Did the AI Look-Through Trade Just Crack? A HyperNormal Situation Report

I want to start with a number. Number seven. That's the percentage decline at one point yesterday of South Korea's main equity market index. In today, in a single session, the biggest move down for the Korean tech sector since the war in Iran began in February. This move came after the Cosby Index was up 80% year to date going into May. The world's best performing major index. It was the cleanest pure play on the artificial intelligence build out that has driven global markets for a couple of years now. In one session, triggered by a single American chip company missing its revenue guidance by less than half of 1% the whole thing wobbled and it wobbled hard. So what's fried is Cosby move the moment the AI bubble cracked? Well, I don't know. Nobody knows. But it was the moment a question that's been hovering for months finally caught asked if the only acceptable outcome for an AI stock is exceeding extremely high expectations. What happens to the trade when expectations just stop moving higher? That's where we're going to start today. But that's not where we're going to end because this week wasn't really about one chip company. This week was about a number of things all happening at once, all connecting underneath the surface in ways that most market commentary misses over the next few minutes. I will walk you through them. I'm Jeremy McQ and this is in the company of Maverick. So podcast where we help serious active investors navigate market volatility, protect capital and uncover new ways to confidently grow wealth in these radically uncertain times. However, what you're about to hear is not any kind of advice, but just for your information and hopefully your entertainment. I'm not your advisor. You should take responsibility for the decisions you take about your wealth. Broadcom reported earnings on Wednesday after the close fiscal Q2 revenue 22.19 billion dollars. The consensus estimate was 22.27 billion. That's a miss of 80 million dollars, about 0.36 of 1% on a company with a market cap of true trillion dollars. Net profit, by the way, was at 88% year on year. The business is fine. The business is, in absolute terms, exceptional. The stock dropped 13% in after-hours trading. Crowdstrike, the cybersecurity company reported the same evening. Solid quarter, lackluster Q2 revenue guidance, down 10%. This is a market that eight weeks ago was rallying on the assumption that AI demand would compound for years. The hyperscalers, Amazon, Microsoft, Google and Meta, committed to spending over $700 billion on AI infrastructure this year, up from about $400 billion last year. The CapEx cycle is real. The earnings are real. Nvidia just reported quarterly revenue of $81.6 billion and guided to 91 billion for the next quarter. These are not the numbers of a fake economy. But the price action this week tells you something else is going on. It tells you that valuations have moved to the point where being nearly excellent is no longer enough. You have to exceed already extreme expectations and you have to keep doing it every quarter, indefinitely. And here's the structural problem with that condition. It's mathematically unsustainable. At some point, your guidance stops moving higher. And when that happens, the marginal buyer disappears, whether there is a passive bid or not. Fried is Cosby Crash was the global market saying maybe that point is here right now. The issue is not that AI demand has disappeared. It is that expectations have become extremely high and even good numbers are no longer enough unless guidance keeps moving higher. Okay, the second thing, geopolitics. This is going to be a bit quicker because the pattern is now very familiar. On Monday, Trump announced an Israel Lebanon ceasefire. The framework was conditional on Hezbollah, ceasing all fire and evacuating to the south. Gold rallied. Oil dropped. Equities pushed a new record highs. But then Hezbollah's chief came out within 48 hours and called the deal absurd, refused to link the militia's presence in Lebanon to ending the war with Iran. Israel said it wouldn't withdraw troops. The ceasefire framework collapsed almost as quickly as it was announced. Iran has been insisting throughout this war that the ceasefire applies on all fronts, including Lebanon. Without Hezbollah signing the entire US diplomatic track is back where it was three weeks ago. Trump's response when asked about Hezbollah rejecting his deal. They didn't reject me. Hezbollah claimed had called to discuss a cessation of hostilities, which contradicts completely every public Hezbollah statement and would in any event have been remarkable given Hezbollah is a designated terrorist organization that no US president has ever formally engaged. We have now run this pattern. Trump announces a breakthrough, market prices in optimism. Counter-party rejects or denies. Trump claims it never happened. So many times since the war began it is easy to lose count. The market had stopped reacting to the diplomatic theatre because the diplomatic theatre is no longer information, but underneath the theatre something is changing in the physical oil market that I don't think has been fully processed. Reuters published an analysis this week showing that 65% of laden outbound tankers transiting the straight-of-formers in May did so with their transponders switched off, going dark. The technique that Iran developed to evade western sanctions is now being used by mainstream commercial shippers. Tankers are paying Iranian tolls for safe passage, some are rooting along the Amani coast, possibly even with tacit US naval support. The visible flows is three tankers per day. The actual outbound flow measured by oil inventories sitting on tankers in the Gulf is higher. Perhaps in due course this trickle of dark tankers becomes meaningfully higher. The straight isn't going to reopen. It's being quietly reclassified as a permanent toll road operated by Iran. Even if Trump and the Iranian sign are memorandum next week you don't get back to pre-war flow, insurance won't reprice. Empty tankers won't return to the Gulf at scale because ship owners fear them being stranded, and producers Saudi Arabia Q8 and the UAE won't restart the 11 million barrels per day of shut-in production. First because technically it's not that easy and second they require confidence for exports to flow reliably. That confidence is going to take months to restore maybe years. Some analysts now see Brent at $130 by the fourth quarter. The structural condition is that the energy backdrop of the next year doesn't return to the energy backdrop of last year, and that has real implications for inflation, for central banks and for the consumer, which brings me on to the next point. Possibly the most under reported story of this week wasn't broadcast or Hezbollah. It was the two federal reserve speakers in 36 hours openly pivoting to a hawkish stance. San Francisco's Fed President Mary Daley said on Thursday that monetary policy is not restraining the economy and that she is increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability. Can the city Fed President Jeff Schmitt openly question whether to stay patient with inflation having probably crept up into the 3.5% range as he said. These are not the hawkish dissenters. Daley and Schmitt are centrist policy makers and they are now publicly entertaining rate hikes. CME Fedwatch now prices roughly 80% on to the Fed rate hike by year end. Three months ago the consensus was for three cuts. And here's the catalyst. The Fed FOMC meets on June 16th and 17th. They will not have a new PCE print before that meeting. The next reading isn't until June 25th. So Kevin Warsh who has sworn in two weeks ago as Powell's replacement will share his first meeting based on a single inflation snapshot that has already breached the trajectory needed for an easing bias. If Warsh wants to deliver continuity he'll keep the easing language and risk being seen as Trump's puppet. If he wants institutional credibility he'll drop the easing bias and possibly adopt a tightening one. Either way his first meeting is hugely consequential. I'd also flag this in the same week that the Fed pivoted the ECBs is a bell shnavel one of the leading candidates to replace Christine Lagarde said in an interview that looking through is no longer an option and called for a June rate hike even if a deal is agreed with Iran. That's now consensus the ECB will likely hike 25 basis points next Thursday. The global rate regime has shifted. I want to tell you about a specialist financial training business called Finance Talking. I know the team there well. Finance Talkings experience trainers provide education around capital markets and the basics of business finance and communications. They offer virtual and in-person training as well as a range of low-cost e-learning courses for independent learners. Finance Talking already trains people for companies such as Rio Tinto, HSBC, Unilever and Shell. So maybe they should be training you or your team too. You'll find a link in the episode notes. If you contact them tell them that Jeremy sent you now back to the episode. So now the next theme of the week. This one is happening in the background and it's the one that might break first. The EM crisis nobody is labeling. The Korean one is at its weakest level against the dollar since 2009. The Indonesian repair hit a new record low this week. The reserve bank of India is running a next short dollar book of nearly 100 billion dollars to defend the rupee which has fallen 5% so far this year. The Philippines just banned non-deliverable forward speculation by domestic banks. Japan has spent all the $73 billion in May alone defending the Yen, which still sits at $160 to the dollar, the recommended intervention threshold. Japan's foreign reserves fell by $77 billion in May, the largest single month drawdown on record. Three central banks have hyped rates in recent weeks, specifically to defend their currencies, Indonesia at the Philippines and Sri Lanka. The Royal Bank of India held rates on Friday but unveiled a package of foreign capital attraction measures, scrapping capital gains tax for foreign bondholders, sweetening dollar deposit schemes for non-resident Indians that could draw $40 to $60 billion in inflows. This is the 1997-1998 Asia financial crisis playbook, different countries, different mechanics but the same fundamental dynamics. Strong dollar plus high oil plus capital outflows plus thin reserves equals stress that compounds, and it compounds in non-linear ways. To be clear, we know in near 1997 reserves a larger capital accounts are more open, the crisis architecture is more sophisticated, but the pressure is real and the policy options are narrowing. The cleanest beneficiary of all this stress is China. The WAN is at a four-year high against a basket of trading partner currencies. For an investor's poured $29 billion into mainland China equities just in April. Being the world's largest authoritarian creditor has become a safe haven trade. That's structural. The shifting global capital allocation that is underappreciated, the US dollar is strong because of haven demand, but within Asia and the wider EM sector, China also has strong safe haven attributes. But I can't cover this week without talking about SpaceX. It starts trading on June 12th. $75 billion to be raised at a $1.75 trillion valuation for largest IPO in history. The shares are being sold at a fixed price, $135. No price range, no book building, take it or leave it. The valuation is 93.7 times trailing revenue. For context, Tesla trades at 17 times, Palantir 81, Rocket Labs, a smaller faster growing space company, trades at 118 times. SpaceX has no direct peers because most of its valuation comes from businesses that don't yet exist. AI data centers in space, Mars settlement infrastructure, the total addressable market in the prospectus is $28.5 trillion. That's one times US GDP. The company lost $4.94 billion in 2025. Two or three business segments burn cash, only starling generates a profit. Elon Musk retains 85% of voting power by supervoting class B shares. Texas incorporation plus arbitration clauses make it essentially impossible for shareholders to mount governance challenges. Musk is locked in for 366 days, but his voting control is permanent. Up to 30% of shares are being allocated to retail investors. And on Thursday this week, in what I think is the most consequential institutional pushback of this current period, the S&P Dow Jones indices voted against changing its rules to allow rapid index inclusion. SpaceX won't be eligible for S&P 500 inclusion until at least a year after its listing and would need four consecutive quarters of profitability. SpaceX backed by contrast as accommodated. SpaceX can enter the NASDAQ 100 in just 15 training days. The FTSE Russell indices allowed just five. Why does this matter? Because of something called the inelastic market type offices. This thesis argues that the supply of stocks doesn't immediately adjust to new demand, so prices move more than fundamentals would predict when money enters the market. Index funds by regardless of price. That's how you get bubbles in cat-weighted indices. If S&P had bent the rules, which they nearly did, index funds in aggregate might have needed to acquire up to 40% of SpaceX shares on offer. That would have been a guaranteed squeeze higher. By holding the line, S&P has done the most institutionally important thing any index provider has done in years, refused to be a price-insensitive buyer of last resort for this trillion-dollar IPO with a 5% float. The throttic and open AI are filing behind SpaceX. They will be watching how this trades. The next 12 months will possibly see up to $4 trillion of new public market capitalization, how the market absorbs SpaceX on June 12 will set the template for everything that follows. OK, one more thing, private credit. Two weeks ago, Cliff Porter cacked redemptions at 5% in Q2 after investors tried to pull 17% of the shares. Platinum's group capped with draws at one of his evergreen private equity funds. Blackstone reported continued redemption pressure on its biggest fund this Thursday. The Wall Street Journal published a piece this week documenting that private credit underwriting standards have been tightening sharply since March. Carl R. C. E. O. Harvey Schwartz said, "You've immediately seen a reaction to the terms that are better for the lender. The era of anything goes private credit underwriting that defined the period 2023 to 2025 is now ending. This matters because private credit was the marginal source of leverage for the entire private equity ecosystem. This is the marginal driver of late cycle expansion. When private credit titans capex titans, M&A titans and hiring titans, it titans with a lag, but it does titan. The private credit story is growing slowly, but debt cycles move slowly at first and then, well, more quickly. OK, let me pull this all together. The market has been operating on what I call a look through trade since February. The look through is the bet that artificial intelligence capex is durable enough to outrun three simultaneous factors, the Iran War, the inflation regime change and the EM stress. For about three months, that bet was unambiguously correct. The S&P closed at record highs, nine sessions in a row at the end of May and into the start of June. But this week, that look through cracked. It hasn't broken, but it has shown cracks. Here are the four themes I think investors need to focus on over the coming weeks. The bar for AI is now higher than the trajectory. Broadcom beat consensus and drop 13%. Crowd strike guided in line and dropped 10%. The cost be fell 7% in a single session. The condition the AI tape needs to keep going is forward consensus estimates to keep moving higher. As soon as they stop, the marginal buyer is gone. The Fed will hike before it cuts. The June 16 and 17th FOMC meeting under Kevin Walsh is the cleanest binary on this. The April PCE at 3.3%. The ISM services prices paid survey at 71.3, jolt at a two year high daily and Schmidt openly hawkish. The 80% market implied odds of a year and hike will move to 90% or above. The US non farm payrolls just printed just now are much higher than expected. The energy regime is structurally different. Hormuz isn't reopening. It's being told priced. Not all the empty tankers will return. The 11 million barrels per day of shut in capacity stays shut for a long time. Granted $130 in Q4 is no longer the bare scenario, but increasingly looks like a base case. This has compound implications for global inflation, central bank policy, EM stresses and consumer purchasing power. Even for sustained high energy, even on a diplomatic resolution, the IPO's super cycle is the next liquidity event. SpaceX on June 12 is at $1.75 trillion and THROPIC and OpenAI are both imminent. $4 trillion of new public market cap expected to arrive in 12 months. S&P's refusal to bend index rules is structurally healthy, but doesn't change the supply equation. Every dollar that goes into these IPO's is a dollar not in Nvidia, Microsoft, Amazon, etc. The mega cap rotation that started, small cat holding up while the leaders sold off, is perhaps the first symptom of the supply story showing up in price. And underneath all of this, Iran is controlling a choke point. Russia is escalating against Ukraine to exploit US distraction. Asian central banks are defending currencies with dollar reserves they're burning through rapidly. The credit funds are gating redemptions. The Fed FOMC is pivoting to hawkish stance. The bond market is worried. Equities will get the memo eventually. The market got it right for three months by looking through. The next three months will test whether that was a structural thesis or a temporary anomaly. My read is that it was a temporary anomaly, but look through trade worked because the AI cycle was strong enough to mask everything else. As soon as the AI cycle showed any sign of saturation and brought on this week was just one sign, the masking effect started to fade. The underlying conditions haven't changed. They're just becoming more visible. The two weeks ahead are dense with catalysts. The ECB decision next Thursday with the 25 basis point hike pretty well fully priced in. The Fed and the Bank of Japan on June 16 and 17. The maker field by election in the UK on June 18, which could trigger the start of a leadership change in the UK and SpaceX trades on June 12. The next core PCE brunt is June 25. Position for volatility. Reduce concentration in mega-cap tech. Maintain duration only where you can underwrite the inflation path. Watch the dollar, especially against the yen and the rupee. Watch credit spreads and don't fall for the diplomatic theatre. The Hommers' dark tanker dynamic is the structural story. Everything else there is noise. The look through trade had a great run and it's not yet dead, but it showed some cracks this week. The next few weeks will tell us whether the crack widens or whether it gets papered over for another round. That's the wrap. Stay sharp. Position carefully. If you're still listening, you might like what I post on screen. where I write hypernormal times, or one word, and post other content for subscribers. I dive a bit deeper into the financial world we inhabit, and attempt to join up thinking about how we, investors, might gain fresh insights into what it all means. Please check it out and subscribe. It only takes a few seconds. Thanks for listening and hope to see you over there soon. Equity.