Nobody’s Eating their Humble Pie

Two weeks ago I sat in this chair and told you to stop arguing about whether AI is a bubble and watch two things instead: the bond market, and the war in the Middle East. We got our answer for both.So let’s grade the tape - starting with the one that should humble every expert who opened their mouth this spring, including me.The humble pie nobody’s eatingFor four months we had a shooting war with Iran. For 90% of it, the Strait of Hormuz was effectively closed. A fifth of the world’s oil moves through that strait, and in the eyes of basically every energy analyst alive it’s the single most important piece of infrastructure in the global economy…And every single person in the energy market had the identical opinion. Oil’s going to a hundred and twenty, maybe a hundred and fifty. Inflation shocks everything. Batten down the hatches, the Nasdaq sells off twenty-five percent. It was unanimous.None of it happened.This past week tankers started transiting the strait again, Iran is winding down the closure, they’ve signed onto a memorandum of understanding — and instead of oil staying high, it collapsed back to roughly five to seven percent above where it sat before the first missile flew. WTI is down in the seventies. After all of that. A war, a closed chokepoint, a quarter of the year with twenty-plus percent of global energy trade taken offline — and crude is basically flat on the year.Nobody is doing the postmortem. Nobody is eating the pie. So let me eat mine, because being wrong in public is the only honest way to get better. I was sure energy stayed higher for longer. I was wrong. Why?Three reasons:One — China drew down its own inventories instead of panic-buying. They had far more in reserve than anyone modeled, which tells you how little we actually know about how other countries operate. Two — China could flex its demand down. Their build-out of EVs, electrified transit, and solar has quietly made oil far more elastic than the textbooks assume; the idea that price has to stay high for long is now genuinely in question. Three — dark transits. There is a whole shadow logistics system moving barrels outside the view of the people who price this stuff, and it’s bigger than anyone admits. Put those three together and you have the only real explanation for why every commentator got it wrong.The part that matters for your portfolio: a meaningful chunk of that Chinese demand reduction in transport is going to be permanent. That’s not a wartime blip you get back. That’s a structural dent in the long oil story. Separate Alberta’s very real cyclical windfall from the secular demand picture — they are not the same trade.Warsh changing the feds math while everyone watched the warKevin Warsh ran his first meeting as Fed chair, and he is a more hawkish animal than Powell — which is gloriously ironic, because he’s exactly who Trump pushed for. Two things came out of that meeting. First, he told the market he doesn’t love dot plots and isn’t going to telegraph the next three moves. Markets hate uncertainty, and they let him know it. Second, and bigger: he made clear he’s not cutting this year. The market repriced instantly — from pricing a possible December cut to roughly two-thirds odds of a rate hike in September. That is a massive move in the discount rate sitting under every equity attached to the USD.That happened Thursday. Everyone went on vacation. We came back to two red days, the Nasdaq and S&P each down one to two percent, and a market that had been up ten, twelve, thirteen percent on the year handed back a third of it to sit around seven or eight. A Canadian wrinkle I can’t ignore. A Fed that’s cleared out 2026 cuts and is flirting with hikes bleeds straight into us. I was poking through realtor.ca data for fun, and inventory is climbing across the country — including here in Alberta, in Calgary and Edmonton, the fastest-growing part of the country. This housing market cannot handle rate increases. Ontario and BC certainly can’t. Which brings us to the thing that genuinely annoyed me this week.The condo bailout, and the courage we don’t haveOn June 18, Mark Carney and BC Premier David Eby cut a deal. There are thousands of finished condos in BC sitting empty — over two thousand units — as demand cooled with slower population growth, and the developers who built them are staring at insolvency. So Ottawa and the province are co-funding a package north of three billion dollars, roughly split between them, to buy those condos at their list prices and convert them into affordable housing.Mel’s take was sharp, and I think it’s the right starting point. Why are we intervening at all? When demand falls, price is supposed to fall with it. That’s the whole mechanism. Let the market clear these units at a lower number, and if government wants affordable housing, take the money and build it. Instead we’re rescuing a sector at list price. Her deeper point cut harder: this is preservation, not progress. An outsized share of Canada’s economy is real estate and everything stapled to it, the wealthy and the older cohort are heavily invested in keeping those values up, and protecting them is politically expedient. We have a brilliant economist running the country who surely understands supply and demand — but apparently those laws get suspended for the one golden-goose industry nobody wants to touch. She called it a failure of political courage, and the line that stuck with me: be the one who decides, or stop pretending you can’t.I pushed back, because I’m more sympathetic to the occasional bailout than she is, and here’s why. Force a fire sale and you don’t just punish wealthy developers — you wipe out the contractors, electricians, drywallers, and painters underneath them who only get paid if these projects get made whole. Let the majors fail and you send a signal that Canada isn’t investable, that cap rates need to double, and that contagion can run from condos into the entire commercial and industrial real estate complex. Central bankers — and Carney is still one at heart — look at this through 2008 and 2009 and refuse to risk a run. I understand that instinct.But Mel’s rebuttal landed. If we care this much about the jobs in this sector, why don’t we extend that same care to the natural resources workers we’ve ignored for a decade — workers who, conveniently, don’t swing ridings in the GTA and Vancouver? A central banker’s job is to read the room and pull the levers available. A leader’s job is to change the board. Carney is one of the few people on earth who could actually change the board, and he’s choosing to defend the old one.Europe 2031, and the choice in front of CanadaEurope just moved to block US big tech — Microsoft, Amazon, the hyperscalers — from selling software into government agencies, a de facto rejection of American influence dressed up as driving homegrown innovation. And it’s framed perfectly by a piece making the rounds called Europe 2031.It’s a fiction story of two characters living out a a five-year scenario. Its written by serious EU AI-policy people as a warning. The setup: January 2025, DeepSeek’s R1 drops, Nvidia falls twenty-odd percent, memory names down thirty, photonics down forty to fifty, and Europe takes a victory lap — see, AI is solved and cheap, we don’t need America’s hundred-billion-dollar data centers, we’ll buy intelligence on the discount rack. Then the gap doesn’t close. It explodes. By the end of the story the US runs seventeen times Europe’s compute and hosts eighty percent of the world’s AI capacity, because Europe bet that compute was a commodity and that “sovereignty” would make it stronger. It made it weaker. The instinct to reject the technology became the cause of its irrelevance.The piece names Canada explicitly, and this is the part that scared me a little. It lists the middle powers who actually hold leverage, the ones sitting on real bottlenecks. The Netherlands has ASML, the only company on earth that builds the ~$350M EUV machines that print every advanced chip; no EUV, no GPU, no CPU, no memory. Germany has robotics. France and Norway have AI talent. The UK has finance. Japan controls the chemicals the whole data-center build-out depends on. South Korea has the memory - Hynix, Samsung, Micron’s footprint. And Canada has the energy, the critical minerals, world-class AI labs like Amii right here in Edmonton, and the geographic luck of sitting directly on top of the largest consumption engine on the planet.We do not have to become Europe. We could be something better — a blend of what makes the US and Europe each work. But the warning in the piece is that we share Europe’s exact disease: we’d rather study a hard problem to death than pour the concrete. The investment lesson is blunt: if you allocate capital into jurisdictions that reject progress on principle, your return on invested capital will be atrocious. Policy is not background noise. It’s the thing that decides whether you get ten-percent compounding or a low-growth trap. Mel framed the whole posture as a luxury belief - like the person who’s gone to the gym for ten years and decides they’re just naturally healthy, forgetting it was the daily reps.And right on cue: a hundred billion dollars of proofIf you want evidence the gap in Europe 2031 is real and not science fiction, look at what dropped this weekend. The two leading American AI labs, OpenAI and Anthropic, now have combined annualized revenue north of $100 billion. Sit with that.The Anthropic line alone is the wildest chart in business right now: roughly $1 billion of ARR in January 2025 to about $30 billion by April 2026, when it passed OpenAI in revenue for the first time - and climbing into the high-forties since. OpenAI is doing about two billion dollars a month and filed confidentially to go public earlier in June. Eighteen months ago most people couldn’t name either company. Today they jointly clear nine figures of recurring revenue.That is the whole Europe 2031 thesis in a single data point. While one continent debates whether to permit American software, the American model layer is compounding revenue faster than any software business in history. This is what “the cat is out of the box” looks like on an income statement. AI is here, it’s reshaping the economy in good ways and bad, and the value is pooling exactly where the compute, the capital, and the willingness to build already live. If you’re a Canadian allocator and that doesn’t reframe how you think about ROIC and where the next decade of returns gets made, I don’t know what will.SpaceX, and giving Elon his flowersWhich brings me to where I wanted to land: SpaceX. Last episode we talked about the wealth it was about to create. It priced at $135, raised an extra fifteen percent to pull in close to $85.5 billion — an absurd sum — popped nineteen percent on day one, and closed around $163, the level that actually matters off an IPO. It ran to $225 the day Elon briefly became the world’s first trillionaire. Today it trades around $150 to $154. That round-trip, top to bottom, is a pretty honest tell about where this market is right now.But the number I keep coming back to isn’t the price. It’s the people. I don’t have enough fingers to count the individuals I personally know who’ve been made wealthy by that one company — and nothing remotely like that wealth-creation engine exists in our country.Now, longtime listeners know I was the original Elon hater. I despised the way he’d stretch the truth on earnings calls. Brock asked Mel if I’d forgotten that. I haven’t forgotten — I just understand it differently now. He weaponizes belief. He convinces brilliant people that something outlandish is achievable, and in doing so makes it more likely to actually happen. That’s how you get a SpaceX prospectus claiming a $28 trillion total addressable market and nobody laughs. Pair that with a genuine ability to take on big, hairy engineering problems — build the first successful new American car company in a century, land rockets and reuse them, fly a constellation that beams down cheap internet, all under the banner of colonizing Mars — and you get something rare.Here’s the real gift. For the first twelve years of my career, all we did was optimize bits — myopic little efficiency tweaks to software after the iPhone ate the world. We forgot how to build atoms. I read Where Is My Flying Car? and that’s the whole indictment: we stopped building real things. Elon dragged the culture back to building. And now stocks that haven’t worked since the 1990s are leading the market, because the whole economy remembered how to attempt big, crazy, physical things again. There’s a humanoid robot in my five-to-ten-year future folding my laundry. That should be astonishing, and it’s downstream of one guy convincing everyone the impossible was just a schedule.So I wanted to give him his flowers. Tune out the political noise, watch what he builds, and we’d all be better off. Mel put the bow on it: being a hater is lame. Have your debates, fine — but if you’ve never tried to build anything, even a community garden, you don’t get a seat in the conversation about the people who do. The next phase of this economy needs people with skin in the game. Get yours.Positive-sum mentality. We’d all be better off with more of it.See you in two weeks - when we finally take on the social media question.Podcast & YouTube Recommendations🎙* Did China Match Claude? - Not really.* Maverick Capital on Opportunities in AI* The Bond King Talks About the New Fed This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit reformedmillennials.substack.com