Alder Grove Memos

I want to be honest about what I can and cannot say today. The SpaceX IPO at $135/share, $1.77 trillion valuation, $75 billion raised — the largest in history — is a genuine watershed moment. Watershed moments in market history have a nasty habit of marking psychological peaks of the surrounding mania, not because the underlying business is bad, but because the act of public offering concentrates retail enthusiasm at the exact moment when institutional investors are distributing. I am not saying this is 1999 and Elon Musk is Mark Cuban. I am saying the pendulum of investor psychology has a way of swinging furthest precisely when the story is most compelling.

Here is my two-possibilities split. Possibility one: SpaceX is so genuinely transformative — satellite internet, eventual Mars logistics, government contracts — that a $1.77 trillion valuation anchors a new category the way Amazon created cloud. In that world, the current big-tech selloff (QQQ -2.00%, TSLA -3.80%) is a healthy rotation into a new leader and the VIX elevation at 22.22 is noise. Possibility two: the IPO is a liquidity event for insiders into a market where retail enthusiasm is running well ahead of earnings power, where $1.9 billion has already left spot Bitcoin ETFs (a related speculative cohort), and where institutional selling in NVDA ($225M, three sellers) and AAPL ($88M) signals that smart money is lightening while the story is loud. Both possibilities are live. I admit I do not know which is right.

What I can say from the behavioral record: no clustered insider buying across 80 monitored leaders in 60 days — only one buyer at KHC for $5M — while net selling at the most prominent AI and tech names is substantial. Galbraith observed that the extreme of speculative enthusiasm is always accompanied by a plausible and internally consistent narrative. The SpaceX narrative is extremely plausible. That is precisely why I would want the pendulum to swing at least a little before I got comfortable. Here is my actual bottom line: the cycle psychology today is bifurcated — risk-off in crypto and tech rotation, risk-on in the IPO and energy. That bifurcation rarely resolves tidily.

I find myself in the uncomfortable position of admitting that the pendulum of investor psychology has reached a point where I genuinely cannot tell which direction it swings from here — and that uncertainty itself is information worth naming. There are two possibilities in front of us. The first: the Strait of Hormuz closure is a negotiating gambit, a deal emerges within days (as Trump suggested earlier this week, per CNBC), crude reverses, the equity bid returns, and everyone who rotated defensively feels foolish. This is the classic geopolitical overshoot pattern, and it accounts for the VIX at only 19.87 — the market is implicitly pricing non-trivial probability on this scenario.

The second possibility: Vance is right that the war lasts another year (USA Today), the closure is sustained, oil remains above $90, CPI re-accelerates from its already-elevated 4.25% YoY (BLS May 2026), the Fed faces a genuine stagflation bind at 3.62% effective funds, and the equity multiple — which has been priced for a soft landing — begins a prolonged compression. I cannot tell you which path we're on. What I can tell you is that the second-level thinking question is not 'will oil stay elevated?' but rather 'what does the Fed do if it does?' A Fed that is already behind real rates at -62 basis points against headline CPI has no clean options in a supply-shock stagflation.

Here's my actual bottom line: the behavioral signal I trust most right now is the filing-language signal. When SBUX rewrites 85.4% of its Risk Factors, when RF rewrites 88.8%, when Energy Majors average 55.4% novelty in their 10-K Item 1As — legal and executive teams are registering uncertainty that equity markets have not. I don't know when that gap closes. I know it closes.

I want to sit with the Barclays note cited by MarketWatch today — a bull turning cautious because of 'exploding retail euphoria and leveraged ETFs.' I have seen this pattern before, and the honest thing to say is that it can mean two very different things. Possibility one: retail euphoria and leveraged ETF proliferation are the late-cycle excesses that precede a meaningful correction, and the Barclays strategist has correctly identified the pendulum swinging too far toward greed. Possibility two: the strategist is pattern-matching to prior tops but the structural backdrop — a 10Y-2Y curve at +0.40pp, ICI showing equity outflows of $16.5B this week, VIX at 18.92 — is actually telling us the pendulum is already swinging back, and the retail euphoria story is already yesterday's news.

What I notice is the simultaneous occurrence of retail capitulation signals (the $7.9B weekly money-market inflow, the $16.5B equity bleed) and the geopolitical shock (Iran strikes, WTI +5.3% DoD). When fear events pile on top of each other, the behavioral tendency is for investors to anchor to the most recent loss and extrapolate indefinitely. I am not predicting the bottom. But I am observing that the ICI flows and the crypto capitulation data — decrypt.co reports 8 million BTC sitting at a loss — rhyme with the second-level thinking question: is everyone seeing the same risk at the same moment? When the consensus fear is visible, it is often partly priced.

Here is my actual bottom line: I do not know if the Iran situation escalates or de-escalates. Nobody does. What I can say is that the behavioral environment — retail selling equities into a volatility spike caused by a geopolitical headline — is the kind of environment where Buffett's dictum about being greedy when others are fearful applies most cleanly in hindsight and most agonizingly in real time. I am not adding exposure today. I am watching the spread between what the headlines say and what the credit market (HY OAS flat at 2.75%) is pricing.

I've been thinking about the pendulum of investor psychology as I look at the ICI flow data. $16.5 billion out of equity in one week — $12.99 billion from domestic equity alone, $3.51 billion from world equity — while money market funds absorbed $7.89 billion. Money market total assets now sit at $11.79 trillion across government, retail, institutional, prime, and tax-exempt categories. That is not the positioning of a market near a bottom. That is the positioning of a market that has not yet finished rotating defensive. The pendulum hasn't swung to panic — VIX at 21.51 is elevated but not extreme — but it has definitively swung away from complacency.

Here are the two possibilities I keep turning over. One: the energy shock from the Strait of Hormuz closure is a discrete, resolvable event — a geopolitical interruption that ends, after which the underlying mid-cycle expansion (real GDP 2026Q1 at +1.6% SAAR, recovering from 2025Q4's +0.5%) reasserts itself, and the current selloff represents a classic 'buy the macro shock' entry point for patient capital. Two: the energy shock is a fiscal accelerant on top of an already-strained consumer (CPI at 3.81% YoY, average hourly earnings at $37.53 growing at only 3.45% YoY, meaning real wages are negative by roughly 36 basis points), and the selloff is the early-cycle recognition of a supply-side inflationary recession that the Fed has limited tools to address without making it worse.

I can't tell you which of those is correct. I can tell you which one the market is beginning to price — and it looks more like scenario two than scenario one. The second-level thinking question I keep asking myself is: if scenario one were obviously true, would smart institutional money be pulling $16.5 billion out of equities in a week? Here's my actual bottom line: the pendulum is at 'fear but not panic.' That's historically the most dangerous zone — not extreme enough for the contrarian buy, not calm enough to add risk safely. I'm watching initial claims (225,000 for the week ending May 30, still relatively low) as the leading indicator of whether the labor market absorbs this shock or begins to crack.

I want to be precise about where the pendulum sits, because precision matters more than prediction right now. Equity outflows of $16.5B in a single week (ICI data) are not panic — long-run average weekly equity outflows in a correction phase are typically in the $5-10B range, making this elevated but not disorderly. The KOSPI circuit-breaker and the Nikkei's 3,100-point drop are the twitchy reactions of markets that were already carrying geopolitical uncertainty into a weekend and got more than they bargained for. That is behavioral, not fundamental — at least not yet.

Here are two possibilities I hold simultaneously. First: this is a contained episode — a fragile ceasefire breaks down, there's a sharp risk-off weekend, oil spikes, and markets reprice the geopolitical risk premium over 2-3 weeks before stabilizing at a new (slightly higher) equilibrium. In this scenario, the Berkshire 13F tell is interesting — Buffett added $10B to Alphabet and opened a new $2.6B position in Delta Air Lines while cutting American Express by $10.2B and trimming Apple by $4.1B. That's a rotation toward secular compounders and away from consumer finance, which reads as a mid-cycle repositioning rather than a bunker portfolio. Second: this is the beginning of a sustained Middle East escalation that strains the Strait of Hormuz, drives oil above $110, and finally breaks the credit complacency that Coiner's correctly identifies. In that scenario, the pendulum is at the euphoric end of a multi-year credit cycle and is about to swing hard.

Here's my actual bottom line: I don't know which scenario plays out, and I'd be suspicious of anyone who claims to. What I do know is that the second-level thinking required here is this — the market's current calm (VIX at 15.4, HY at 2.74%) is a pre-event reading that hasn't yet had time to update. The Monday open will be the first honest price. I will be watching whether the credit complex moves, not just equity futures.

I want to be honest about what I can and cannot tell you today. The pendulum of investor psychology has been in the 'greed' half of its arc for most of the past eighteen months — valuations stretched, vol suppressed, leveraged crypto positions accumulated, and AI infrastructure spending treated as recession-proof capital allocation. Today's tape is a reminder that pendulums swing.

Here's my actual bottom line: I don't know if this is the turn, and I don't think anyone does. Two possibilities deserve equal intellectual weight. Possibility one: this is a garden-variety sentiment flush — a sharp drawdown in momentum names (QQQ -4.80%), crypto liquidation (BTC momentum -24.14% over 30 days, Sharpe -9.02), and a geopolitical oil spike that forces risk-model deleveraging across desks running vol-control mandates. Tape recovers in a few weeks, muscle memory reasserts, and the AI trade reloads at lower prices. Possibility two: the convergence of a genuine supply shock (Hormuz at 5–10% of normal traffic), a monetary regime that is restrictive on core inflation but not enough to prevent commodity re-inflation, a crypto market hitting its worst rout since FTX, and a tech sector whose 10-K risk-factor rewriting is running at elevated novelty (AAPL at 54.5%, AMZN at 53.2% per our filing-diff data) — all arriving simultaneously — is the beginning of a more durable repricing.

What I observe in the ICI flow data is unambiguous: $16,506M left total equity funds in a single week, while $7,894M flowed into money market funds. Retail investors are not panicking — they are quietly repositioning. The smart-money analogue is the Berkshire 13F: Buffett added $10,014M to Alphabet, opened Delta Air Lines at $2,647M, while trimming American Express by $10,229M and Apple by $4,118M. That is second-level thinking made manifest: selling the crowded quality-growth names, rotating toward travel and communication infrastructure. Whether one agrees with the calls, the framework is sound. The pendulum is moving. Where it stops is not something I'll pretend to forecast.

I want to hold two things in tension today, because I think the instinct to resolve the tension is itself the mistake. On one side: VIX at 15.4 is not a fear reading — it is almost precisely the long-run median. ICI data shows money flowing toward bonds and money markets, but not in a disorderly way. The dollar is firming, not spiking. These are the signs of an orderly repricing, not a panic.

On the other side: BTC at $61,347 with a 30-day Sharpe of -8.57 and a drawdown from its 60-day peak of 25.37%, ETH at $1,597 with a Sharpe of -8.49 — those are not orderly. The Zcash protocol vulnerability (an undetectable counterfeiting bug, per Decrypt) is arriving into a market that was already in sharp drawdown. When a trust story breaks in one corner of a correlated asset class, it rarely stays in that corner. The question is whether crypto's stress is a leading indicator for risk appetite broadly, or whether it is a contained sector rotation out of speculative assets into financials and energy.

Here's my actual bottom line: the pendulum of investor psychology has swung from 'the Fed will cut soon' to 'the Fed will cut later and oil is a supply shock.' Those two revisions together are not fatal to equities — they are, however, precisely the conditions under which investors discover that they were carrying more risk than they thought. The Berkshire 13F is worth noting in this context: Buffett added $10.0 billion to Alphabet, opened a $2.6 billion position in Delta Air Lines, and cut American Express by $10.2 billion and Apple by $4.1 billion. That is not a panic portfolio. It is a deliberate rotation toward cash-generative businesses with pricing power and away from consumer credit and premium consumer hardware. The second-level thinker asks: what does it mean that Buffett is buying an airline when oil just spiked 5% in a day?

I want to talk about the ten-week win streak — not to celebrate it, but to think about what it means psychologically for where we are. A ten-week consecutive gain in the S&P 500, last matched in 1985, is not a reason to sell. It is a reason to ask: what is the market expecting, and what is it not expecting? The pendulum of investor psychology has swung from the fear end (early 2025 recession panic, the 2025Q4 GDP print of +0.5% SAAR) toward something closer to complacency. VIX at 16.06 — down 1.32 points over 30 days — reflects a market that is not afraid. Alder Grove clients know I use VIX as a sentiment thermometer, not a directional signal. 16 is not euphoric. But it is priced for a benign outcome.

Here's my actual bottom line: when I look at the two-possibilities split today, I see this. Possibility One: the 2026Q1 GDP rebound to +1.6% SAAR is the beginning of a genuine re-acceleration, the yield curve's return to positive territory reflects a healthy mid-cycle, energy repricing is a one-time geopolitical shock, and the ten-week streak is justified by earnings resilience. Possibility Two: the streak is momentum feeding on itself, the $16.5 billion in weekly equity outflows and $7.8 billion in money-market inflows represent a smarter cohort quietly reducing risk while retail chases the tape, crypto's -22.7% drawdown is a leading indicator of speculative risk appetite deteriorating, and the Blackstone private credit gate is an early fault line in the credit complex.

I genuinely do not know which possibility is correct. What I do know — and this comes from Galbraith's observation that 'the only function of economic forecasting is to make astrology look respectable' — is that the insider-selling data is not nothing. WMT insiders have sold $315 million in 60 days (six sellers, Walton Family Holdings Trust leading). AAPL insiders sold $88 million. GM's Mary Barra sold $51 million. The pendulum framework says: when insiders at the largest companies are reducing at this scale while the index posts its longest win streak since 1985, the pendulum is closer to the optimism end than the fear end. That is not a sell signal. It is a discipline signal.

I want to think carefully about where the pendulum of investor psychology sits this morning, because the surface readings are contradictory in an instructive way. VIX at 15.77, HY spreads tight, equity indices not in freefall — and yet $16.5 billion left equity funds this week, $7.8 billion moved into money market, and Bitcoin lost a fifth of its value in roughly 30 days. There are two possibilities. The first is that retail and momentum traders are rotating out of crypto and into the safer corners of the equity-and-credit complex, and the 'smart money' is simply repositioning — a normal mid-cycle adjustment, not a regime break. The second possibility is that the calm in traditional markets is the last expression of complacency before a regime shift, and the crypto liquidation is the canary rather than the noise.

I find myself genuinely uncertain between these two readings, which is itself information. What I'm more confident about is the behavioral dynamics inside the institutional 13F data. Berkshire cut American Express by $10.229 billion and Apple by $4.118 billion while adding Delta Air Lines at $2.647 billion and increasing Alphabet by $10.014 billion — that is a portfolio that is becoming less consumer-credit-exposed and less consumer-device-exposed, and more transport and platform-advertising-exposed. Whether that reflects a view on energy costs, a view on consumer credit quality, or simply valuation discipline, I cannot say with certainty. But it is second-level thinking in action: Berkshire is not selling because AmEx is bad; it may be selling because the market has valued it perfectly and the margin of safety has vanished.

Here's my actual bottom line: the regional bank risk-factor novelty data (RF at 88.8%, TFC at 82.2%) is the most underappreciated signal in today's corpus. When lawyers rewrite boilerplate that hasn't changed in years, they are doing it because the facts have changed. I don't know which facts. But I know that the pendulum of credit optimism — HY spreads at 271bp — is unlikely to be right and the risk-factor rewriters at Regions and Truist also simultaneously right.

There are two ways to read this morning's news. The first: a geopolitical flare-up in the Gulf, a VIX still at 16, a tape that closed green, institutional players rotating quietly rather than fleeing, and a macro backdrop that — however uncomfortable — produced a Q1 2026 real GDP print of +1.6% SAAR against Q4's +0.5%. That's not a collapsing economy. The second: the $29.4 billion weekly equity outflow from ICI data, a crypto complex with BTC's 30-day annualized Sharpe at -5.61 and ETH's at -7.17, average hourly earnings growing at 3.57% YoY against 3.81% CPI (effectively flat to negative in real terms), the SPR near an all-time low, and gold overtaking U.S. Treasuries as the world's preferred investment — all while a U.S.-Iran military exchange was underway as equity markets closed.

I find myself dwelling on the second framing more than I want to. The pendulum of investor psychology I track tends to swing between complacency and terror with surprisingly little middle ground. What I see today is a market that is outwardly calm — VIX 16, SPY modestly green — but is quietly repositioning in the plumbing: money-market assets up $7.8 billion, bond funds up $13.4 billion, equity funds down $29.4 billion. That is not panic. But it is not the confident, risk-seeking posture of a mid-cycle expansion either. It looks more like the late innings of a cycle where the participants have not yet agreed on the score. The 10-K filing novelty data adds a layer: defense and aerospace companies showed average Risk Factor novelty of 54.5%, energy majors 55.4%, and regional banks 56.3%. When the lawyers are rewriting, the board has approved them rewriting. That is not a coincidence in a week with this geopolitical backdrop.

Here's my actual bottom line: the question is not whether we have a problem — the question is whether it is being priced. I do not think it is. The VIX at 16 is a pre-event number. The post-event world, in which the U.S. has directly engaged Iranian assets in the Gulf while the SPR is nearly depleted, has not yet been reflected in the tape. I am not predicting a crash. I am noting the gap between the price of protection and the inventory of things to protect against.

I find myself in a familiar uncomfortable position today, staring at simultaneous record closes and simultaneous warning signals, wondering which one the pendulum is weighting. The two possibilities are not subtle: either (A) the record closes reflect genuine earnings power in a resilient economy — real GDP recovered to +1.6% SAAR in 2026Q1 after a near-stall at +0.5% in 2025Q4, and that's a real number worth respecting — or (B) the closes are the last expression of a momentum cohort running on fumes, with retail equity flows collapsing ($29.4 billion out in one week), institutional hands rotating toward bonds, and the crypto complex (BTC Sharpe -4.33, ETH Sharpe -6.15) broadcasting the risk-appetite signal that equity vol is suppressing.

I'll admit I don't know which it is. What I can say with confidence is where the pendulum of investor psychology appears to be sitting. The VIX at 15.32 and HY OAS at 2.74% together are a sentiment reading of 'nothing to see here.' Those are not fear readings. They are the readings of a market that has decided uncertainty has been resolved. That decision historically precedes rather than follows the resolution of actual uncertainty. The Hormuz story — oilprice.com quoting Amos Hochstein that 'Iranians will control the Strait of Hormuz for the foreseeable future' — is exactly the kind of structurally unresolved risk that markets in this psychological state tend to price as temporary until it isn't. The second-level question isn't whether oil spikes; it's whether the oil spike arrives when credit spreads are already thin and the Fed has limited cutting room.

Here's my actual bottom line: I'm not calling a turn. But I'm noting that the coincidence of record closes, compressed spreads, ICI equity outflows, and a genuine geopolitical supply shock is the setup that rewards patience and punishes the assumption that 'all-time high' means 'safe.' The BRK 13F is instructive: Berkshire added ALPHABET (+$10.0B), added OCCIDENTAL (+$6.3B), cut AMERICAN EXPRESS (-$10.2B), and cut APPLE (-$4.1B). That's not a man who thinks the tape is cheap across the board.

I want to sit with the ICI flow data for a moment, because it says something the price tape cannot. In the trailing week, $29.4 billion left equity funds — $24.7 billion from domestic equity, $4.7 billion from world equity. At the same time, $7.8 billion entered money market funds, bringing government money market assets to $6.4 trillion, retail to $3.1 trillion, institutional to $4.7 trillion. The pendulum of investor psychology, as I read it, is not swinging toward euphoria. It is in an uncomfortable middle position: prices are at or near records, the futures tape is modestly green, but the actual flow of capital is cautionary. That is not a contradiction — it is a description of a market where the marginal buyer is nervous and the existing holder is reluctant to sell into strength.

Here's my actual bottom line: there are two possibilities. In the first, the equity rally continues because the institutional money parked in $7.8 trillion of money markets eventually rotates back in, the Fed maintains enough independence to anchor long rates credibly, and the oil shock from the Lebanon escalation proves transitory — as Middle East energy shocks historically have, more often than not. In the second, the oil shock is not transitory (Israeli troops have now crossed the Litani River per oilprice.com, a significant territorial escalation), Powell's warning about a Fed 'stress test' is a genuine signal of institutional degradation, and the defensive flows we're seeing are early-cycle rotation out of risk rather than late-cycle caution. I have no conviction between these two. What I do have conviction about is that the second-level question matters more than the first-level one. The first-level question is: will stocks go up? The second-level question is: on what institutional foundation?

The 13F data from Berkshire Hathaway (Q1 2026, $263B reported, 29 positions) is instructive as a behavioral signal. Buffett added $10B to Alphabet, opened a new position in Delta Air Lines at $2.6B, and reduced American Express by $10.2B and Apple by $4.1B. That is not a bull market posture. That is the behavior of someone who is selectively finding value while letting the consensus positions thin. I try not to overread single-quarter 13F moves, but the direction is consistent with where the pendulum sits: cautious repositioning, not capitulation, not euphoria.

I want to be careful here about what the data actually tells us versus what we're tempted to project onto it. The pendulum of investor psychology this week is in an interesting position: not at euphoric extension, not at the despairing trough, but in the middle — which is often the hardest place to read. VIX at 15.74 is normal. Equity outflows of $29.4B in a week are notable but not catastrophic. Bitcoin down 10.7% from its 60-day peak is a correction, not a capitulation. The question I keep returning to is: what are these signals aggregating toward?

Two possibilities present themselves. First: this is mid-cycle digestion — the kind of rotation we see when growth is slowing (real GDP 2026Q1 at +1.6% SAAR, up from 2025Q4's +0.5% but still subdued) and inflation is stickier than comfortable (CPI 3.81% YoY), but the labor market hasn't broken (unemployment 4.3%, initial claims 215,000). In this scenario, the bond inflows and equity outflows are rational repositioning by institutional players who've read the same GDP and CPI prints we have. Berkshire's 13F — adding Alphabet and Delta Air Lines while cutting American Express by $10.2B and trimming Apple — reads like exactly this kind of disciplined mid-cycle rotation, not a panic.

Second possibility: we are in the early innings of something that looks like mid-cycle but is actually late-cycle with the clock obscured. The 10Y-2Y at 0.47pp has been here before, briefly, on its way to inversion. Regional bank risk-factor rewrites at 56-88% novelty suggest those institutions are genuinely uncertain about their own landscape. The pharmaceutical shortage in Tehran — admittedly a far-off signal — and the Ukrainian strikes on Russian energy infrastructure are reminders that the war premium in oil has not been fully priced, and that secondary effects on global supply chains are ongoing.

Here's my actual bottom line: the second-level question isn't 'where is the market going?' It's 'what would have to be true for the first, benign scenario to be wrong?' The answer, I think, is: if the May MoM CPI acceleration (+0.85%) persists into June, if the 10Y-2Y curve flattens further toward zero, and if the energy complex re-accelerates on any further kinetic escalation in Russia or the Middle East — then the 'mid-cycle digestion' story collapses. I don't know that it will. But I know the margin for error is thinner than VIX at 15.74 implies.