Here’s a preview of what we’ll cover this week:

• Macro: It’s Psychology All the Way Down, Trade Uncertainty Effect, Trade Imbalance Illusion, Tariffs Trickle Into CPI, Tariff Talk Misses the Real Math, Oil Execs Sound the Alarm, Soft Data vs. Hard Data 

• Market: F&G Annuities & Life, Inc. (FG) – Q4 FY24 Earnings Highlights, Social Media Has Transformed Investing, Sentiment Signal Flash, BABA says AI is a Bubble, 1999 Playbook, Molecular Medicine Boom 

• AI: xAI Acquires X, AI Video Revolution, Limits of Intelligence, SoftBank’s $1 Trillion AI Bet, OpenAI Eyes $40 Billion SoftBank Round, Nvidia Acquires Lepton, The Realpolitik of AI Chips

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“It’s Psychology all the Way Down”

Humpty Dumpty sat on a wall

Humpty Dumpty had a great fall

All the king's horses and all the king's men

Couldn't put Humpty together again

Markets jettisoned higher on Monday morning on the back of a Bloomberg article indicating April 2nd tariffs will be softer and more targeted.

However, gains were reversed and we are now poised for a re-test of the lows around March 13th.

We expect a gap down Monday morning, which is likely buyable if the Vix escalates to the high 20s. 

However, as with the prior rally we are not convinced that we have an enduring rally until the policy uncertainty is set to dissipate.

Our medium term view is we are poised for a multi-month rally. The catalyst for this would be Earnings Season — starting mid-April. That feels like an eternity away.

Another catalyst would be Tariff Clarity on April 2nd. However, such a bounce may be short-lived. 

There’s a good chance that clarity will remain elusive.

Let’s get into it.

Markets are built on psychology. Imagine a house of stacked playing cards.

The foundation of capital markets is driven by earnings growth, stable inflation, and Hayekian like clarity and rule of law.

Equity multiples are a direct function of outlook and psychology.

European stocks are outpacing American stocks substantially - before a single dollar of fiscal stimulus - as Europeans start to pull back from America and invest in their own home market.

Psychology is fragile.

The vast majority of international stock markets over the last few decades really aren’t that inspiring.

The United States truly is an exceptional place. 

A Navy Seal once remarked, after having completed dozens of missions overseas, that ‘America has it the best. Americans want to see America do better and serves as an example to the world.’

The multiple expands when investors can project far out into the future. Consumers can make long-term investments, such as buying a house or car, or take entrepreneurial risk.

A CEO can choose to make a significant capex decision in a jurisdiction if they understand the landscape.

In the last two months, psychology has shaken confidence in small business, CEO, and consumer confidence surveys.

The main question now is : will soft economic data translate into weak hard economic data?

Hard economic data - initial claims, non-farm payrolls, etc - remain robust. 

However, the soft economic data shows recession-like measures. 

We live in one of two worlds:

(i) we have one of the best buying opportunities now OR (ii) stocks are over-priced relative to earnings growth and uncertainty.

Most likely, both statements are true. The resolution between these seemingly contradictory statements is time horizon.

Markets are reflexive and dynamic. It would be satisfying to say ‘here’s exactly what will happen in the next 3 months’ – but the ability to make such plans is difficult.

For example, if Trump announces that trade deals are done and those headlines stop - and if Russia honors its peace agreement with Ukraine – you have a bullish scenario.

However, if tariffs start to impact pharma, lumber, semiconductor, copper, agriculture, China Venezuela, etc. - then there is more risk ahead.

We do not believe we will see the end of the usage of tariffs as a primary instrument of U.S. policy after April 2nd.

Markets are pulling back because investors are losing confidence. It’s difficult for investors to make projections.

Will American pharmaceuticals face reciprocal tariffs? Suppose they don’t - but they have supply chains to source materials from overseas - is that a risk?

Consider the following statements President Trump made this past Friday:

1. A warning to Automobile CEOs not to raise prices after tariffs.

(Note: Automobile margins are around 8%. It’s not mathematically possible for car manufacturers to “eat” tariff costs)

2. A policy proposal to make automobile interest payments tax deductible

(Note only the top 10% of tax filers itemize deductions, not enough of an offset)

3. A directive to American consumers not to purchase cars and front-run tariffs.

Note: Americans will front-run car purchases anyway, the same way American businesses have accelerated imports.

The broader point here is that markets are not able to maintain lofty valuations and dream big - spaceships to Mars, AI transformation, humanoid robot care, or entrepreneurship - with these conflicting messages.

Markets like Friedrich Hayek. Create clear rules of the road. Prosecute fraudsters, don’t pardon them.

Energy executives - which should be thrilled at a Trump Presidency are concerned about tariffs eating into their margins. 

Broadly speaking, we like the deregulatory agenda and relaxation of capital rules on banks and letting American business get back to work.  

We also like the idea of cutting fraud, waste, and abuse and adding accountability to a federal bureaucracy.

So do markets. So do foreign investors. So do many Americans.

What we are seeing now is foreign investors are pulling back from investing in America and investing in their home markets now.

We can see that in the decline of the USD JPY pair - a great proxy for the demand of U.S. capital assets that overlaps with corrective periods.

We noted on X earlier this week that Canada’s stock market is unlikely to perform well under Trump’s throat grip.

Here is EWC - an ETF representing Canada.

The Prime Minister of Canada in a clip that went viral on Thursday noted that Americans cannot be trusted as an ally.

That kind of message is jarring to the psychology of Americans. No surprise than that the Nasdaq closed down nearly 3% - an extremely rare event.

The PM is also taking an aggressive approach to the United States. 

At an extreme, we don’t think it gets there - it might include having Ontario shut off electricity for Upstate New Yorkers.

The significant sell-off on Friday can be attributed to the above statement by the Canadian PM, but it was also driven in part by a hotter-than-expected inflation report. 

The Personal Consumption Expenditures (PCE) data, released that morning, showed core inflation (excluding food and energy) rising to 2.8% annually in February, up from 2.7% the prior month. 

This uptick exceeded economists' forecasts, signaling persistent inflationary pressure. 

Coupled with weak consumer sentiment data from the University of Michigan, which dropped to its lowest since late 2022, the report heightened fears of a potential high-inflation, low-growth scenario, especially amid looming tariff impacts

As a result, the S&P 500 fell 2%, the Nasdaq dropped 2.7%, and the Dow declined 1.7%, with the major indexes posting weekly losses and reflecting broader economic uncertainty.

 
None of this helps psychology.

I had a call with a New York based VC who I find savvy. She indicated to me that bookings for psycho therapists are at all time highs. 

They are booked out for weeks.

Mild forms of PTSD are setting in.

The newsflow is too much for markets to discount. This creates a ‘sell rallies’ mindset.

Usually extreme bearish sentiment is a contrarian bullish indicator. 

However, the probability of a Q4 ‘18 type correction is increasing as the uncertainty and scope of topics proliferate.

Another source of uncertainty as we noted in prior weeks is the size, scope and timing of Doge cuts.

Elon went on National Television and indicated cuts could be $1 Tn. Elon claims they are finding $4 Bn a day in cuts.

The bid / ask on Doge cuts are significant.

Consensus does not expect cuts to be significant. We aren’t so sure.

We’re all for cutting social security payments to fraudsters… but unless this is matched with offsetting tax cuts (and around the same time), you have pressure on consumer spending.

Notice the Consumer Discretionary ETF (XLY) is down 19% from its all-time high on December 19th.

A Study of Q4 2018

Below are the main highlights of our study of the Q4 2018 correction.

We do expect a multi-month relief rally that will start around earnings season. The next two weeks are dicey.

Q4 ‘18 was marked by a 19% correction in the S&P and a trough P/E multiple of 14x.

Currently the S&P is trading at 20x earnings. Part of that is driven by much higher weighting to Mag 7 and tech stocks.

But, at the sector level, you can see that the valuations for all major sector ETFs are higher now than in 2018. Further, earnings growth is slower than back then.

And you have a “Trump Risk Premium” which is getting baked into markets.

Notice it is difficult to find sectors that offer value.

We had the “banking crisis” in the Spring of 2023 – a great setup. We bought that. We’re pricier now.

We had a healthcare correction in Q4. We bought that. We’re pricier now.

The Growth to Value rotation has been a common theme in many of our newsletters.

Here’s the latest chart of valuations by segment:

The way this has played out is that both growth and value have re-rated lower.

Growth stocks took the brunt of the correction, far more than value. So positioning around value has helped. 

However, it’s not enough when other stocks on the block are also re-rating lower.

We don’t think the re-rating lower in the bubble stocks is done. Here’s FICO just peeking below its 200 DMA.

Costco and Walmart have enjoyed a ‘flight to safety’ bid as large members of the XLP index. But, as soon as fear dissipates, that will drop too. 

Or, they may drop anyway, as they did this Friday.

The Q4 ‘18 correction hit peak downside volume on December 24th, 2018.

On that day, the Dow Jones Industrial Average plunged 653 points, marking its worst Christmas Eve performance in history with a 2.9% drop, while the S&P 500 entered bear market territory (a 20% decline from its peak). 

(Note: Trump called on the Fed to reduce interest rates just a few days ago.)

Although multiple factors contributed to the broader correction — including rising interest rates, trade war tensions with China, and a partial government shutdown — Trump’s specific comments targeting the Federal Reserve were widely cited as a key trigger for the intensified sell-off on that date.

The end of that correction was also Trump.

On December 25th, Trump said: “I think it’s a tremendous opportunity to buy. Really a great opportunity to buy”.

That created a sharp recovery from December 26th and 2019 was a great year for the stock market.

A few takeaways:

• Stocks were fully priced after Trump inauguration (euphoria)

• Stocks peaked on Feb 19th. A week later, when Zelensky was ejected from the White House, the sell off accelerated

• On the weekend preceding March 13th, Trump indicated he cannot rule out a recession. That setup an intermediate washout and bottom

If we follow the Q4 2018 playbook — the most relevant time period for us due to trade wars and monetary policy - the key to an enduring end of the correction will be Trump’s comments.

Corrections end when the primary factor that caused the correction is addressed. 

(The GFC bear market ended the day mark-to-market accounting was suspended on banks, for example.)

What you will see on that day is a massive up day with strong volume and breadth across all names. 

And it will last for a few days. I’ll make sure to write about it 🙂

Looking Beyond the Recovery

After a recovery in asset prices, markets will have to contend with a slower pace of economic growth.

Atlanta GDP now stats are currently reporting a -2% - in part driven by businesses accelerating imports.

There is a real possibility that institutions sell a rally that tops out in the summer - a common time frame for intermediate market tops.

We are not of the view that we get a swift resolution of the trade wars, so buckle up folks.

The bright side is there will be good bargains that present from time to time.

For example, this week we bought Fidelity Global for a forward PE of 6.8X. 

The stock sold off 15% due to a surprise secondary share sale to a large insider (Fidelity). Fidelity got a great deal on the shares which diluted current shareholders.

It’s the same business as before the secondary… Except it is now cheaper and has more capital to grow.

The business provides life & insurance annuity products. They sell services to Boomers - we like that theme.

F&G Annuities & Life, Inc. (FG) – Q4 FY24 Earnings Highlights:

Management Commentary:

• "We ended 2024 with another record quarter as gross sales reached $15.4 billion, up 16% over prior year, reflecting strong consumer demand for our annuity and life products." Chris Blunt, CEO
  
  

• "Retail annuity sales grew 40% to $3.5 billion, driven by fixed indexed annuities and multi-year guaranteed annuities, as consumers seek safety and guaranteed returns in an uncertain market." Wendy Young, CFO

Insights on Consumer Trends:

• Robust AUM Growth: AUM before flow reinsurance grew 17% to $65.3 billion from $55.9 billion, and total AUM rose 10% to $53.8 billion from $49.1 billion, driven by $15.3 billion in record gross sales (up 16% from 2023), signaling strong consumer investment in FG’s financial products, likely extending into February/March 2025 and future quarters
  
  

• Confidence in Financial Security: The $9.4 billion AUM increase before flow reinsurance (from $55.9B to $65.3B) reflects consumer trust in FG’s offerings for retirement and protection, supporting intact sentiment amid economic uncertainty

Factors Affecting Stock in the recent weeks:

• Market Rotation: FG’s P/E (~8x) fits a value profile, but the growth-to-value rotation and broader insurance sector softness (e.g., interest rate concerns) has weighed on performance in the recent weeks
  
  

• Earnings Resilience: Q4/annual earnings strength (sales up 16% YoY, GAAP EPS $2.5 vs. $1.2 expected) supported the March 28 rebound, with CEO stock purchases ($356.5K on March 25) signaling insider confidence
  
  

• We expect strong growth driven by continued strong demand for individual annuity and life solutions, and have entered a new market with our RILA (Registered Index-Linked Annuity) product, which has generated significant initial reception." The company anticipates that the RILA market could yield annual sales in the billions over the medium term

(Note: Don’t use Monday market open orders to buy stocks - it’s a bad idea as it causes a gap up in the stock which causes dealers to short the stock.)

Disclaimer: This material is provided for informational purposes only by Lumida Wealth, a registered investment advisor. It does not constitute investment advice or a recommendation to buy or sell any securities. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. Investors should consult with their financial advisor before making any investment decisions. References to specific securities are for illustrative purposes only and do not constitute a solicitation or offer to buy or sell any security.

Social Media Has Transformed Investing

One of the topics we wrote about in the Lumida Wealth newsletter is how retail investing has transformed public markets post-Covid.

Retail investors are not the opposite of "pod shops" like Millennium.

In fact, quant shops are baking in social media signals.

Take a look at the famed Renaissance Technologies for example.

Their top holding last quarter was PLTR. (They wisely were selling down as well).

They also own RDDT.

The best quant shops are using signals from twitter, Wall Street bets, and cues from animal spirits.

Relatedly, there was an article in the FT today titled "Retail investors take on hedge funds in Europe" answer to 'meme stock mania'.

The main idea there is that retail investors are identifying names to squeeze using social media forums.

And, to top it off, short interest over the last 5 years is at the 99th-percentile.

This is why today on the back of positive tariff newsflow, you saw a major gap up and rally in Animal Spirit names.

I am attaching here the various Twitter Momentum stocks. 

These were thrashed during the correction but have bounced back sharply starting around March 13th (where the correction ended in my view.)

Today's market environment reminds me of 2021.

Navigating a liquidity event or asset transition? Be sure to reach out to our Senior Advisor [email protected] for more about Lumida’s services.

Signs Trump is Cooling Off

1. Trump referred to Canada’s new PM as Prime Minister

2. Elise Stefanik is no longer the next U.S. ambassador to the U.N. Trump is keeping Elise at her post to defend her district. Elise won her district by a landslide. This means Trump feels pressure from weakening consumer sentiment.

3. An India - United States tariff deal appears to be in the works

What we haven’t seen yet? Tariffs on Eurozone (a much less significant source of risk as compared to Mexico).

Macro

Trade Uncertainty Effect 

Trade Imbalance Illusion

Tariffs Trickle Into CPI

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Tariff Talk Misses the Real Math

Oil Execs Sound the Alarm

Soft Data vs. Hard Data

Market

Sentiment Signal Flash

Curious how Lumida can optimize your portfolio? Book a complimentary consultation with our team.

BABA says AI is a Bubble

Alibaba chairman Joe Tsai talking about a bubble; "people are talking about $500bn investments. I don't think that's entirely necessary. I think in a way, people are investing ahead of the demand that they're seeing today". 

Meanwhile $TSMC has secured orders for packaging technology from $NVDA for its Rubin GPUs (out in 2026). 

And CoreWeave has an $8bn backlog. 

And Amazon’s CEO is saying the constraint is energy, not demand. 

Sure looks like AI became political after DeepSeek.

1999 Playbook

Molecular Medicine Boom

AI

xAI Acquires X

Elon Musk’s xAI has officially acquired X (formerly Twitter) in an all-stock deal, valuing the platform at $33 billion — including $12B in legacy debt.

This move was inevitable. X has always had what AI companies crave: distribution and user data. What it lacked was capital. Twitter was acquired at the top of the 2021 cycle, burdened with expensive debt and shrinking ad revenue.

xAI’s core advantage was never the model — it was the data licensing agreement with X. The merger formalizes that relationship.

The timing matters. X recently secured new financing, cleaning up a cap table that was once unfinanceable. Just two years ago, Twitter’s debt was hung — banks couldn’t sell it. Now, the balance sheet is restructured, and the AI stack is vertically integrated.

This is less about cost synergy, more about control: compute, distribution, and data — all under one roof.

Ram tweeted a very interesting breakdown of the situation himself calling it LIFE IS A CIRC(ULAR TRANSACTION) : snippet below. 

AI Video Revolution

Shortform video dramas are exploding — an $8B+ market in China alone, now outpacing film.

AI is accelerating the trend with 90% lower production costs.

This is a new category: high-volume, low-budget, algorithmically driven content.

The question isn't if it goes global — it's who brings it west.

Limits of Intelligence

Meta’s CTO puts it plainly: we’re running out of training data.

Even with all human media combined, models still lack causal reasoning.

We’re approaching the information-theoretic limits — more tokens won’t fix that.

Breakthroughs in world modeling and common sense will define the next phase of AI.

Scale helped. Structure is next.

SoftBank’s $1 Trillion AI Bet

SoftBank is planning to invest over $1 trillion to build AI industrial parks across the US.

These will be large-scale “AI factories” powered by autonomous robots.

The goal: automate industry at scale and solve labor shortages.

It’s the most ambitious AI infrastructure plan in the world.

Masayoshi Son is positioning SoftBank as the platform behind industrial AI.

OpenAI Eyes $40 Billion SoftBank Round

OpenAI is close to raising $40 billion in a new round led by SoftBank. 

The deal would value OpenAI at $300 billion. 

There’s a catch — the full investment requires OpenAI to complete its for-profit transition by year-end. 

If not, the round shrinks to $20 billion. 

This is SoftBank’s boldest bet on foundational AI.

Nvidia Acquires Lepton

This week, reports surfaced that Nvidia is acquiring Lepton AI, a two-year-old GPU cloud startup, for several hundred million dollars. Lepton rents out Nvidia-powered servers to developers and AI startups — effectively acting as a secondary cloud layer. The move deepens Nvidia’s push into enterprise software and cloud services, positioning it as both supplier and competitor to hyperscalers like AWS and Google Cloud.

It’s a strategic play in a rapidly evolving AI capex cycle — where control of infrastructure is the next battleground.

Adapted from insights in “AI: Nvidia moves into AI Cloud Services market,” RTZ #672 by Michael Parekh.

The Realpolitik of AI Chips

The Trump administration is navigating the AI policy framework it inherited from Biden — particularly the controversial AI Diffusion Rules, which restrict export of advanced chips to much of the world.

Originally designed to limit China's access to high-performance AI compute, the rules divided the globe into three tiers of chip access. But they’ve drawn criticism from U.S. tech giants, foreign governments, and even allies like Israel and the UAE, who argue that the restrictions could stifle investment and hand long-term leverage to China.

In recent days, Trump officials doubled down — adding 80 mostly Chinese firms to the export blacklist, including major Nvidia and Intel customers. This move signals a hawkish stance and suggests the administration may tighten, not loosen, AI export controls.

Nvidia and Oracle have pushed for a full repeal, warning that the current framework risks creating global fragmentation in AI infrastructure — and invites competitors to build around U.S. constraints.

The stakes are high. Billions in AI-related data center investment are being negotiated in real time with countries like the UAE, India, and Israel. The diffusion rules are now both a geopolitical lever and a competitive bottleneck for U.S. tech companies — particularly those building at the intersection of AI and infrastructure.

Adapted from insights in “AI: Trump Administration navigates Biden 'AI Diffusion Rules' with core China focus,” RTZ #671 by Michael Parekh.

Want to discuss how this market volatility affects your portfolio? Book a meeting with our team for tailored insights.

Ram will be speaking at Puerto Rico 2025, hosted by Uncorrelated—an event that brings together limited partners, fund managers, and service providers across the alternative investment landscape. If you're attending and would like to connect with Ram or our Senior Investment Advisor, Marc, we’d be happy to meet in person. You can also reach out ahead of the event via [email protected]

Lumida Curations 

Insights From Bloomberg Surveillance This Week

Speaker/Guests: Darwei Kung (DWS Group), Dan Ives (Wedbush Securities), Stuart Kaiser (Citi), Venu Krishna (Barclays), Jim Caron (Morgan Stanley)
 

Key Insights:

• Supply disruptions, including slower supply growth (1% vs. 2-3% typical) and tariff-related trade flow issues, are pressuring markets like copper. Traders avoiding tariffs exacerbate the imbalance.

• Reshoring production, especially in the auto industry, faces challenges and could take 3-4 years to meet "Made in the USA" goals.

• Tariff-related uncertainty has eroded consumer confidence and investor sentiment, leading to retail investors pulling back and equity markets feeling the weight of unclear policies.

• Bearish sentiment is rising due to policy shocks and skepticism about tech’s productivity gains, prompting investors to diversify away from U.S. equities.

• Uncertainty caused a 10% equity drawdown in 22 days—the 6th fastest in 75 years. Volatility can be priced, but uncertainty cannot.

Analyzing the Current Housing Market

Speaker/Guests: Ivy Zelman

Key Insights:

• Rents are flat to slightly up, with renewals below pre-Covid levels. Sunbelt rents face oversupply challenges, while Northeast and California rents are rising due to limited supply.

• Builders are relying on aggressive incentives like rate buy-downs, squeezing margins. Lennar’s incentives reached 13% of ASP compared to 3-6% historically, while KB Home has turned to price cuts to attract buyers.

Insights From Bits and Bips

Speaker/Guests: Ram Ahluwalia, Noelle Achson, Alex Kruger, Felix Jauvin

Key Insights:

• The 10-year yield isn’t dropping to boost mortgages, as competing assets like European bonds are in play. Private sector strength is key to avoiding economic weakness.

• The correction ended on March 13, with leaders like Google, Nvidia, and MicroStrategy already bottoming. Tariffs may be avoided as Trump seeks a deal with Mexico.

• Short interest at the 99th percentile is driving strong gap-ups in momentum stocks like Tesla, Palantir, and Robinhood. Renewed optimism is fueling a risk-on rally.

• Global fiscal unshackling is happening, with Europe planning $500B in investments and China moving toward fiscal stimulus. Meanwhile, U.S. austerity limits equity bounces.

• Speculation in crypto continues to evolve, with meme coins replacing NFTs. Rotational trades and short squeezes keep the market alive.

Insights From WOYM Episode

Speaker/Guests: Ram Ahluwalia
Key Insights:

• Technicals now overpower fundamentals, with trillions in stimulus and retail traders driving momentum trading. Robinhood and Reddit have turned investing into a game of seasonality and liquidity.

• Consumer spending is up 6% YoY, with resilience shown through access to second jobs. Rising delinquencies are from historically low levels, indicating no recession in sight.

• Bubbles always burst, as seen with COST, WMT, AXON and PLTR. However, corrections have made NVDA and GOOGL attractive buys at lower valuations.

High Yield Laughs

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