The Gell-Mann Amnesia Effect and First Fridays
Peter Tchir of Academy Securities recently shared his thoughts on market liquidity and structure, the economy, and the Gell-Mann Amnesia effect. He expressed his concern about the lack of liquidity and the structure of the market, including leveraged ETFs and momentum strategies.
The Economy and the Federal Reserve
Tchir's report last weekend focused on jobs and the economy, which he believes will struggle with a "plodding" Federal Reserve. He doesn't believe that the Fed will surprise us with a 50 bp cut, given their messaging and the data available.
Bitcoin and Single Stock Leveraged ETFs
Bitcoin and Single Stock Leveraged ETFs were also topics of interest for Tchir. He remains bearish on equities due to his economic outlook, the Fed's response, and some valuations. He believes that investors have become overly bullish and complacent, thinking that the worst is behind us.
Market Trends
Tchir notes that the Nasdaq 100 closed at 18,421, lower than the close of 18,441 on August 2nd. The yen also closed at a lower rate than on August 5th. Bitcoin, with its $1 trillion market capitalization, closed near its price on Friday, August 2nd, and is at its lowest level since February. Tchir believes that these trends indicate that the market is aggressively long risk.
The Gell-Mann Amnesia Effect
The Gell-Mann Amnesia effect, coined by Michael Crichton, refers to the phenomenon where a person reads an article on a subject they know well and realizes that the journalist has no understanding of the facts or issues. Then, they move on to the next article, where they are not an expert, and accept the article as accurate. Tchir believes that generative AI has reached this point for many users.
The Future of AI
Tchir questions whether we are paying too much for AI. While the technology has improved, the cost of chips, storage, implementers, and energy has risen more rapidly than the improvements in the technology. He also notes that search for phrases like "Gen AI" has been dropping off, indicating a possible shift in interest.
Market Positioning
Tchir believes that market positioning is still too aggressive and fraught with danger. He uses the example of NVDL, a single name stock ETF, to illustrate his point. Investors in NVDL have lost 17% while true NVDA investors have broken even.
Bottom Line
Tchir believes that too many Fed cuts are still priced in, but the data is declining fast enough that they may yet prove to be right. He expects weakness in Treasuries and thinks that credit spreads will drift wider. He also believes that equities will take out the August lows. He ends by questioning how many people experience the Gell-Mann Amnesia Effect when reading his reports.
What are your thoughts on these insights? Do you agree or disagree with Tchir's predictions? Share this article with your friends and sign up for the Daily Briefing, which is every day at 6pm.
The Gell-Mann Amnesia Effect and First Fridays
Peter Tchir of Academy Securities recently shared his thoughts on market liquidity and structure, the economy, and the Gell-Mann Amnesia effect. He expressed his concern about the lack of liquidity and the structure of the market, including leveraged ETFs and momentum strategies.
The Economy and the Federal Reserve
Tchir's report last weekend focused on jobs and the economy, which he believes will struggle with a "plodding" Federal Reserve. He doesn't believe that the Fed will surprise us with a 50 bp cut, given their messaging and the data available.
Bitcoin and Single Stock Leveraged ETFs
Bitcoin and Single Stock Leveraged ETFs were also topics of interest for Tchir. He remains bearish on equities due to his economic outlook, the Fed's response, and some valuations. He believes that investors have become overly bullish and complacent, thinking that the worst is behind us.
Market Trends
Tchir notes that the Nasdaq 100 closed at 18,421, lower than the close of 18,441 on August 2nd. The yen also closed at a lower rate than on August 5th. Bitcoin, with its $1 trillion market capitalization, closed near its price on Friday, August 2nd, and is at its lowest level since February. Tchir believes that these trends indicate that the market is aggressively long risk.
The Gell-Mann Amnesia Effect
The Gell-Mann Amnesia effect, coined by Michael Crichton, refers to the phenomenon where a person reads an article on a subject they know well and realizes that the journalist has no understanding of the facts or issues. Then, they move on to the next article, where they are not an expert, and accept the article as accurate. Tchir believes that generative AI has reached this point for many users.
The Future of AI
Tchir questions whether we are paying too much for AI. While the technology has improved, the cost of chips, storage, implementers, and energy has risen more rapidly than the improvements in the technology. He also notes that search for phrases like "Gen AI" has been dropping off, indicating a possible shift in interest.
Market Positioning
Tchir believes that market positioning is still too aggressive and fraught with danger. He uses the example of NVDL, a single name stock ETF, to illustrate his point. Investors in NVDL have lost 17% while true NVDA investors have broken even.
Bottom Line
Tchir believes that too many Fed cuts are still priced in, but the data is declining fast enough that they may yet prove to be right. He expects weakness in Treasuries and thinks that credit spreads will drift wider. He also believes that equities will take out the August lows. He ends by questioning how many people experience the Gell-Mann Amnesia Effect when reading his reports.
What are your thoughts on these insights? Do you agree or disagree with Tchir's predictions? Share this article with your friends and sign up for the Daily Briefing, which is every day at 6pm.
