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While we’ve never seen anything exactly like this degree of over-valuation and over-concentration in a few large stocks, it’s the SORT of thing you always see near the end of a manic cycle.

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Dan Denning
Aug 15, 2025
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Friday, August 15th, 2025

Laramie, Wyoming

By Dan Denning

We’re going to get to the ethically compromised humans who might use amoral robots and software to create and enforce a hyper-modern American Police State. We can’t NOT get to it this week. And also, because this is an investment newsletter, we’ll get to whether it’s morally defensible to profit from such a situation.

But let’s start with price action and market data and a simple idea: the corollary of massive over-valuation is excessive concentration.

Danger Will Robinson!

The more Wall Street trading is automated, and the more that trading is based on liquidity and trend following, the bigger the big companies get…the more everything else gets left behind and the bubble becomes unstable (this is an argument that capital markets become both less efficient and more volatile during credit booms like the one we’re in).

A case in point is the 20% position in the S&P 100 that Nvidia and Microsoft now occupy. As far as my research shows, this is the largest concentration of liquidity in two companies in US history. And this is based on the 100 largest companies listed in the US. It’s driven the S&P 100 into ‘overbought’ territory on the RSI.

If you include all the companies in the S&P 500, the percentage declines to 15.4% for the two. But this figure is still larger than AT&T and IBM in the early 1980s (11%), Microsoft and GE at the peak of the 2000 bubble (9.1%) and XOM and Walmart in 2009 (7.7%).

The last one is interesting because it was AFTER the decline in all the hopium and BS stocks from the 2007 rally–energy and retail dominated. This is why the Dow/Gold ratio is so key. It will signal when it’s time to load up on the best companies for the next cycle.

It’s all chips and AI for now. Nvidia alone is 8.2% of the S&P 500. That’s three times the size of the ENTIRE energy sector. And that sector is made up of 25 stocks, many of which are directly involved in producing the energy required by the data centers full of machines which are full of Nvidia’s chips.

Something doesn’t add up. And rather than making yet another academic and historical point about over-valuation, I thought this made the same important point in a different way. While we’ve never seen anything exactly like this degree of over-valuation and over-concentration in a few large stocks, it’s the SORT of thing you always see near the end of a manic cycle.

Also, investors poo poohing 2.7% annualized CPI numbers–and bidding up stocks even higher–is another example of the kind of self-deception that’s only possible at the end of a cycle. So is is believing both higher than normal CPI and PPI readings mean the Fed could cut 50 or 100 basis points when it meets next month. Madness. Hallucinations. The season of the Alt. Speaking of which.

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