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

• Macro: Budget Blowout?, Debt Downgrade

• 13F Analysis: EL Pollo Hermanos, Performance Chase, VIX Compression Signal

Lumida: Quarterly 13F Hedge Fund Analysis Review

We’re pleased to share Lumida’s latest Quarterly 13F Hedge Fund Analysis. Discover which stocks top fund managers are buying - click the link to explore the full review.

On Friday, Ram Ahluwalia recorded a full breakdown of the Q1'25 13F Hedge Fund Tracker.
Watch the deep dive on our YouTube channel and see which stocks the smartest funds are betting on.

China Detente & Stablecoins as SoftPower

New episode: Austin Campbell joins Ram to explore the potential impact of stablecoin legislation on market structure, analyze key geopolitical events, discuss the role of banks in treasury management, and dive into trends in FX markets and payments.

The episode is live on YouTube - subscribe now to stay ahead.

Macro

Budget Blowout?

Moody’s downgraded the U.S. debt rating from AAA. 

S&P and Fitch had previously downgraded U.S. debt in years past.

What does it mean for markets?

Longer-term – really nothing.

Shorter-term, there can be some technical selling pressure. 

That’s due to the fact that big institutional investors have mandates. Some of those mandates restrict investing in anything but AAA-rated securities.

Notably, the market appears to be anticipating the debt downgrade with the price of credit default swaps on U.S. debt increasing earlier this week.

(Sure seems like there is a lot more leaking of inside information these days - Moody’s, Marjorie Taylor Green…)

The bigger issue is that there is no real political incentive for politicians to reign in spending. 

The United States is spending at a wartime deficit level.

Overall, we believe Ray Dalio is wrong about the debt spiral hypothesis (after all the United States can always choose to monetize its debt with QE), but when you see unconstrained spending from Congress you have to acknowledge Dalio has the basic read on unsustainable spending correct.

So much for austerity or belt tightening. 

Everyone is solving for midterms. 

The political incentives for whomever is in power is spend, spend, spend and print, print, print. 

The ten year rate may move higher in a short reflex action in the coming days. 

That won’t help Main Street mortgages. It also won’t help the Prime Rate small businesses fund off of. 

What does greater deficit spending and tax cuts mean for the stock market though?

Bullish. 

Maybe it’s still Wall Street's turn (again) and Main Street will have to take another backseat.

Should markets react negatively in the short-term to the debt downgrade? Yes.

Positioning in enquiry markets is no longer light – investors have returned and gorged on equities the last few weeks.

The S&P is also near 6,000 – probably near fair value – so a couple of days of retracement of recent gains is possible. We would still expect dips to be bought.

Under the hood in markets we are seeing rotations from leaders out of the Tariff correction.

Notably, we have seen that rate sensitive names have rallied despite long-term rates increasing. First Solar, for example, has staged a massive rally.

The homebuilder index has also rallied even as the 10-year increases and mortgage rates are near their highs.

This is a sign that the worst news is priced in. Homebuilders and building supply materials might be in a bull market. We also see multiple housing indicators as improving.

At the same time, we hear anecdotal reporting that in the last 2 weeks sales of lumber and other leading indicators are down.

When we look at names in the sector we see that technicals are broadly constructive (higher lows) and valuations are attractive. 

The bear case is that the forward PEs for many names are higher than their trailing PE - meaning EPS growth expectations are negative. If

We want to keep an eye on this sector.

Big picture, we don’t see the debt downgrade as a serious matter longer-term. Dips should be bought. 

13F Analysis: EL Pollo Hermanos

Each quarter the Lumida team scours through dozens of 13F filings.

Here we release our quarterly tracker. If you click on the tricker and scroll to the bottom, you will see various highlights.

One observation is that Meta remains the most popular stock across hedge funds. Really can’t blame them – the nearly 50% earnings growth at scale and a credible bet on AI is a reason we like Meta too.

That said, Meta is now approaching valuations where further gains tend to slow as it becomes near fully valued.

Historically, Meta has re-traced from these levels.

That’s OK though. You can rotate to Google which remains cheap. Google has reversed its one-day 9.5% loss on Apple Safari search news.

Google remains quite cheap, and its Agentic AI offering is compelling - far more compelling that Microsoft. 

We build and test with AI so we have a nice front-row seat to these technologies.

Google is our largest position after its recent sell-off.

Another position is Taiwan Semiconductor.

Although many quality tech names have recovered sharply since the Tariff Correction, TSM remains attractively valued at ~16x forward earnings. 

The firm is growing revenue at 20% YOY and is indispensable to its customers including Nvidia, Google, and Apple. TSM is a top 5 position for us.

CoreWeave is now up 100% since its IPO

CoreWeave was a www.lumidadeals.com and we’re obviously happy.

Our prior deal was investing in Brad Jacobs QXO privately at $9.14 and then in public markets after we could not get our fill.

We are close wrapping up our diligence and analysis on another opportunity. We like it because the characteristics are highly asymmetric. Be sure to go to www.lumidadeals.com if you’d like to learn more about it, or email [email protected].

We are very selective with our deal.

Notwithstanding the US debt downgrade, we see quite a few positive technical setups in markets. Beta is an over-extended and momentum factor however. 

A pause in the rally this week on the heels of the debt downgrade would be a welcome reset and create more fuel for a rally higher thru May and June.

El Pollo Hermanos —> El Pollo Loco

Breaking Bad in my mind must be one of the greatest human cultural artifacts ever created. One of its best characters is the meticulous and disciplined Gus Fring. He’s the owner of Los Pollos Hermanos.

We picked up LOCO (El Pollo Loco) - a small-cap business offering tasty chicken via Quick Service Restaurants in Arizona, Texas, Colorado and Utah.

The stock has a $286 MM market cap and a forward PE of around 10x. That compares favorably to other restaurants like Chipotle Mexican Grill or CAVA which have much higher valuations.

Now to be fair those businesses also have much higher growth rates (but are still too pricey relative to the growth).

El Pollo Loco is transitioning to a franchise model where others fund the capex rather than the corporate. Also, a private equity firm has been accumulating shares and is the largest own. They are also making private offers to acquire the business outright.

We were pleased to see the Quant Mafia - Renaissance, Millennium, AQR, DE Shaw - pick up shares of restaurant stock LOCO.

We think we can wait a year or two and the name should be up at a greater rate than the S&P 500. And, maybe it will get acquired - or maybe not - but that background bid is a nice feature along with the firms buybacks.

Note: Last year at this time I noted Restaurants should be avoided and are in a bear market. It’s possible the bear market in restaurants has ended.

This was a recent add for us.

If comps like Chipotle, Texas Roadhouse, Cava are 40x+ -- and this is at 10x with buybacks -- why can't this perform well?

One theme you will notice from some of what we are buying – mean reversion is back.

We believe Momentum factor will take a breather. The torch will pass from names that have renounced the strongest to other names.

Speaking of mean reversion, we were aggressive buyers of healthcare stocks this week. We like medical devices (DVA and MDT), healthcare providers (UHS) and others.

We are buyers of healthcare on valuation ground – but technical studies like this only strengthen our interest.

We also bought United Health. We bought it one day early, but like that it closed up 5% higher ending a period of incredible selling pressure.

Take a look at UNH’s free cashflow yield. 

It’s only been higher during the GFC period. The new CEO is the old CEO that turned UNH into a stock market darling. We were critical of UNH here when its PE was 19x. Now we think the selling is overdone.

It’s hard to perpetuate fraud at the size and scale at UNH. And after the end of Arthur Anderson public agencies are reluctant to destroy enterprise – UNH will pay a fine and move on and all of that and a lot more is priced into the stock.

Performance Chase

Something we have been writing about for the last several weeks is how hedge funds have low net exposure and they may be forced to performance chase.

Notice the major indices are up every day this week. Just when the indices look like they are about to head south, they get bid. 

Institutions are still buying and covering shorts.

People that are long want the market to go down. 

(So they can scoop up more Mag 7).

People that are short want the market to go down. 

(So they can cover. Notice the IWM index is out-performing again... all dips are bought.)

Blackrock advised shifting to cash, golds, and bonds.

They want the market to go down.

HSBC advised similarly. 

They want the market to go down.

Here's the thing...

The marginal buyer and seller set the price.

It doesn't take much to re-rate assets.

So, assets re-rated higher quickly in a thin liquidity market.

You don't need the same amount of capital to bid up assets as the tremendous amount of capital that rotated out during tariffmageddon.

So, this is a self-reflexive rally that has evolved into a full-on performance chase.

Managers need beta to keep up.

These are extraordinary times. Pay attention. 

Let's see how the next chapter unfolders.

VIX Compression Signal

Market

Earnings Season Highlights

Walmart (WMT) and NICE (NICE), released just before the weekend on May 15, 2025. 

These updates give us a peek into retail and tech sector trends, showing how each company is handling tariff challenges and economic shifts. 

Lumida curation

Check the Lumida curation we did this week:

Sundar Pichai breaks down why NVIDIA is miles ahead — unmatched software, top-tier R&D, and industry-wide supply constraints.

Meme of the Week

Stay tuned, stay informed, and as always, stay ahead.

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