The Fear Mongers Are Missing The Capital Boom

1.) FLOWS – I often reference “The Flows” as if it is some mystical thing like the midichlorians in Star Wars. The essence of “the force.” Ok, yes, I’m a Star Wars nerd. Anyway, the flows that I reference aren’t anything mystical, but simply the mechanical flow of money that now dictates a huge part of markets. Why is it important to understand the mechanics of flows? Because with the three largest passive S&P 500 funds now holding more than $2.6 trillion combined, index stock prices are increasingly set by these mechanical flows rather than by anyone judging what companies are actually worth. These mechanical flows are predictable, rules-based buying or selling driven by these passive investment vehicles.

2.) BOOM – The current state of the global economy is better than headlines make you think or feel. The chart below tells the story better than I can. Global debt issuance, equity offerings, and loan activity are running near the highest levels we’ve ever seen. Nvidia just raised $25 billion in a debt offering, but there was $85 billion of interested investors! Nvidia isn’t alone, of course. Earlier this year, OpenAI raised $122 billion. Alphabet followed with an $80 billion raise of its own. Anthropic raised another $65 billion just last month, and SpaceX (SPCX) completed the largest IPO ever ($75 billion) and immediately became one of the largest companies in the world. Everywhere you look, companies tied to artificial intelligence, semiconductors, data centers, robotics, energy infrastructure, and the technologies shaping the next decade seem to have little trouble finding capital. Collectively, we’re talking about hundreds of billions of dollars flowing into a relatively small group of companies in an incredibly short period of time. One of the easiest mistakes investors make is assuming every capital raise is a warning sign…and to be fair, sometimes that’s true. A company issuing stock because it needs cash to survive is very different from a company raising money because it sees opportunities everywhere it looks. Nobody thinks Alphabet is running out of money. Nvidia certainly isn’t. OpenAI didn’t struggle to find investors. Anthropic wasn’t scraping together financing to keep the lights on. These companies aren’t raising capital because they’re desperate. They’re raising capital because they see enormous opportunities. The companies asking for money today are often the same companies trying to build the future. Railroads required massive amounts of capital. Telecommunications networks required massive amounts of capital. The internet required massive amounts of capital. History suggests human beings are incapable of discovering a genuinely transformative technology without eventually getting carried away. But we’re not at that point yet. Companies building the future keep asking for money, and markets keep saying yes!

3.) CREDIT – Is US Monetary Policy Tight? Credit growth is one way to assess the monetary policy stance. Corporate and credit card loan growth picking up strongly since the start of the year suggests policy isn't restrictive. However, it clearly remains restrictive for the housing market.