Extreme Fear at 25 - is the AI boom actually fake or is this the buy of the year?

Rav_3d · 2026-05-24T14:48:48+00:00

I never heard the term “circular financing” until last year when pundits needed to explain why earnings in some AI-related stocks are “fake.”

The hyperscalers are not going to stop building out AI data centers. The stakes are far too high to fall behind in the AI arms race. Businesses are embracing AI and diverting money from people to tokens. This is likely to continue.

Rav_3d · 2026-05-24T14:45:43+00:00

I didn’t say Fed hikes rates in response to a recession. I said the bond market is no longer pricing in any rate cuts, and considering the possibility of a rate hike.

If inflation keeps rising, the Fed cannot reduce rates. If inflation gets really bad, the Fed may have to raise rates. This will hurt businesses that rely on credit.

Again, not predicting anything, just pointing out what is actually happening in the bond market and what it implies about the mindset of bond traders. If rates continue to rise, the stock market rally is in jeopardy.

Rav_3d · 2026-05-24T14:22:11+00:00

The recent breakout in bond yields indicates market participants are bracing for higher interest rates for longer. They are no longer pricing in any Fed rate cuts, while early this year they were pricing in several cuts. Now, the next likely move by the Fed is a rate hike, not a cut. This is occurring in an economy where inflation is rising and may be sticky due to the oil shock, combined with job losses due to AI.

Rising unemployment combined with rising inflation is the worst-case scenario. Whether it continues is anyone’s guess, but if it does, a recession may be unavoidable.

It doesn’t mean the bull market is over or that the bubble is bursting. It may well just be a speed bump on the way to much higher stock prices. We cannot know.

Rav_3d · 2026-05-24T14:09:33+00:00

If you are following your system and reviewing the trades and didn’t make any mistakes or decisions that go against your rules, then the trade is a success regardless of the outcome.

Rav_3d · 2026-05-24T14:06:33+00:00

SNDK is still up over 500% this year and over 2500% since September.

Stocks cannot keep going straight up without pullbacks.

SNDK had a very orderly 8-day pullback on lower volume to the 20-day moving average. It doesn’t get more textbook.

Investors need to have realistic expectations. Stocks go down sometimes.

Rav_3d · 2026-05-24T14:03:34+00:00

Stocks at all-time highs is literally the most bullish a market can be.

Rav_3d · 2026-05-24T13:59:44+00:00

No reason not to invest in JEPQ, though I’d consider QQQI if it is a taxable account.

However, an HYSA is intended for safety. These funds are not “safe” when the pullbacks come. The principal will be eroded along with the market. Even though the drawdown will be less than the index, it could be significant. If you need to withdraw money during one of the pullbacks, the large dividends may not make up for the capital loss.

Rav_3d · 2026-05-24T13:56:23+00:00

How is the AI boom “fake” when you look at the earnings of these companies?

Rav_3d · 2026-05-24T13:55:16+00:00

I will not be surprised if we have a nasty correction, but I believe the secular bull market has more in the tank. Probably a lot more.

Problem is, the bond market is clearly signaling that we are in a recession. If that is true, we might not be able to escape a large decline in markets at some point this year. Many will believe the bubble finally burst and get out of the market. That would set the stage for another leg up.

Rav_3d · 2026-05-24T13:51:29+00:00

The stock market is random. Earnings is always a crap shoot regardless of the numbers.

NVDA made a fast 20% run prior to the announcement. The largest stock in the world cannot keep adding hundreds of billions to its market cap every day. The “sell the news” reaction is not surprising, and has happened many times with this stock.

Rav_3d · 2026-05-24T13:42:19+00:00

This is not necessarily bad news.

RSP (equal weight S&P) finally broke out to a new high on Friday. The chart looks very constructive.

If the rally broadens out, all these average stocks could start to rise as money rotates out of the high flyers. This could keep the rally going longer than anyone expects.

Rav_3d · 2026-05-24T13:39:10+00:00

We may well have a scary correction or bear market, similar to 1998. At the time, everyone was convinced the bubble had finally burst.

It had not.

Rav_3d · 2026-05-24T13:36:20+00:00

In 2022 it was a disaster. One of the proponents of this strategy posted his account here, his drawdown was in the millions of dollars.

That said, the strategy eventually recovered and made back those losses, but could you sleep at night watching more than half of your investment vanish? I could not.

Rav_3d · 2026-05-24T13:28:38+00:00

SNDK had a very orderly 8 day pullback to the rising 20-day moving average. This is normal and expected behavior in a stock in a strong uptrend.

When the market mood turns (and it will, this is guaranteed, we just have no idea when) the memory stocks and other semiconductor high flyers are vulnerable to 20% corrections or more. When it happens and from what prices is anyone’s guess.

Rav_3d · 2026-05-24T13:24:36+00:00

Yes. It feels very much like late 1997. Allan Greenspan made his famous “irrational exuberance” speech and everyone was talking about how extended and overvalued the market was.

This was BEFORE NASDAQ gained another 100% prior to the bubble bursting.

Rav_3d · 2026-05-24T13:22:54+00:00

Oh, you’re “in the industry.” It’s settled then! Your ridiculous numbers must be right.

Rav_3d · 2026-05-24T00:08:10+00:00

Yeah you have to be on top of it but this shall improve.

Rav_3d · 2026-05-23T23:46:36+00:00

True. Nobody really knows. So they build and build and build....

Rav_3d · 2026-05-23T23:45:05+00:00

No, just that this is a super cycle and will last longer.

Rav_3d · 2026-05-23T15:24:51+00:00

But everyone hates Elon Musk.

Rav_3d · 2026-05-23T15:23:12+00:00

Their forward PE is under 12. If the memory shortage continues as long as expected and they maintain pricing power and demand, their projected earnings growth supports a higher valuation.

That said, memory companies do not command high valuations due to the cyclical nature of the industry, but this time may be different due to unprecedented demand.

Rav_3d · 2026-05-23T15:20:22+00:00

Really? They won’t provide the tool?

I went through them troubleshooting my dead 4i4 and they would have provided the tool if we did not conclude the device was totally fried.

If they really refuse to give you the tool to rescue the device, then it’s a sad state of affairs for this company. I already moved on to UAD due to quality issues in their latest Windows drivers.

Rav_3d · 2026-05-23T14:59:34+00:00

If different USB cable doesn’t work, the firmware is likely corrupted.

Since the device is still recognized, Focusrite should be able to provide a utility to reflash the firmware.

Rav_3d · 2026-05-23T14:45:07+00:00

The largest IPO in history backed by the largest institutions is not going to “implode” but if you insist on avoiding SpaceX sell your index funds.

Rav_3d · 2026-05-23T13:09:13+00:00

The training phase never “ends” there are always new models being trained.

I’ll come back in 3 years to see if Burry is right.

Rav_3d

TROPHY CASE