Do sci-fi fanbois dream of discounted cash flow?

Trades and housekeeping

The take profit level in USDCAD hit—that was a good trade! I am about to leave for nine trading days, and there could be copious new information around SpaceX and/or Fed policy, so I feel it’s sensible to square up the CADJPY for a 45-pip profit, too. I am still bearish CAD, but square on holiday is best, especially with USDCAD bumping up against the 1.3950 resistance (that’s why my TP was there in USDCAD).

Going on vacation flat is good for my mental health. While I am not always disciplined enough to do it; this time I will. And: Good cut in the long gold! This is the rare occasion where deviating from the original plan was the right choice. I will report results for all am/FX trades so far this year right after July 4. Results have been super strong in H1, one of my best halfs of trading. Hills and valleys. Hills and valleys.

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SPCX

My feed is universally bearish SpaceX as the valuation is lofty and there are many obvious parallels:

• Blackstone and KKR top ticking the credit bubble in 2007
• Glencore IPO at the peak of the commodity supercycle in 2011
• Coinbase top ticking the crypto bubble in 2021
• Crypto OGs dumping on retail via DATs and BTC selling 2025

The pre-IPO trade has been soft so far, as you can see from the barely oversubscribed headlines and the Hyperliquid perp price action.

The Polymarket odds match up well and both tradexyz and Poly show the IPO will close this Friday at a roughly $2T market cap. Trillion is the new billion.

Just because everyone is bearish does not mean you should be bullish! I remember the Google and Facebook IPOs very clearly. Everyone was bearish those, too. Google IPO’d during a bear market and went up. Facebook IPO’d in a flat market and dropped 50% right away and then eventually traded back in black a year later. Both were great long-term investments, though anything you bought in 2012 was a great investment, even 1999’s Four Horsemen: CSCO, DELL, INTC, and MSFT.

Also worth noting (maybe): there is nothing remotely close to this SpaceX IPO in terms of metrics and hype. UBER and GOOG IPO’d at 10x sales, FB and AMZN around 25x sales and SPCX… Around 100x. And of all those companies, SpaceX has the slowest revenue growth rate at IPO (33% vs. 40% for UBER, 88% GOOG, 900% AMZN).

All this said, betting against TSLA has been a waste of time for years and valuation has been irrelevant. The stock is more like an ELON/USD memecoin than partial ownership in a car company. Science Fiction Fantasy Book Club members are not DCF model enthusiasts.

This Josh Brown article is circulating: How current space fever echoes the 1960s space race tech stock bubble.

And, related: A summary of a 2023 paper called The Stock Market and the Space Age (the paper is paywalled):

Observers of the late 1950s and 1960s “Space Age” have noted the ease with which new and fledgling firms amassed capital through stock markets. This was especially true for firms with high-tech sounding names, monikers that resonated with postwar enthusiasms for science and the belief in unbridled progress that marked a new generation of American investors, brokers, and analysts. For this generation, firms engaged in R&D were promising sources of capital gains, regardless of earnings history, and could hardly be overvalued. This was particularly the case for the glamorous aerospace and electronics industries. This paper demonstrates how those closer to R&D activities learned through experience that no amount of spending could guarantee any specific, income-generating results.

By the 1960s, shares of high-tech electronics and aerospace firms became irresistible to the flood of young men entering the securities business with the hopes of getting rich quick off capital gains. For this generation, R&D spending today came to mean earnings growth tomorrow, and in periods of financial hardship, executives under pressure to meet earnings expectations changed R&D accounting policies to boost their bottom lines. With this change, firms experiencing significant losses could maintain the appearance of profitability while reinforcing public perceptions of R&D as a magic bullet for growth. Contrary to the mythology of the “space age,” however, those intimately involved in R&D and tracking its costs insisted that expenditures so incurred failed in practice to qualify as assets.

This sentence echoes today as OpenAI attempts to spend its way to profitability while selling a generic commodity below the cost of production: For this generation, firms engaged in R&D were promising sources of capital gains, regardless of earnings history, and could hardly be overvalued. This was particularly the case for the glamorous aerospace and electronics industries.

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Calendar

SpaceX trades Friday. On the data side, CPI is the highlight this week with BoC and ECB also on tap. Two controversial AI story stocks (ORCL and ADBE) release earnings mid-week. Please note that I am out for nine days on a family trip woohoo. Back June 22.

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Final Thoughts

The macro vs. political monetary policy setup in the U.S. is so intensely opposite that Warsh could come out saying he still wants to cut in 2026, or he could say he wants to hike in July. It’s going to be a crazy meeting.

I made a collage.

New from Kuppy: https://pracap.com/datacenters-are-the-new-shale-oil/

Ireland factoid: “Ire” in Ireland derives from Éire, which is the native Irish name for the country, coming from Ériu, an ancient Gaelic goddess of the land. Today, Éire is the official Irish language name for the Republic of Ireland. The use of an accent over the ‘E’ (síne fada) is important; without it, the word “eire” simply translates to “burden”. The síneadh fada (often just called a fada) is an accent mark (´) placed over a vowel in the Irish language (e.g., á, é, í, ó, ú). It translates to “a long stretch” and its purpose is to elongate the sound of a vowel and, quite frequently, to change the meaning of the word.

Hope your next two weeks are full of great craic.

Good luck with SpaceX and Warsh! See you June 22.

Welcome to this week’s report. (To read about how I use and trade this report, see here.) The USD finally broke out last week, despite long USD positioning, as the U.S. Exceptionalism trade has returned in full force. Friday’s nonfarm payrolls (which confirms JOLTS and Initial Claims) were the last straw for stale USD shorts and we got a full capitulation along with new USD longs added. Positioning is getting close to the point where it might matter, as long USD currently scores +4 and the history of this series since 2022 shows that numbers of 5 or higher are reversal signals. We are almost there. That said, Warsh matters more than positioning. If he comes out waving the inflation credibility flag, the USD will zoom again. Short CAD is the most stretched, with GBP de minimis. Huge 1.15s Friday.

The Michelin Man’s actual name is “Bibendum”.

As in… To drink.

Michelin tires drink in the obstacles!

Ok!

That pic is two Michelin Men in 1926.

good luck ⇅ be nimble