Friday Thoughts

AI's next act / 2026 portfolio +9.4% YTD / Macro Data & Central Banks

I will be sharing just my thoughts in this post, including my friend Macro D’s notes behind the paywall. I will publish the full chart book over the weekend to capture month-end prices. Month-end? Yes, it came fast, and what a spectacular month it was.

AI is no longer just a clever meme generator or a productivity toy we admire from a safe distance. It now lurks much closer to home. It doesn’t just help you do your job faster. It increasingly raises the question of whether your job needs to be done by you at all.

I’ve spent the past week writing down my reactions to the now-famous Citrini piece — an excellent and unsettling read. I’ve also read Citadel’s rebuttal, which is grounded firmly in observable facts rather than imagined futures two years out. That distinction matters. As investors, we don’t get paid for philosophy alone. We get paid for decisions made now. Talking about the here and now, this excerpt from today’s Block earnings report is telling, laying off nearly half of its workforce:

”The core thesis is simple. Intelligence tools have changed what it means to build and run a company. We're already seeing it internally. A significantly smaller team, using the tools we're building, can do more and do it better. And intelligence tool capabilities are compounding faster every week. I don't think we're early to this realization. I think most companies are late. Within the next year, I believe the majority of companies will reach the same conclusion and make similar structural changes. I'd rather get there honestly and on our own terms than be forced into it reactively.”

I still stand by the thoughts I shared around ten days ago (see above). I welcome disagreement, counterpoints, and alternative interpretations of any kind. In fact, I plan to follow up with another post addressing some of the more compelling objections — and, crucially, how to think about them holistically and practically from an investing standpoint.

For now, I keep coming back to a simple question.

If AI is not about replacing human labour of a certain level of intelligence, then what exactly is it for?

Isn’t that replacement — or at least the credible threat of it — the clearest sign of its success?

I don’t see a path back from here. The AI engine is built. The capital has been committed. The infrastructure is being poured at a scale we rarely see outside wartime or national mobilisation.

From here, the world bifurcates.

Either this engine delivers returns that justify the gargantuan investment behind it — or it doesn’t.

If it does, the economic and societal consequences of widespread labour substitution will be profound and unavoidable.
If it doesn’t, then we are staring at one of the largest capital misallocations in modern history, followed by writedowns, balance-sheet stress, and powerful negative wealth effects.

There is no comfortable middle ground.

This isn’t a story with a gentle glide path or a neat equilibrium waiting at the end. It’s binary. Either it works, or it doesn’t. And in both scenarios, the challenges ahead are far larger than most portfolios — or institutions — are currently positioned to confront.

Talking of portfolios, I have set out this year’s buy-and-hold portfolio with the aim of participating in attractive risk-taking while mitigating downside with good hedges and diversification. I did not anticipate the AI disruption phase, but I was prepared for volatility. The resulting portfolio (white line below) has delivered a YTD return of 9.4% in USD, compared to pretty much flat readings for the SPX or NQ. I know, sharp readers will say today’s (Thursday’s) performance is not reflected. The portfolio is flat today as of this writing.

For more details of the portfolio and its detailed composition, please see below.

I returned this week with an educational piece, which is true to my principles and free for anyone to read. This time around, I am addressing one of the hedge fund world’s most favoured option structures, the 1x2 (One by Two). Please see the post below.

Macro D has also pencilled a great new piece about Kevin Warsh’s appointment and its consequences. This post is part I of a two-part series examining what his appointment truly means — not just for interest rates, but for the architecture of the next monetary regime. See details below

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Let’s now read Macro D’s latest thoughts on the world of macro and central banks. As mentioned above, the chart book will be processed over the weekend.