Galloping Forward

An update

Not investment advice.

---

The tattered campaigners surged on, some now holding aloft cups that had been pressed upon them, waving to the ladies clustered on the balconies in their putrescent hats and elevating the bobbing heads with those strange half-lidded looks of ennui into which the features had dried…

Blood Meridian, McCarthy, 1992

---

In the last week, the themes have not changed. They remain the tech boom, oil shortage and erosion of institutions. The data points that caught my eye all fit into this schema.

Regarding the tech boom,

1. A firehose of money is being directed to companies that make the guts of AI. In the last few months, many of their stocks have jumped by 50% or so. I show one here that I don’t own now but I have owned, ENTG. They make the chemicals that go in the chips.

2. The companies that are spending the money, like Meta, are not benefiting.

3. In recent earnings announcements, AI capital spending was revised up yet again. In essence, the companies at the center of this must feel that they are fighting a war and need to fund it to win it. I notice in my own behavior that I am using AI more and more, AI is a constant companion that has transformed Kate Capital. People at the epicenter of the spending say it has 10 more years to go. Could that be?

4. Regarding oil, Brent prices are hovering where they were after Putin invaded Ukraine. Storage is now dropping precipitously globally. Even if a deal is announced the moment this article is posted, we will already get a wave of inflation this summer. Last week, Brent and WTI broke out of the broad, post invasion ranges they have held to. If a deal is not imminent, prices are going to vault yet higher. Given that the stock market is buoyant, I suspect we will get a protracted negotiation because the White House will sense less urgency. In the Suez crisis that accelerated the decline of the British Empire, the closure lasted six months.

5. Regarding the breakdown of institutions, the United Arab Emirates withdrawal from OPEC is significant. The lattice work that has stitched together global governance, from disease monitoring to security treaties to OPEC, is giving way. It is more every nation for themselves. In the US, the government announced a second attempted prosecution of James Comey, alleging an image he posted was criminal. This is similar to the tactics that Russia and China use against adversaries. Amid the tech boom and the oil disruption, few notice.

6. Going forward, investors must “pick a side” in terms of outcomes. I think the most likely is higher oil prices and a continued tech boom followed, once the Capex boom ebbs and oil has risen enough to destroy demand, by a significant deflationary downdraft. That’s not now though, not today. An oil squeeze creates a dollar squeeze, but that will also reverse down the line.

---

This document is strictly confidential and is intended for authorized recipients of “A Letter from Paul” (the “Letter”) only. It includes personal opinions that are current as of the date of this Letter and does not represent the official positions of Kate Capital LLC (“Kate Capital”). This letter is presented for discussion purposes only and is not intended as investment advice, an offer, or solicitation with respect to the purchase or sale of any security. Any unauthorized copying, disclosure, or distribution of the material in this presentation is strictly forbidden without the express written consent of Paul Podolsky or Kate Capital LLC.

If an investment idea is discussed in the Letter, there is no guarantee that the investment objective will be achieved. Past performance is not indicative of future results, which may vary. Actual results may differ materially from those expressed or implied. Unless otherwise noted, the valuation of the specific investment opportunity contained within this presentation is based upon information and data available as of the date these materials were prepared.

An investment with Kate Capital is speculative and involves significant risks, including the potential loss of all or a substantial portion of invested capital, the potential use of leverage, and the lack of liquidity of an investment. Recipients should not assume that securities or any companies identified in this presentation, or otherwise related to the information in this presentation, are, have been or will be, investments held by accounts managed by Kate Capital or that investments in any such securities have been or will be profitable. Please refer to the Private Placement Memorandum, and Kate Capital’s Form ADV, available at www.advisorinfo.sec.gov, for important information about an investment with Kate Capital.

Any companies identified herein in which Kate Capital is invested do not represent all of the investments made or recommended for any account managed by Kate Capital. Certain information presented herein has been supplied by third parties, including management or agents of the underlying portfolio company. While Kate Capital believes such information to be accurate, it has relied upon such third parties to provide accurate information and has not independently verified such information.

The graphs, charts, and other visual aids are provided for informational purposes only. None of these graphs, charts, or visual aids can of themselves be used to make investment decisions. No representation is made that these will assist any person in making investment decisions and no graph, chart or other visual aid can capture all factors and variables required in making such decisions.