The market is vlunerable to a sharp downside turn

  

  

 

 

 

I got a call from President Trump!

 By now you must have known what has happened to Maduro over the weekend. 

President Trump called me before that to tip me for the upcoming operation, so that I got a chance to buy in advance a stock, one of few beneficiaries from this military action. I'm talking about CVX.

 

See what happened today to the stock price, a cheerful jump rarely seen for it in one day! 

 

    

As the result, my long-term calls for CVX have nearly doubled. Not a bad "inside trading" 😀😂 

  

 

 

 

 Of course, this is a pure fiction. Don't report me to the SEC!!

 

 

SpaceX IPO

 

 

  

Now share some great news about SpaceX IPO that is coming this year. I'm more than happy for it, given my stake in it. I put some money in its private equity three times (i.e. a tiny potion of the 30% private investors as shown below), and my average cost base is about $37 Billion.  It appears SpaceX is planning for an IPO around the middle of 2026 for a valuation between $1-1.5 Trillion, yes, in T not B. In other words, it is potentially a 25-40 times valuation increase at its IPO if my dream really comes true! Given SpaceX has a huge moat without much competition and its potential for the space AI/Solar energy business is so huge and mind-blogging, I bet we may see it become another Tesla in terms of its future uptrend. Thanks, Musk, for being such a genius businessman of the century!!👍💪

 

In 2015, Google wrote a $900 million check to SpaceX for a roughly 7.5% stake in Elon Musk’s budding aerospace/rocket company. At the time, SpaceX was valued at $12 billion. Ten years later, Google’s early investment in SpaceX is now being framed as a great trade, not just because of the massive profit it will generate, but also because of the strategic benefits it will afford Google.

SpaceX recently announced plans to go public at a target valuation of $1.5 trillion. At that valuation, Google’s $900 million stake will be worth $112 billion. For context, Google’s latest annual income was $98 billion. A 125x return over ten years is incredible; the strategic foresight is equally powerful. As AI models grow more complex, the need for energy to power data centers is increasingly the binding constraint. Data centers already strain power grids, water resources, and local communities. One answer to the shortcomings of the power grid is space-based data centers. SpaceX, with 7500 satellites in orbit, has demonstrated its ability to deploy data centers in space. The benefit of space-based data centers is that solar power is much more efficient than on Earth. Consider the following excerpt from Travis Beals, Senior Director, Paradigms of Intelligence:

The Sun is the ultimate energy source in our solar system, emitting more power than 100 trillion times humanity’s total electricity production. In the right orbit, a solar panel can be up to 8 times more productive than on earth, and produce power nearly continuously, reducing the need for batteries. In the future, space may be the best place to scale AI compute.

SpaceX was never just a financial investment; it was a bet on solving AI’s future resource problem. Space offers effectively unlimited solar energy, passive cooling, and freedom from land and water constraints that are currently highly problematic for hyperscalers. Google’s strategic and financial investment success demonstrates that it is effectively aligning capital, infrastructure, and long-term compute needs. The graph below, courtesy of Jarsy, shows the composition of SpaceX investors.

 

Is this a delayed correction?

 

 

  

 

DEI Doctors and Nuclear Engineers

 

In recent newsletters, we’ve been critical of aspects of President Trump’s foreign policy.

But he does deserve significant credit here at home. We’ve already covered his important work in streamlining the permitting process for drilling and mining projects.

Today we’re going to discuss another area where the President has made good progress. Reversing the negative effects of DEI, and putting America back on track towards a merit-based system.

A few years back I remember seeing the chart below, and being absolutely blown away. I had no idea it had gotten this bad.

The chart shows the U.S. medical school acceptance rate by race. It is broken into groups by scores on the MCAT (med school acceptance test) and GPA.

Source: AEI

In the first group, we see that only 6% of Asians and 8% of White people who score 24-26 on their MCAT are accepted into med school. Meanwhile 31% of Hispanic and 56% of Black applicants with those same scores are admitted.

And even in the highest-scoring bracket, only 58% of Asians and 63% of Whites get in, while 83% and 94% of Hispanics and Blacks gain acceptance.

Is this the kind of society we want? One where race matters more than merit? Especially when it comes to life and death careers?

This is no small issue. It affects the very incentives that make our economy and society work. If we don’t fix this issue, and re-orient towards a merit-based system, the outlook is bleak.

DEI Nuclear Workers

Over in the U.K., DEI is also wreaking havoc.

For example, the country is attempting to build small modular nuclear reactors (SMRs) to meet growing power demand.

But DEI requirements are mucking up the process. From The Times:

Previously hailed as the fastest plan of its kind in the world, the bidding process to develop small modular reactors (SMR) took two years and saw firms face extra requirements to prove their “social value”.

Companies were told to fill out up to 350 pages solely dedicated to how they would give jobs to groups of disadvantaged people — including asylum seekers, who generally cannot work while their claim is being processed.

…Companies were asked how they would create jobs for those “who face barriers to employment”, which included “refugees, people who have recently immigrated or are seeking asylum”.

The British government is forcing companies building nuclear reactors to hire people “who face barriers to employment”?! These dolts never even considered how dangerous their little social experiment could prove to be.

Companies were also instructed to outline plans to maintain a 50% female workforce, which is completely unrealistic. Women are not as naturally drawn to industries like construction and nuclear as men are. These DEI campaigners refuse to recognize that there are inherent differences between the sexes and their differing interests in careers.

If there was a nuclear plant being built upwind of your house, would you want anyone but the most qualified and motivated people building it? Of course not.

And can you imagine hiring asylum seekers (refugees with little screening and questionable skills) to build a nuclear plant? It’s absolute madness.

Due to all this red tape, just the bidding process for a few SMRs took 2 years and cost £22 million.

Here in the U.S., nuclear firms were also committed to DEI goals before Trump came into office. Thankfully they have mostly closed their DEI offices since. As we enter this nuclear renaissance, I want absolutely zero DEI involved in the process.

I use the examples of medical and nuclear careers because they show how dangerous DEI can be. But realistically, this applies to the entire economy.

Trump’s Efforts to Fix It

DEI may have started out as a good-natured attempt to remove prejudice in hiring. But as it stands today, it’s a disaster.

A society that isn’t based on merit loses its moral compass. It becomes a nepotistic mess. Of course our society shouldn’t discriminate based on race, but these nutjobs have taken it way too far.

I don’t believe DEI is doing the people who are “benefitting” any favors, either. The incentive structures get all mixed up. If certain groups feel like they have a free pass, they’ll be less motivated to work hard and expect to get by anyway. So while DEI might “help” in the short-term, in the long run it creates a nightmare of incentive structures. And bad outcomes.

Thankfully DEI is one of the first items Trump addressed once in office. He instructed all government offices to dismantle their diversity, equity, and inclusion infrastructure.

He essentially required the same of any institution or company that gets significant funding from the government (which is most universities, non-profits, and companies).

This is a huge development. It will take time to show up, but the effects of re-instituting a merit-based system will be extremely positive.

There’s more work to be done, but this is a good start.

So whenever I get frustrated with something the Trump administration does, I have to remind myself that they’re doing important work in certain areas. And that is something to be thankful for.

 

 

 

What will happen next week?

 

Next week, we will have the last FOMC for the year, when nearly everyone is expecting a rate cut of 25 base points. So what will happen for the market for this important week? Here is an analysis I have seen that outlines two possible scenarios for the S&P 500 Index with December and January in focus based on the famed Elliott Wave theory...

Notice I've marked the next set of important dates with the red vertical lines – this week, the Federal Reserve meeting next Wednesday, and into/around Christmas.

With the red swing line, there wouldn't be much of a pullback, and the index would drift higher over the next four to six weeks (maybe longer). It would be a low-volatility environment, which wouldn't be a big surprise considering how the bull market has acted since the April lows.

The blue swing line is the preferred setup for call options... It would be a wave (1) high this week with a drop into a wave (2) that holds the recent lows and explodes higher into a wave (3) into January.

It's worth mentioning that the recent lows must hold for either of these scenarios to remain intact.
 

  

 You probably can already guess which one I will vote for. Yes, the blue scenario. While I still expect a decent year-end Santa Claus Rally, I do believe we will likely see a decent selloff first. At DW Family, we have taken too nice gains today and is opening a short trade to bet on some weakness next week. Will be interesting to see what is coming next week😀😇

 

 

America's upper-income earners are struggling to pay their debts...

 

 

 Now the status of Americans' debt 

Credit-scoring firm VantageScore reports that Americans who make over $150,000 per year are falling behind on their credit-card and auto-loan payments faster than anyone else.

Their delinquency rate has surged nearly 20% over the past two years.

Take a look...

The labor market seems to be cooling off as hiring freezes sweep the jobs market. Planned job cuts were just above 54,000 through September. And total hiring plans for the year are just above 200,000.

Three-month average wage growth was just 4.1% in August, lower than 2022's high of 6.7%.

AI is hitting white-collar positions in the tech sector and elsewhere. Just last week, Amazon (AMZN) made headlines for plans to slash as many as 30,000 jobs.

In other words, debt is rising... and the money used to pay off those debts is getting harder to come by.

That's concerning for an economy that traditionally relies on spending from high-income earners. These mounting pressures are taking a toll on all sides of the consumer-driven economy.

   

 

 Finally, information for fun.....

 

  

 

A Deja-Vu Friday Turnaround

 

 What a turnaround today! But that was not a surprise for us as we discussed the possibility at my pre-opening note to my DW Family. 

  

  

There is a strong possibility that we may see a good year-end rally, or Santa Claus Rally. So the current gyration is setting up the stage for this to happen. Having said that, what is coming after that in 2026 is still a big question. Here is an interesting chart posted by Charlie Bilello.