Markets Explode Higher on Imaginary Peace Deals

We’re in the fog of war, and the level of propaganda and narrative structuring around the “markets” has reached a fever pitch.  And so have equity prices around the world.

Who knew that a war in the Middle East that has led to the largest energy shock in human history would be so bullish?

Here’s Yahoo Finance on May 6^th with a couple of narrative pitches to “explain” the explosive, historically unprecedented rise in stock prices:

First, the “report” was another Axios headline, citing unnamed sources, pitching the ridiculous notion that Iran had essentially agreed to every US wish-list condition in a one-page MOU (another ridiculous notion for such a complicated affair).Iran immediately denied having agreed to any such thing, but the “markets” didn’t care; they had the bullish headline they needed to support a bullish narrative.

But, more subtly, why would peace be so bullish when war itself has been so bullish?

Wouldn’t it stand to reason that if war is bullish, then peace is not?  Shouldn’t it be one or the other if either was the cause?

Second, Paul Kiker and I discussed those “impressive AI-fueled tech earnings,” many of which are the result of circular cash flows, such as when Google invested in Anthropic, which then paid Google for data center usage.

Further, the erosion of free cash flows for the big 5 – Microsoft, Amazon, Meta, Google, and Oracle – tipping all the way from +$300 billion to –$40 billion over the past year is a huge red flag.

The hyperscalers are borrowing like crazy, burning all their free cash, and seemingly throwing all caution to the wind in their haste to build data centers. And still, to this day, neither Paul nor myself has come across a business plan that returns these investments before the installed chips burn themselves up.

Consider just the fact that the hyperscalers are building out the data centers on the basis of their committed future orders for business, but that a full trillion of that book has been ‘committed’ by just two companies: OpenAI and Anthropic.

Both companies are burning cash.  Neither even has revenues anywhere close to the committed amounts.  Both would have to 10x their revenues and profitability in just a couple of years for any of this to pencil out.

Oh, did I mention that Deepseek v4 (the Chinese AI version) is open source and vastly cheaper to operate than either ChaptGPT or Claude?  How does one significantly raise revenue under those circumstances?

Finally, Paul and I discussed the fact that the stock market’s internals are throwing off highly conflicting signals.

On the one hand, earnings have smashed all expectations.  That’s bullish.

On the other hand, market breadth is terrible as is the advance-decline data, which saw decliners outnumber advancers for four out of the last five closing index record highs.

So which is it?  Will the real stock market please raise its hand?

As a couple of guys with some gray hairs, we both feel like we’ve been here and seen this before.  This chart of the South Korean stock market (the “KOSPI” index), representing a country that’s absolutely reeling under the energy shock, pretty much sums it up:

LOL!

That’s a blow off top if ever we’ve seen one.  Either that or fiat money is about to get torched in a serious way.  Either way, not a good sign, more of an omen.

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