2026: The Year of Living Dangerously

An AI bubble in a global energy crisis. No one saw this coming.

This is week 12 of the oil war. Sometimes we need to step back from the noise to regain the signal, so in this post I will recap events year to date:

The year started with global markets in a risk ON mood. Wall Street's consensus was for a "run hot" global economy in which global central banks would be cutting rates to buffer the trade war demand shock. Therefore the leading sectors in January were gold, silver, industrial metals and mining stocks.

Those sectors all spontaneously imploded in late January. Then they made a second lower high in April and are imploding again now because rate cuts have now morphed into rate hikes due to the war.

In other words it was a failed Wall Street trade:

After the metals trade imploded, the Wall Street consensus was to rotate into global stocks ex-U.S. The AI trade was coming under scrutiny due to the insane capex costs and because the software sector was imploding due to perceived "AI risk". So Tech was out of favour leading up to the war.

Here we see global stocks ex-U.S. were ramping into the war, but then they imploded back to the 200 dma (red line). Rallied back in April and are re-imploding now as we learn the war will drag out indefinitely.

The regions that are most affected by this oil war are Asia and Europe so now those stocks are lagging.

In other words it was the second failed trade for Wall Street.

When the war started, money flowed back to the U.S. as a perceived safe haven from energy shock.

That has led to a melt-up in the AI stocks that had been lagging prior to the war.

During this time, the Tech sector became record overbought both on technical momentum (shown below) and as a ratio of the S&P 500 (not shown). Semiconductors had their best six week gain since March 2000.

In other words, this will be the third failed trade for Wall Street:

Now it's 12 weeks into the war and throughout this time oil prices have been artificially suppressed by the largest drawdown in the Strategic Petroleum Reserve in history. In other words, oil has been taken out of strategic inventories to prevent a massive price shock. But in doing so, demand has remained resilient and inventories have collapsed and are now expected to reach critical levels in June which is less than two weeks away.

"The world is running out of oil. Implausible three months ago, the likelihood of a crude shortage on a global scale is becoming increasingly realistic with each day that the Strait of Hormuz remains almost completely blocked"

JP Morgan’s commodity analysts also joined the chorus of warnings, saying that by next month, commercial oil inventories in, per the FT, the developed world could “approach operational stress levels”

What happens in an oil shortage scenario is that oil has to be rationed, so flights get canceled and long lines form at gas stations because each person is allocated a specific amount of fuel per week deja vu of 1973.

So on top of all of that risk comes the largest IPO and most overvalued IPO in history now expedited to June 12th:

"Much of a $2 trillion valuation would likely depend on Musk’s stated plans to put data centers in space, build a base on the moon, and eventually build a colony on Mars. The theoretical total addressable market is infinite, at least to starry-eyed believers"

In summary, global bond yields have been rising both due to the war and due to the massive financing costs required by AI. Which means that the melt-up in AI has been attended by a global tightening of financial conditions.

So on top of ALL of this risk, Wall Street plans to dump the biggest overvalued pile of Elon Musk science fiction junk on record.

Data centers in space. The dumbest fucking idea in history.

Let's do this.