Blackstone is financing Google to compete with CoreWeave.
Google has its own money. Why does it need Blackstone’s?
That’s the question that should have stopped you when you saw the headline. Most people didn’t ask it.
Here’s the trade. Blackstone, the private credit shop, lends to Google. The money goes toward building out cloud-based AI to compete with CoreWeave, which builds and rents out data centers.
Nvidia turns around and buys some of that data center space back from CoreWeave.
The whole thing loops on itself. That’s the big circle of life trade.
Three little monkeys sit inside the SMH: Nvidia, Broadcom, and Taiwan Semi, in the right percentages and the right weights. Everything that matters in this marketplace is packed into that one sucker.
Nvidia alone is a $5.3 trillion monkey. What’s $5.3 trillion amongst friends?
This is why the SMH owns the NASDAQ, and the NASDAQ owns the S&Ps. The chips that drive the AI buildout sit inside the SMH. The buildout itself is being financed by private credit, which lends to mega-cap tech to compete with the data center operators buying chips back from the same chip designers.
Pull one thread and the whole sweater comes off.
This is the structural reason the levitation has worked.
The S&P 500 returned 10% year-to-date through last week. Information technology, communication services, Amazon, and Tesla accounted for 85% of the return.
Take out tech and the S&P is up 3% on the year. Nvidia alone, at 9% of market cap weight, contributed 20% of the year-to-date return.
The marketplace is not up. Tech is up.
Tech is being amplified by the dispersion trade. The desks sell options in the indices and use that money to buy calls in Microsoft to create gamma squeezes, where a rising stock forces market makers to buy more shares to hedge their short calls. Capital, returns, and risk all flow in the same circle.
There’s a movie from a couple decades ago called “Idiocracy.” It’s not a good movie. Stay with me.
The premise is that in the future, everyone gets dumber, and the dumbest guy from the past wakes up in that future and becomes the smartest person alive. The movie is becoming a documentary.
We’ve priced peace 43 times. Blackstone is financing Google with money Google doesn’t need, and Microsoft moved 10 points in 13 minutes on a 30 vol earlier this week while the market shrugged.
Something has shifted.
Here’s what to do with this. The SMH is the only thing that matters before the bell rings.
When the SMH is bid, the indices are bid. When it’s offered, the indices are offered. The chain only runs one direction at a time.
Don’t think, just look at the SMH every morning before you trade anything else.
The dispersion trade has amplified the upside for months.
When it implodes, it amplifies the downside the same way. The big circle of life only works as long as the music keeps playing.
The music is the bid in the SMH. When that bid disappears, the loop runs in reverse.
That’s the trade to watch.
And if you want to know the best way to capitolize on it, you can find it in the TheoTrade Chatroom.
To your success,
Don Kaufman
