saylor’s net worth to $7 billion.

But the bursting of the internet bubble and an accounting scandal at MicroStrategy caused the stock to plummet, and with it went Saylor’s net worth.

That’s ancient history now, but it gives you a little bit of context about the types of ups and downs that Saylor has seen during his career.

A Dramatic Transformation

In the 20 years after the internet bubble burst, MicroStrategy continued to trudge along and sell software.

In those years, it was a relatively small company by the standards of publicly-traded companies, with a market value of around $1.5 billion.

But that changed in 2020 when MicroStrategy began a dramatic transformation. In August of that year, it became the first publicly-traded company to purchase bitcoin.

Using cash that it had in the bank, the company bought $250 million worth of the cryptocurrency at an average price of around $11,650.

That, it turns out, would be the first of many large bitcoin purchases by MicroStrategy.

At the time of the first purchase, Saylor said that his company was buying bitcoin because it was digital gold— a new form of money that would protect against inflation and provide upside for early investors.

Very quickly, he seemed to be proven right. Inflation accelerated and bitcoin prices rocketed higher in 2021.

And all throughout that period, MicroStrategy continued to purchase bitcoin aggressively— not just with the cash that the company made from its software business, but with additional funds that it raised from investors as well.

These funds enabled MicroStrategy to buy much more bitcoin than it would otherwise be able to buy.

The first of these capital raises came in December of 2020, when MicroStrategy raised $650 million by selling convertible bonds.

To put that in perspective, the $650 million was more than the total cash the company had generated in the previous decade from its software business.

So, by raising money from investors, MicroStrategy was able to amplify its firepower to an enormous degree.

This continued for a while— MicroStrategy would raise money through stock and bond sales and use the proceeds to buy bitcoin. And as this went on, MicroStrategy’s name recognition grew and its stock price surged.

Between August of 2020, when MicroStrategy made its first bitcoin purchase, and November of 2021, when the price of bitcoin reached a multiyear peak, the company had bought 114,000 bitcoins at an average purchase price of $27,713.

When bitcoin reached its high, it was trading at around $68,000, meaning MicroStrategy had more than doubled its investment.

Its 114,000 bitcoins were worth just short of $8 billion— a gain of $5 billion for the company.

Things were looking incredible for MicroStrategy and Michael Saylor at the time. The stock had increased 10-fold from where it traded before the company began buying bitcoin and nothing could seemingly go wrong.

But a few months later, everything changed.

Crypto Winter

In 2022, financial markets plunged as the U.S. Federal Reserve hiked interest rates dramatically to combat inflation.

In turn, the price of bitcoin crashed. The implosion of the crypto exchange FTX compounded the problems for the crypto industry and by late 2022, bitcoin had dropped 77% from its highs, reaching a low of $15,600.

All of a sudden MicroStrategy’s big bet on bitcoin was looking downright foolish. The company was now losing money on the bitcoins that it bought and the stock price reflected that, with shares down nearly 90% from their highs.

At the time, there were legitimate concerns about not only MicroStrategy’s ability to continue executing its strategy of investing in bitcoin, but its ability to survive at all.

Remember the $650 million worth of convertible bonds that MicroStrategy sold in December of 2020? If crypto markets remained depressed, MicroStrategy would be on the hook to pay those back.

I’m going to talk more about convertible bonds in a bit, but essentially, they are what are known as hybrid securities because they have characteristics of both stocks and bonds.

If MicroStrategy’s stock price is high enough, the bonds get converted into stocks and the money the company raises by selling them doesn’t need to be paid back.

But if the stock price is low, then the bonds need to be paid back like any other form of debt.

When bitcoin crashed in 2022 and MicroStrategy’s stock was in the gutter, the convertibles were acting more like debt. There was the expectation that they’d probably have to be paid back at some point.

Fortunately for MicroStrategy, the maturity date for the bonds was December of 2025, so the company had plenty of time before it had to come up with the money.

Bitcoin bottomed out in late 2022, so there was almost three years before these bonds would mature.

That gave Saylor and his team some much needed breathing room. So rather than panic when bitcoin prices plunged, they were able to hunker down and stick it out.

They didn’t buy much bitcoin in 2022, but as cryptocurrency prices started to recover in 2023, they started to buy it again.

MicroStrategy bought $1.9 billion worth of bitcoin in 2023 and another $4 billion worth of bitcoin during the first nine months of 2024.

Turbocharged

That brings us to the present day, when things are getting really insane. Over the past few weeks, MicroStrategy has absolutely turbocharged its bitcoin purchases.

On November 11, it announced that it bought $2 billion worth of bitcoin; a week later on November 18, it announced a $4.6 billion purchase; and a week after that on November 25, it revealed a $5.4 billion buy.

In other words, in just the span of two weeks, MicroStrategy bought $12 billion worth of bitcoin. In terms of dollar value, that’s more bitcoin than the company had bought in the previous four years combined!

The crazy part about all this is last month, MicroStrategy unveiled this bold plan to raise money from investors to purchase $42 billion worth of bitcoin over the next three years.

That was already a huge, almost unbelievable amount of money to raise in just three years, but now we see that the company has raised almost a third of that in just two weeks.

These massive numbers have really excited investors, and it’s the reason why MicroStrategy’s shares have skyrocketed in recent days, pushing the company’s market cap to $100 billion.

In fact, the excitement has grown to such a level that MicroStrategy is now valued at around 3x the value of its bitcoin.

You heard that right. While MicroStrategy’s market cap is around $100 billion, its bitcoin holdings are worth only $36 billion.

This big gap is the reason why MicroStrategy is such a controversial stock. Bears argue that the stock is way overvalued, while bulls say that it deserves its premium valuation.

Let’s look at both sides of this issue to see who is right. I want to start with the claims made by Michael Saylor that I mentioned at the beginning of this post— all that talk about how MicroStrategy is the most profitable company in the world making $500 million per day.

I’m going to be honest with you: that claim is extremely misleading. It’s based on the fact that MicroStrategy bought a bunch of bitcoins over the past few weeks and the price of bitcoin went up since the company bought them.

Anyone can go out and buy an asset— whether it be a stock or a cryptocurrency— and make some quick money.

Those are investment gains and they’re not in any way the equivalent of operating profits generated by companies like Apple or Amazon. For Saylor to characterize them in the way that he did is hyperbolic nonsense.

So, that claim is ridiculous. But there are other claims that we should look at as well.

BTC Yield

We know that MicroStrategy’s aim is to buy bitcoin and profit from the appreciation in bitcoin’s price.

I admit: it’s a strategy that’s worked well for the company (at the current bitcoin price of $98,000, MicroStrategy has made $16 billion on its bitcoin investments).

But Saylor often uses a bunch of jargon to make it seem like MicroStrategy is doing much more than just buying and holding bitcoin— that it’s doing something really special to create value for stockholders.

He’s talked about how MicroStrategy is powered by a “bitcoin reactor” that makes money by “stripping the volatility” off of fixed income securities and transferring it to MicroStrategy shareholders.

Jargon aside, the crux of his thesis centers on a metric he calls the BTC Yield, which measures the increase in bitcoin per share over time.

Let me put it more simply. When you go out and buy MicroStrategy stock, you own a certain number of shares. At the same time, MicroStrategy has this big pot of bitcoin that they’ve purchased over the years.

Each of your shares represents a portion of this pot. For instance, today, each share of MicroStrategy represents 0.001451 bitcoins in MicroStrategy’s bitcoin pot.

Saylor says that over time, he can increase the number of bitcoins that each share represents. And because of that, MicroStrategy’s stock is a good investment and deserves to trade at high levels.

The problem is— yes, bitcoin per share has been increasing and could potentially continue to increase—but that’s only because new investors are buying shares at such a high premium.

Let me give you an example with nice round numbers to make this clearer.

If there are 100 shares of MicroStrategy outstanding and MicroStrategy owns 100 bitcoins, then each share represents ownership of 1 bitcoin.

Let’s say the stock price of MicroStrategy reflects this with no premium in the shares.

If bitcoin is trading at $100,000, MicroStrategy’s stock in this scenario also trades at $100,000 because one share represents ownership of one bitcoin.

But now let’s say that investors in MicroStrategy go crazy and bid up the stock so that it has a 200% premium.

In this case, MicroStrategy stock trades for $300,000. If the company goes out and sells 100 shares, it can raise $30 million dollars at that price.

With that $30 million, it can turn around and buy 300 bitcoins at a price of $100,000.

Now let’s look at the situation: MicroStrategy owns 400 bitcoins and there are 200 share outstanding. That means that each share represents ownership of 2 bitcoins, up from 1 bitcoin before.

What’s changed? Each share represents twice the number of bitcoins as it did before. But is this magic?

No— the investors who bought MicroStrategy at a premium price boosted the value of all of the existing shares.

It was a transfer of value from new buyers of MicroStrategy stock to earlier buyers of MicroStrategy stock.

So, this is essentially what’s going on here. There is no free money; there is no free lunch— just a transfer of wealth.

Selling Volatility

There is another aspect of MicroStrategy’s scheme that I should also cover because Saylor talks about it a lot, and it’s this concept of selling volatility.

You see, MicroStrategy has historically raised money from investors in two ways. One is through the sale of common stock, like I outlined in my example.

The other is through the sale of convertible bonds— like those convertible bonds I mentioned earlier in this post.

As I discussed, convertible bonds are hybrid securities. You can think of them like a bond— which is a type of debt— combined with a call option.

If you’re unfamiliar with call options, they are a type of security that entitles you to buy a stock at a particular price (the strike price) at or before a particular time (the expiration date).

A call option has value because the price of the stock in question could rise above the strike price before the option expires. It’s great if you have a call option that grants you the right to buy a stock at $100 if that stock is trading at $120, for example.

Anyway, the more volatile a stock is, the more valuable a call option is because there is a higher chance that the stock will rise above the strike price.

So, in the case of MicroStrategy, the stock is extremely volatile— it moves up and down huge amounts every day— which makes its call options extremely pricey.

MicroStrategy has taken advantage of this by selling convertible bonds, which, like I said, have call options embedded inside of them.

They’re usually structured in a way like this: the holder of the bond gets a small amount of interest— or maybe even no interest.

In exchange for the low interest rate, the convertible bond holder gets the option to purchase MicroStrategy’s stock at a price that’s 50% above the current share price of the company.

So, if MicroStrategy’s stock goes through the roof, that’s great— the bonds get converted into stocks and the holder profits that way.

But if the stock goes down or fails to reach the conversion price by the time the convertible bonds mature, then they’re never converted into stocks and the money is paid back just like any other bond.

With convertible bonds, the upside is unlimited, while the downside is limited— as long as MicroStrategy has the money to pay back the bonds*.

The main thing to understand is that convertible bonds are hybrid securities that MicroStrategy is selling to raise money in order to buy bitcoin.

And just like when it sells regular common stocks, there is no free lunch. After all, in the case where MicroStrategy’s stock rises significantly, convertible bonds turn into stocks.

Granted, MicroStrategy can sell shares at a higher price using convertible bonds than it can with common stocks.

If you sell common stocks, you usually sell them at the current market price of the stock. With convertible bonds, the conversion price is usually much higher than the current stock price (55% higher in the case of MicroStrategy’s latest convertible bond offering).

So, in my earlier example, it would be like MicroStrategy selling shares at $450,000 instead of $300,000.

Anyway, yes, that’s all true; there are some advantages of selling convertible bonds, but there are downsides as well.

By selling convertible bonds, MicroStrategy is making a trade-off— the company is able to potentially sell stocks at a higher price, but at the risk of not being able to sell any stocks if the stock price goes down.

If the stock price doesn’t exceed the conversion price by the time the bonds mature, then the convertible bonds must be repaid.

That is a risk! There is no free lunch.

Worst Case Scenario

Earlier, I talked about how back when bitcoin crashed in 2022, there was all this concern about MicroStrategy not being able to pay back its convertible bonds.

This is what I was talking about. Fortunately for MicroStrategy, bitcoin prices didn’t stay down that long and so the company didn’t have to worry about those convertible bonds that were set to mature in 2025.

Obviously, since then, MicroStrategy’s stock has gone way up and those bonds have long been converted into stock, so they won’t ever have to be paid back.

But that same situation could arise in the future if bitcoin crashes again— and there’s no guarantee that things work out as favorably for the company the next time around.

MicroStrategy has been smart about spacing out the maturities of its bonds so that it doesn’t have to pay them all back at once during a very inopportune time, but if it’s luck is bad, it could still get caught in a storm.

The next bond maturity that the company faces is in February of 2027, so over two years from now.

The worst-case scenario is for bitcoin and MicroStrategy’s stock to crash around that time. If that happens, the company might quickly have to come up with a billion dollars to pay the bonds back, either by selling some of its bitcoin holdings or by selling stock at depressed prices.

But the worst-case scenario isn’t the only downside scenario investors in MicroStrategy have to be wary of.

Two Main Risks

The stock is tied extremely closely to bitcoin. This is for obvious reasons: the vast majority of the company’s value comes from its pot of bitcoins. The software business is probably worth around $1-2 billion, a tiny sliver of the company’s $100 billion market cap.

So, if bitcoin goes down, MicroStrategy will almost certainly go down with it.

In addition to the risk of bitcoin going down, investors have to worry about MicroStrategy’s premium coming down as well.

Today, there is a 3-to-1 ratio between the value of MicroStrategy’s stock and the value of MicroStrategy’s bitcoin holdings. But in 2022, the ratio fell all the way down to 1-to-1.

In fact, it was trading around 1-to-1 at the start of this year.

So, those are the two big risks of holding MicroStrategy stock— a drop in bitcoin and a drop in MicroStrategy’s premium.

The Bullish Case

But, of course, there’s a flip side to all of this also. After all, the stock has performed extremely well this year, rising almost sixfold.

Maybe instead of going down, the stock’s premium continues to expand.

Like I said, today MicroStrategy trades at a value that’s 3x that of its underlying bitcoin holdings. But who is to say that it couldn’t trade at 4x, 5x, or even more?

Now, that would obviously be a speculative bet to make, but judging from the many investors buying MicroStrategy today, a lot of people are willing to make that bet.

It’s interesting: with bitcoin, investors are guessing what the price of bitcoin will be. With MicroStrategy, they’re guessing what the price of bitcoin will be and what the premium of the stock will be compared to the value of MicroStrategy’s bitcoin holdings.

Anyway, you could certainly imagine a scenario where the rally keeps going: bitcoin surges past $100,000, fueling another leg higher in MicroStrategy’s stock.

Michael Saylor and his team seize the moment to raise another $10 billion— or even $20 billion— to buy more bitcoin, which pushes prices even higher, creating a self-reinforcing cycle.

In fact, this scenario that I just described is what makes MicroStrategy’s role in this bitcoin cycle different than it was during the last cycle a few years ago.

MicroStrategy has gotten so large and it buys so much bitcoin now that it can actually impact the underlying bitcoin market in a notable way.

That wasn’t the case during the last cycle back in 2020 and 2021. Now with the company potentially buying $20 billion worth of bitcoin in one shot, that is not negligible, even for an asset like bitcoin, which has a market capitalization of $1.8 trillion.

The Short Term

So, this is how I’m thinking about MicroStrategy over the short and long term.

Right now, we are in a bitcoin bull market. No one knows how long that’s going to last— maybe bitcoin goes to $120,000, $150,000, or even $200,000 (or maybe it’s already topped out; I have no idea).

But to the extent bitcoin goes up, MicroStrategy is probably going to go up as well.

How much it goes up depends on both the price of bitcoin and the premium that investors are willing to pay for MicroStrategy’s stock.

The Long Term

At some point, though, there will be the inevitable crypto winter. Bitcoin will drop 50% or more and MicroStrategy will fall even harder than that.

The crypto bear market will be the riskiest moment for MicroStrategy. If you’re Michael Saylor, you do not want to see the bear market take place right before a big batch of your convertible bonds is about to mature.

That would be bad because you’d have to make distressed sales of either bitcoin or stocks to pay back the bonds.

But assuming MicroStrategy survives the bear market, what happens then?

After the crash, I think there are two ways this can play out. The bearish scenario is for MicroStrategy’s premium to turn into a discount. If investors start to feel less enthusiastic about MicroStrategy and Saylor, then they might not want to pay a premium for the stock anymore.

You can imagine a scenario where people say “hey, I can buy bitcoin through a bitcoin ETF and get 1-for-1 exposure to the cryptocurrency; why should I pay extra for MicroStrategy’s stock?”

In that case, maybe MicroStrategy’s market value drops below the value of its bitcoin holdings— maybe even sharply below.

We saw a similar dynamic with the Grayscale Bitcoin Trust (GBTC), which, before becoming an ETF in 2024, operated as a quasi-closed-end fund.

GBTC traded at a large premium for many years, but eventually, that premium turned into a massive discount of as much as 50%.

So, that’s the bearish long-term scenario.

There is a more optimistic scenario as well though, and it’s a repeat of what we saw during the last crypto winter.

Bitcoin drops, MicroStrategy stock crashes, and the premium shrinks temporarily— but eventually starts to rise again as the price of bitcoin recovers.

You could even make a fundamental investment case for buying MicroStrategy at the bottom when the premium is gone.

If you buy the stock at a value equal to the value of MicroStrategy’s bitcoin, you might feel good about paying fair value for that exposure.

And at the same time, you have the potential to capture additional upside if there’s another mania that sends the premium higher again.

Remember, every time MicroStrategy raises money by selling stock at a premium, there is a wealth transfer from investors who bought at a high premium to investors who bought at a low premium (or no premium).

So, you might want to be one of those investors who is benefiting from the wealth transfer.

The Saylor Wildcard

Speaking of which, you want to know which investor is really benefiting from that wealth transfer? Michael Saylor.

He is the original MicroStrategy shareholder, and his share of MicroStrategy’s bitcoin pot grows every time he’s able to sell stock to someone else at a premium.

So, it’s kind of funny. I said there’s no “free money” in this situation, but for Michael Saylor, it feels like there is because he’s turning the big mania in his company’s stock into a windfall for himself and other early investors.

If I was a MicroStrategy shareholder, I might even worry that Saylor is seeing too much success.

With him making so much money so easily, he might start to feel invincible— and that’s a very dangerous feeling to have when you’re dealing with financial markets.

It’s quite possible that he could take on too much risk— borrow too much money— and put MicroStrategy in a very vulnerable position when the next downturn in bitcoin begins.

He is raising a lot of money with convertible bonds right now. That could come back to bite him and the company down the line.

I’m not saying that it’s going to happen, but it’s something to watch out for, especially when you consider Saylor’s personal views about bitcoin. He has this almost religious fervor for the coin that could cause him to make risky decisions that backfire in the future.

We’ll see what happens. MicroStrategy is a fascinating company that’s closely connected to bitcoin, but one that also has elements of being a meme stock and cult stock as well.

It’s going to be fun watching how this all plays out over the next few years.

Thanks for reading!

*In reality, many of the buyers of convertible bonds are hedge funds who use a strategy called “convertible arbitrage,” where they combine a position in MicroStrategy’s convertible bonds with a short position in MicroStrategy’s stock. They’re not necessarily betting on the stock going up (or down)

Let’s get started!

Hot Take #1: A recession is increasingly likely during Trump’s presidency

Now, I’m generally not a big believer in the idea that the U.S. president can wave a magic wand and single-handedly drive large changes in economic growth— at least in the short-term.

Trump might be a little bit of an exception to that because he’s expressed interest in using this really powerful weapon— tariffs— in a way that could dramatically impact international trade. We’ll see what happens with that.

But this take has nothing to do with Trump’s policies.

Instead, it’s simply an acknowledgement of the fact that we have a capitalist economic system in the U.S., and because of that system, we experience business cycles, or ups and downs in the economy.

The economy tends to get larger over time, but every now and then it gets smaller, and we call those periods recessions.

The last recession we had lasted from February 2020 through April 2020, during the height of the COVID pandemic. The recession before that went on from December 2007 to June 2009, during the financial crisis.

Since 1945, on average, the U.S. has seen a recession every five years. 

The period between the end of the financial crisis and the start of the COVID pandemic was the longest period without a recession— 10 years and eight months.

Trump’s second term is scheduled to end in January 2029, which would be just under nine years after the COVID recession.

Nine years is on the upper end of how long economic expansions have historically lasted. Of course, the economy could continue to grow for ten years or even longer, but at some point, there will be a recession.

As we get deeper into Trump’s presidency, the expansion is going to start to feel long in the tooth and something might break.

Let me be clear: I’m not predicting that there will be a recession in the next four years (that would be impossible to do); I’m simply making an observation about business cycles in the U.S. 

Hot Take #2: Everyone is going to change up how they feel about the economy

Actually, this has already happened. Look at this chart, which shows how Democrats and Republicans are feeling about the economy after Trump got elected.

Suddenly, Republicans are feeling much better about the economy, while Democrats are feeling worse.

It’s the reverse of what happened after Biden got elected four years, and really highlights how peoples’ perceptions about the economy are increasingly colored by their political views.

There’s also a story related to this that has nothing to do with politics. Since the COVID pandemic, in general, people have felt much gloomier about the economy than you would expect them to feel based on what’s actually happening with the economy.

Last year, The Economist created a model that used variables— including the unemployment rate, inflation and gas prices— to predict how people felt about the economy.

The model showed that these variables were very good at predicting how people felt for decades, but not since 2020.

Since then, something changed and it’s gotten to the point where people just feel terrible about the economy no matter what the economic indicators suggest.

Even weirder, people say they feel bad about the U.S. economy but pretty good about their own financial situation. 

We’ll see if that changes under Trump. It almost certainly is going to change for Republicans, but will the rest of the country also start to feel more optimistic?

Hot Take #3: There’s going to be a lot of drama between Trump and the Fed

It’s no secret: Donald Trump wants more of a say when it comes to monetary policy. He’s explicitly said that he can do a better job than the Federal Reserve in setting interest rates and that he should be able to influence where rates go.

During Trump’s first term, he called Fed Chair Jerome Powell a naive bonehead for raising interest rates, and even threatened to fire him.

I expect more of the same this time around.

Even though the Fed is cutting interest rates right now, at some point— maybe even pretty soon— they’re going to stop. Inflation is still a little bit of concern and I think there is a consensus that interest rates are going to be higher going forward than they were prior to COVID.

Trump strongly favored lower interest rates during his firm term, so he probably isn’t going to like that.

There’s already been talk about how Trump could try to have more sway over the Fed by either firing Powell, demoting him, or replacing him with a “shadow” Fed chair who does what he wants.

Powell recently said that the president doesn’t have the authority to fire him, but that might not stop Trump from trying.

And if that fails, well, Powell’s term as Fed Chair ends in May 2026. So even if Trump isn’t able to get rid of him before then, he could elevate someone else to that position at that time.

There will be an opening on the Fed’s Board of Governors in January 2026, so Trump could appoint someone new to the board then and then make them Fed chair a few months later when Powell’s term is up.

This is going to be something that’s really important to watch. Anything that reduces the Fed’s independence will be seen in a very negative light by markets and could lead to higher inflation, higher interest rates, market volatility, and reduced confidence in the U.S. financial system.

That’s not good; the Fed needs to maintain creditability to do its job effectively.

Hot Take #4: Stocks will sell off at least 10% because of Trump’s trade war

By now, you’re probably aware of Donald Trump’s intention to raise tariffs on imports into the U.S. He did it in his first term and he’s promised to do it on an even larger scale during his second term.

And just like last time, Trump’s tariffs will almost certainly lead to retaliation from other countries, which in turn could lead to more Trump tariffs.

That’s the essence of a trade war— a series of escalating tariffs and other trade restrictions.

Now, I’m not going to get into the whole debate surrounding tariffs in this piece (I’ve said plenty about them in other posts), but regardless of whether you think tariffs are a tool that can lead to a stronger U.S. economy or not, it’s widely accepted that they cause at least some economic pain in the short-term.

The stock market isn’t going to like that. The market is dominated by firms that either depend on imports to make their products and/or export markets to sell their products into.

Anything that increases costs for corporations or hurts their ability to make sales and generate profits is negative for the stock market.  

That said, the stock market is very resilient. I do think that barring some type of catastrophic change in trade policy (for instance, Trump cutting off all trade with China or something), the market will absorb the hits from the trade war, just like it did during Trump’s first term.

So, don’t be alarmed if stocks sell off next year and we get all sorts of scary headlines about Trump’s trade war.

The market sells off all the time for various reasons (in fact, in an average year, the stock market drops 16%, while we see at least a 10% sell off in two-thirds of all years).  

The trigger is always different, but stock market corrections are completely normal.

Hot Take #5: The dollar will go up

Currency markets are notoriously difficult to predict, so I’m hesitant to make a call on how the dollar’s value might fluctuate versus other currencies.

But it certainly seems to me that all the stars are aligning for the dollar to perform well.

There are a lot of different factors that go into how currencies are priced, but a big one is interest rate differentials.

If interest rates in the U.S. are high relative to interest rates in other countries, that tends to attract money into the country, supporting the dollar.

Trump’s economic agenda includes tax cuts, deregulation and big deficits— which together could put upward pressure on economic growth and consumer prices.

In response, the Federal Reserve and bond markets could keep interest rates relatively high to counteract the inflationary impact of Trump’s policies. 

Another big piece of Trump’s economic platform— tariffs— could also be supportive of the dollar.

Tariffs tend to reduce the demand for imports, which reduces the demand for foreign currencies, putting upward pressure on the buck.

Hot Take #6: It’s kind of crazy how no one knows whether TikTok is getting banned or not

Earlier this year, it seemed to be a sure thing that TikTok was going to get banned in the U.S.

Lawmakers hauled in TikTok’s CEO to grill him about the app’s connections to the Chinese government.

A few weeks later, both Democrats and Republicans in Congress united with President Biden to create a law that bans the app unless TikTok’s parent company, ByteDance, sells it to someone else.

Because the Chinese government didn’t seem willing to allow a forced sale of the app, it looked like TikTok was going to get banned after January 19, the day of the deadline.

But now, we’ve been thrown a curveball.

President Trump— who famously tried to ban TikTok in the U.S. during his first term— changed his tune on the campaign trail this year.

Now he’s saying that he doesn’t want TikTok to get banned because it provides competition to other social media apps— particularly Facebook and Instagram, which are owned by Meta.

In the past, Trump has feuded with Meta CEO Mark Zuckerberg, so his personal relationship with Zuckerberg could be shaping his views here.

Another reason that Trump might have changed his tune on TikTok is because he’s a star on the app now, with almost 15 million followers.

Whatever the reason may be, Trump likes TikTok now. The question is: what lengths will he go to in order to save the app? And, does he even have the authority to save the app?

The most straightforward way for Trump to intervene is by getting Congress to reverse the previous TikTok ban law that was signed by Biden.

But that law was passed with overwhelming bipartisan support, including the vast majority of Republicans in Congress.

If Trump can’t get Congress to pass another law, things get a little trickier.

He could potentially ask his administration to not enforce the TikTok ban law.

But even if he does that, it’s not clear that Apple and Google would play along by leaving TikTok in their app stores.

So, this is going to be a really interesting saga to follow.

Like I said, the deadline for ByteDance to divest TikTok or face a ban in the U.S. is Jan. 19^th, a day before Trump’s inauguration.

We’re going to soon find out what Trump will do— if anything —to try to stop the ban.

And if he doesn’t step in, maybe another entity— like the courts— tries to stop the ban. Or maybe ByteDance gets approval from the Chinese government to sell its TikTok operations in the U.S. at the last minute.

A lot of different things could potentially happen. We shall see.

Hot Take #7: Prediction markets will grow to be bigger than the stock market

This one is actually not one of my takes; it’s from the billionaire founder of Interactive Brokers, Thomas Peterffy.

Peterffy recently said that he believes prediction markets could become larger than stock markets within 16 years.

I was shocked when I heard this because today, the U.S. stock market has a market cap of $60 trillion, while the global stock market has a market cap of $100 trillion. And every day, there are hundreds of billions of dollars worth of shares traded in the stock market.

These are just huge, huge numbers, so it’s pretty bold to say that the relatively tiny prediction markets will eventually surpass them.

That said, we all saw the potential of prediction markets in the lead up to the U.S. presidential election, when platforms like Polymarket and Kalshi experienced heavy activity and were widely cited as indicators of who had the best chance of winning the race.

Those prediction markets generally got the election right; they were pointing towards a Trump win and that’s what we got.

Peterffy thinks that the success of prediction markets is going to continue and people are going to increasingly use them to make big bets on everything from whether global temperatures will rise because of climate change to the outcome of major geopolitical conflicts.

As a result, he says that society is going to be better off because we will have more information about the true state of the world.

He makes a good case and I generally I agree with him on that. I’m not ready to say that prediction market are going to be bigger than stock markets, but I certainly see their potential, and have a feeling that we will be hearing a lot more about them going forward.

Hot Take #8: Political ads are kind of useless

Democrats outspent Republicans by $334 million in the two months leading up to the election.

But in the end, it didn’t matter.

Trump won the election handily— probably because of economic reasons, but also because he was able to get his message out through other channels, like the Joe Rogan podcast and even TikTok.

This map from Bloomberg really highlights this point; Democrats had a big spending advantage in almost every state— including every single swing state— but Harris didn’t win any of the swing states.

As Bloomberg points out, most of the ad dollars went towards broadcast TV, and as we all know, fewer and fewer people are watching traditional broadcast TV (certainly not the younger generations).

In the future, it’s easy to imagine that there will be less emphasis on traditional political advertising and more focus on new forms of media like podcasts, social media, etc.

Hot Take #9: The biggest political risk of Trump’s presidency may have to do with Taiwan  

For the past year, the biggest geopolitical story has been the war between Israel and Gaza. Prior to that, it was Russia’s invasion of Ukraine.

Both of those conflicts are still ongoing and there is the potential for escalation— either in the Middle East or in Eastern Europe

But the biggest geopolitical risk during Trump’s presidency might not come from either of those regions, but rather Asia, where China is eyeing Taiwan.

Chinese president Xi Jinping has consistently promised to reunify Taiwan with mainland China; he said so as recently as last month.

China, of course, brought Hong Kong to heel several years ago, and expectations are that as long as Xi remains president, at some point, he could try to make a move on Taiwan.

Would he do it when Trump is the U.S. president? Hopefully not.

But a new president who is hesitant to get the U.S. involved in foreign conflicts may be the opportunity that Xi is looking for.

Unlike Biden, Trump’s support of Taiwan has been ambiguous. He’s claimed that Taiwan stole the United States’ chip manufacturing business and he’s said that the island should pay the U.S. for defense.

He’s also mentioned that he would put tariffs on China if it invaded Taiwan, which doesn’t sound like much of a deterrent.

So, we’ll see what happens. I’m certainly not predicting that China will invade Taiwan in the next four years, but it’s something to keep an eye on.

Especially since, if China ever did invade Taiwan, it could be devastating for the global economy.

Taiwanese companies produce the majority of the world’s chips, and something like 90% of the world’s most advanced chips that power everything from smart phones to AI applications.

The loss of those semiconductors would cripple the global economy. Let’s hope it doesn’t happen.

Hot Take #10: Trump’s economic policies might not have the effect that people anticipate

Let me ask you this: are Trump’s economic policies good or bad for economic growth? Well, it kind of depends on what you focus on, right?

Some people who focus on his corporate tax cuts and his goal of cutting back on regulations see Trump’s policies as positive for economic growth.

Others who focus on his tariffs see them as negative for growth.

The same goes for inflation. Tariffs tend to push consumer prices up, while deregulation tends to push prices down.

Then you have more ambiguous Trump policies, like the mass deportation of illegal immigrants.

That could either be inflationary if it causes labor shortages, or deflationary, if it causes a sharp drop in the demand for goods and services.

In other words, there are a lot of offsetting forces within Trump’s economic policies. And that’s not even considering the fact that we don’t know exactly what Trump will try to do and will be able to do. 

Does he deport 1 million immigrants or 10 million immigrants?

Does he raise tariffs on China to 30% or 100%?

What kind if corporate tax cuts can he get Congress to agree to?

And let’s not forget about the Fed. If Trump’s policies put upward pressure on prices, does the U.S. central bank offset that with higher interest rates?

There are a whole bunch of potential scenarios and it’d be impossible to model them all out with any sort of precision.

So, when someone asks whether Trump is good for the economy or bad for the economy— the truth is that it’s really hard to answer that question, especially right now before we’ve even had a chance to see what Trump actually does.

Let’s take a look at that.

Today, the U.S. imports just over $3 trillion worth of goods annually, and these imports make up around a quarter of the goods that we purchase.

The average tariff rate on the imported goods is 2.5%— but that’s just an average.

A lot of goods that are imported into the U.S. aren’t subject to tariffs (like Canadian oil), while others are subject to very high tariffs (like Chinese electric vehicles).

After Trump officially becomes president, both the number of goods that are subject to tariffs and tariff rates are almost certain to go up.

However, we don’t know exactly by how much.

On the campaign trail, Trump threw out a bunch of different tariff proposals— everything from 10% or 20% across-the-board tariffs to tariffs in the hundreds of percent on certain countries and industries.

The Budget Lab at Yale put together one of the most comprehensive reports on this topic that I’ve seen.

They looked at 12 different tariff scenarios and modeled what their impact could be on costs for American households, on inflation, and on GDP.

The most benign scenario they looked at was one in which there is a universal 10% tariff on most imported goods— with the exception of goods from China (which are tariffed at 60%), and goods from the 20 countries that the U.S. has free trade agreements with (which, under this scenario, could continue to enter the country largely tariff-free).

On the other hand, the most draconian scenario they looked at is one in which there is a 20% universal tariff, a 60% tariff on China, a 200% tariff on Mexico, and no exemptions for free-trade-agreement countries.

Based on these scenarios, here’s what they found.

Consumer Price Increases

According to the analysis, for every 1% increase in the average tariff rate, consumer prices are expected to increase by about 0.1%.

In the lowest-tariff scenario, that means that consumer prices would rise by 1.2%, while in the highest-tariff scenario, they would rise by 5.1%.

That translates into a cost for the average U.S. household of $1,900 to $7,600.

Now, these numbers are a bit concerning; especially that $7,600 number— that would be a big cost for most households!

Fortunately, the numbers might overstate what we’d actually see as a result of Trump’s tariffs.

As the Budget Lab points out, if prices for imported goods go up, consumers will tend to buy fewer imported goods and substitute them for goods produced in the U.S.

Or in cases where there are no domestically-produced alternatives, they’ll probably favor imports from countries with lower tariffs over imports from countries with higher tariffs.

Assuming we see this type of substitution, the rise in consumer prices could be anywhere from 0.5% to 2%— which is less than half the increase we’d see without substitution.

To put that in perspective, inflation was 5.9% in 2021 and 2022; 2.8% in 2023; and is on track to come in at just under 2.5% this year.

So, based on the modeling done by Yale’s Budget Lab, the Trump tariffs probably aren’t going to lead to the type of inflation we saw a couple of years ago where prices were absolutely skyrocketing, but the impact could potentially still be noticeable if we see some really draconian tariffs.

After all, 2% inflation is what the U.S. central bank, the Federal Reserve, targets. If you add half a percentage point to that, it probably won’t register all that much.

But if you add another 2% on top of that, you’re going to feel it.

Wide Range of Possibilities

You also have to consider that the price increases we see as a result of Trump’s tariffs will disproportionately impact certain categories of goods.

Goods that are predominantly imported, like apparel, toys, and footwear, could rise dramatically. The National Retail Federation estimates that prices for those goods could jump by anywhere from 6% to 56% because of Trump’s tariffs.

So, there is the potential for very significant price increases in some areas, but a lot of this depends on what type of tariffs Trump actually ends up implementing.

Trump, as we all know, has a habit of changing his mind often. And we could get anything from lower-than-expected tariffs to higher-than-expected tariffs and everything in-between.

The only thing we know for sure is that tariffs are going to go up: the Budget Lab projects that the average tariff rate in the U.S. would increase from 2.5% currently to anywhere from 9% to 30% under the various scenarios that they analyzed.

It’s also important to keep in mind that the impact of tariffs isn’t just going to be limited to the prices we pay for things. Tariffs reduce consumer choice; they disproportionately hurt certain industries that rely on imported goods; and they often lead to retaliation from other countries, which hurts U.S. exporters.

The Budget Lab projects that in the highest tariff scenario, GDP would fall by 1.4% over the medium term.

The U.S. economy has grown at an average annual rate of just under 2.5% over the past decade, so this would be the equivalent of erasing a little more than half a year’s worth of economic growth.

Anyway, I’ve talked a lot about the downsides of Trump’s tariffs, but there is a rosier interpretation of them as well.

The hope from Trump and others who support tariffs is that they eventually lead to stronger domestic industries, more jobs, and a reduction in trade imbalances.

If you want to learn more about the big debate surrounding tariffs and what it means for the U.S. economy, check out this post.

Thanks for reading!  

Some people are saying that Kamala Harris was too liberal. Others are saying that she wasn’t liberal enough.

And some even claim that she blew it by not going on the Joe Rogan podcast.

What if I told you that none of those things really mattered? Let me explain.

I’m sure that by now many of you have seen charts like these, which show a sharp rightward political shift across the country in almost every demographic and every state.

Even liberal bastions like New York City swung hard to the right, as this chart from Nate Silver shows.

So if you look at these charts, you might think: voters just didn’t like the liberal policies that Harris represented, and they vigorously rejected them at the ballot box.

But is that really the case?

Exit poll after exit poll showed that the economy was the top issue for voters. They also showed that President Biden’s approval rating was really low.

That makes you think that maybe this had nothing to do with Harris at all. Voters didn’t like the state of the economy and they blamed Biden for that.

Earlier this year, John Sides, a professor of political science at Vanderbilt University, created this chart plotting the president’s approval rating against the incumbent party’s share of the popular vote.

Based on Biden’s low approval rating of less than 40%, he or any other Democrat was projected to get 48% of the vote.

As I’m writing this, the votes are still being counted, but that’s almost exactly where it looks like Harris will end up— with 48% of the vote.

Now, some of you might look at that and think: “Sure, people didn’t like the economy— but that’s a reflection of the bad economic policies of the Biden administration, and Harris was a part of that administration. That’s why she lost.”

But that might not be the real explanation.

Here's a piece of evidence that suggests that larger forces were at play in the 2024 election: it’s the fact that incumbent parties across the world have been losing elections this year.

John Burn-Murdoch of the Financial Times points out that incumbent parties in the U.S., the U.K., France, Japan, and even India have lost votes in this year’s elections.

In fact, he says that every incumbent party in developed countries has lost votes this year, the first time this has happened in the 120 years that this data has been tracked.

That’s a pretty remarkable statistic and it seems to indicate that a bigger force was responsible for the U.S. election results.

So, what could that force be?

Well, it’s probably inflation. We all know it: prices for everything— from groceries to automobiles to houses— rose dramatically between 2021 and 2023, and people were, and still are, really upset about it.

The cost of living was the primary reason the U.K.’s conservative party lost power after 14 years earlier in 2024. And it’s partly the reason why Japan’s Liberal Democratic party lost its parliamentary majority for the first time in 15 years.

Inflation was, of course, a global phenomenon caused by pandemic-related supply chain issues, not the result of actions taken by any particular government.

But people want someone to blame, hence, the backlash against incumbent parties all around the world.

Here’s some more evidence that inflation might have been a big factor in this year’s election results.

Back in 2020, voters who made less than $100,000 backed Biden over Trump, while those who made more than $100,000 favored Trump over Biden.

This time around, it was reversed, with Harris getting more votes from those who made over $100,000 than Trump did, while doing worse than him when it comes to voters making less than $100,000.

People with lower incomes tend to feel the effects of inflation more than those with higher incomes, so that might be the reason for the switch— and the reason voters overall rejected Harris (the median income for workers in the U.S. is around $60,000).

The Incumbency Advantage

All of this also ties into another theory I've been hearing: that the president's incumbency advantage is gone.

It used to be the case that if you were a president running for reelection, you had a leg up because you could dominate the news coverage; you could use your presidential powers to implement popular policies; and you could campaign more effectively than your opponent.

Before Trump’s first term, there were three straight presidents who won reelection over a 24-year period: Clinton, Bush and Obama.

And going back further before Trump, in the 11 presidential elections with incumbent candidates, eight were won by the incumbent.

That’s the incumbency advantage.

But something might be changing; we saw Trump lose his first reelection bid, and now Biden’s Vice President, Harris, lost against Trump.

As this tweet from Joey Politano points out, social media “makes it easier than ever for voters to concentrate disaffection on whoever’s in power.”

In other words, rather than there being an incumbency advantage, there may actually be an incumbency disadvantage now.

And if that’s the case, then we might see more elections like the one we just had, where the incumbent party loses.

I’m not saying that will definitely be the case— it’s just a theory based on a small sample size. But it’s something to think about.   

Anyway, I know some of you are going to agree with what I’ve said and some of you are going to disagree with it. Everyone is going to have their own favorite theory for why Trump beat Harris.

Personally, I like this theory about how there’s a bigger force in play because I think it matches up with what we’ve seen historically.

We all know that in the U.S., one party never stays in power forever. We have a constant swing back and forth from Democrats to Republicans. 

That’s an inevitability. And even though that’s the case, every time it happens, there’s a lot of chest-thumping and gloating on the winning side, and a lot of finger-pointing and soul searching on the other.

It might not be satisfying to hear, but sometimes the results have nothing to do with the candidates.

But who knows? Maybe there are factors bigger than inflation and anti-incumbency sentiment that played a role in the election outcome this year.

Maybe Trump’s messaging around issues like immigration and crime really resonated with voters.

Or maybe if Biden stepped aside sooner and allowed an open nomination process, the outcome might have been different.

I don’t know; there are a million different things that happened and that could have happened.

I just think that people really hated the high inflation of 2021 through 2023, and they really wanted to blame someone for it. 

They finally got their chance in this election.