The Market Always Crashes Eventually

Another end of the week, at least for me. Since I am currently not working on Fridays, I can already consider myself to be on the weekend. To all those who still have to go to work, I can only wish you as easy a day as possible. Over the last few days, I have been curiously watching what is happening with stocks listed on different stock exchanges across the entire planet. It is an impressive carousel, to say the least. And everything was triggered by Admiral Trump. In reality, I believe there is a rank called Rear Admiral... but considering how Trump has been talking about behinds lately, you could consider him an Admiral of Rears. Regardless of this position, the Trump administration has received the strongest blow it could possibly have received. Somehow, the American electorate woke up to reality and chose to vote for democracy, freedom, and the preservation of constitutional rights.

As a result, the stock market exploded and underwent significant changes. Let's try to see what the current situation is. Laura and Luca, my dears, in a few years, when you read these lines, the stock market levels will most likely mean nothing to you anymore. It is similar to when I read books about economics and come across general data and stock market quotations from 40 or 50 years ago. And you are right, I am not interested in this information either. But I would still like us to take some time and focus a little on the current mentality of the market. Let's try to understand what is happening so that we can extrapolate into the future, if we somehow encounter this situation again.

In the middle of the week, the Trump administration lost both the House and the Senate. This is an important thing because it means that Trump will finally no longer have a free hand to lead America under a dictatorial one-man-show regime. Initially, upon hearing this news, the market rose. Why did it rise? We cannot know exactly, but we can speculate, we can make an educated guess. My opinion is that the market celebrated the economic stability resulting from Trump's castration. Now that the Democrats hold a large part of the power and control, they can limit Trump's actions much more effectively. If in 20 years these names and dates mean nothing to you, it doesn't matter. A short explanation is that America has two political directions: the Democratic Party—which historically tends to pursue measures that support the population, favor access to healthcare, and reduce costs—and the Republican Party—which historically tends to pursue the interests of the wealthy, disadvantaging policies for the general public. Trump is not only a Republican president, but he is also the most corrupt Republican who has ever existed. The only purpose for which he exists on this earth is to accumulate money for himself and his family by any means necessary. Most likely, the basis of his current business dealings is a form of blackmail, blackmail derived from political, economic, and military pressure. Most likely, Trump sends aircraft carriers to the Middle East to obtain covert personal deals. In the years to come, we will see whether this really is the situation and whether democracy still works in the USA.

The problem is that all these deals he is trying to make personally have destroyed the economies of the planet. Now, I don't think Trump is solely responsible, but I believe he has contributed significantly. I believe the world's economies were already fragile and under various pressures, waiting for the day when they would finally collapse. Trump did nothing but accelerate this phenomenon. Probably what we are seeing in the world now would have happened anyway within the next 10 years. So, in a way, Trump is the best thing that could have happened to Europe. Why do I say that? Well, because he led to the whole of Europe waking up to reality. Now, suddenly, Europeans want military sovereignty, are investing significantly more in their own armies, and no longer rely solely on the Americans. They are building alternatives to Mastercard and Visa, alternatives such as Wero, which are beginning to be used. As long as Europe's money passes through American payment systems, Europe is not a sovereign continent in the true sense of the word. Elon Musk cut off access to Starlink in Ukraine, which led to an inability to protect itself from Russian attacks for almost two weeks, attacks that have become increasingly difficult to stop with the introduction of new models of jet-powered drones. In response, Nokia and Iceye have started a partnership aimed at producing an alternative, and here we are talking about launching satellites into space, European satellites.

The European Union is pursuing a program of sovereignty over European data and frequencies. In other words, they want 70% of the telecommunications bandwidth above Europe to be reserved for European companies. This idea eliminates any monopoly that Starlink might currently have. Going further along this chain of thought, homegrown AI systems will be indispensable to Europe. First of all, AI as we use it today with "Hey ChatGPT, draw me a cat!" is a waste of time. Most likely, AI will be deeply embedded in daily life, where making a bank transfer, everyday shopping, school diplomas and education, or access to healthcare will be managed solely through AI. Do you think we can afford to have such data in the hands of foreigners? Do you think European governments will accept their data passing through potentially hostile neighbors?

Laura, Luca... when you read these lines, everything will be clear to you. You will have lived through this AI race and will already know who came out victorious. Today, as I write these lines to you, it is unclear to us. I am betting on Europe building its own systems, from raw materials to semiconductors to chips, meaning the entire hardware chain, building its own software or AI systems, and making sure that data is stored in purely European cloud computing systems or data centers. This is one of the gambles we are also making for the coming decades.

Now, to return to the main idea, everything Trump touches he destroys, and everything that is destroyed will be replaced by Europe. Even though there is a lot of work to be done at present, most likely political will and necessity will keep central European policies on the right path.

Now you may wonder what all this has to do with the collapse of the markets, and what relevance the title of this capsule has. My dears, I want to draw your attention to the discrepancy between logic and market movements. Most likely, the market rose significantly a few days ago simply because it anticipates stability, simply because it knows that Trump will not be able to bomb Iran so easily and that most likely some of the measures he initiated will be blocked. Markets like stability. Then, shortly afterward, we saw that part of the market collapsed. But if we look closely, it is only the IT and AI sector. If we all believe that AI will continue to develop, why is it falling now? Nvidia is in freefall this week, losing over 9% of its share price and settling at approximately 180 dollars. Advanced Micro Devices fell 17%, Dell Technologies 14%, Tesla 11%, Intel Corporation 10%, ASML—a semiconductor company—down 8.8%, Facebook's Meta and Microsoft both down 5%, and so on.

The market is now taking several factors into account. First of all, Democrats in America are opposed to data centers because they are resource-intensive and tend to increase the cost of living in the communities where they are introduced. The cost of electricity tends to rise, and the available local water tends to be used up. Unfortunately, these cannot be built in other regions outside urban or residential areas because the necessary infrastructure does not exist there. It is easier to construct a building and fill it with IT equipment that consumes electricity produced by the neighboring power plant and is supplied with water from already constructed pipelines than to go somewhere into the wilderness and try to build new power plants just to avoid affecting the population. For this reason, the market anticipates that construction costs will increase significantly in the coming period and that the necessary approvals will be delayed or, in many cases, rejected.

Without the ability to develop on the hardware side, the AI industry will face an additional obstacle, thus reducing projected future earnings. Another problem is that most companies had funding rounds quite a few years ago, when the interest rates at which they borrowed were low, investors were numerous, AI companies were few, and their valuations were much higher. All these factors are now moving against the industry. Interest rates have risen, so AI companies will need to borrow money at higher costs, and in most cases, they will see an increase in annual expenses due to interest of tens or hundreds of millions of dollars. Their valuations of 60 to 100 times earnings, or a P/E of 100, have now fallen to 50 or 60, simply because it is clear to everyone that although valuable, AI does not generate enough money quickly enough. The third negative factor is that years ago there were few companies and many investors who had money. Imagine one hot dog stand and 10 hungry people; today, however, there are 10 hot dog stands and only one or two investors. This discrepancy further limits access to capital, or at best, to cheap capital.

So if money flows into this sector more slowly, a sector that depends on a constant flow of investment over the coming decades, US policies seem to be changing, with the USA being the main driver of AI, and costs for AI companies are rising, calling into question their profitability and, in many cases, even their very existence... what do you think will happen? Share prices will fall. Correct!

Investors have had a change of sentiment and realize that an all-in position is not the most favorable or safest one at this moment. And so, after a long story, we return to the title of today's capsule: The market always crashes eventually. Whatever stock prices do, it should not concern you. During your lifetime, my dears, the market will also crash and rise. These movements should not be ignored, but I recommend that you try to understand them, just as today we tried to understand what is happening at present. Remember that we did not take extreme positions, and today I did not talk to you about an AI bubble bursting, a doomsday scenario, an economic crisis, or buy or sell opportunities... I told you that it is normal for the market to experience corrections. We tried to understand the investors who are active today.

Simply by accepting that the market can crash without having a clear expectation that it actually will or a desire to buy low, we manage to separate ourselves emotionally from our choices. When we invest, we are simply buying something, and when we buy, we should not do it emotionally; it must be clear, lucid, and calculated. If you manage to accept that the market can go down without warning and if you manage to separate yourselves emotionally from this, especially when you have your own money invested, then you have succeeded. You have succeeded in becoming winners, and your mother and I have succeeded in educating you financially. I am very curious about what reality will look like in a few years when you read these lines, and I am equally curious whether I was right about any of the speculations I made today. I love you. I send you hugs and kisses from the past.