It's max fear. Buy everything.
11 March 26'
It’s max fear. Buy everything.
“Be fearful when others are greedy; be greedy when others are fearful.” This iconic phrase by Warren Buffett is the defining principle of our current moment.
[Brief in podcast format]
We are in a state of peak fear: fear of AI labor disruption, fear of white-collar displacement, and fear of a 2008-style insolvency crisis driven by banking loan defaults and mounting bad debt. As low-risk white-collar debt transforms into max-risk liabilities, credit lines are tightening under extreme conditions. Between overvalued equities, massive government debt, and a looming “fiat holocaust,” the market is bracing for impact. Geopolitics only adds fuel to the fire; the conflict with Iran and its direct effect on oil prices correlates with global instability and rising inflation. This combination has decimated the stock market—first through the IGV, the ‘Saaspocalypse,’ and second through the surge of oil toward $120, pushing gasoline costs and CPI expectations higher.
But it is precisely because we are at peak fear that we should be buying.
While the attempt to be a perpetual contrarian is often a fallacy—since momentum is usually where the easy money is made—the rules change at the edges of the pendulum. The best companies in a sector usually drive performance, and trying to catch a “convergence trade” with second-tier players is harder. However, when we hit the extremities of max fear or max euphoria, an inflection point becomes highly probable. In these moments, betting on mean reversion rather than momentum offers better odds of success and significantly lower risk.
This is why I must invoke Charlie Munger: “Invert, always invert.” When the world is clearly fearful, I am inclined toward euphoria—to buy with both hands rather than neglect the possibility of a relief rally.
Consider the first-order derivative of the current situation. The market has aggressively discounted the ‘Saaspocalypse,’ yet a clear distinction is emerging between three types of SaaS companies: those that price by seat, those that price by input, and those that price by output. This differentiation divides the sector into buckets predetermined by pricing models and user control. It is now evident that with the advent of AI, companies pricing by seat have lost their moats; a new front-end login does not create an incremental backend cost for the provider, rendering the “per seat” charge obsolete. Conversely, companies pricing by output will charge based on the actual impact delivered to the client. These companies will maintain higher moats, especially when integrated with input systems where they control the data. By combining deterministic/proprietary data with the ability to price the interconnection between client requests and aggregated data, these companies become far more efficient with AI. For this specific SaaS bucket, the new wave unlocks extreme value and superior economic incentives.
There is relief not only in the SaaS sector but also in the perceived AI impact on white-collar labor. After initial testing, developers and managers are feeling the incremental costs of AI implementation; a dev or manager with AI is often a higher-cost employee than one without it. Because limitations are required to prevent companies from burning through capital, I expect these incremental costs to hit news headlines in the coming quarters. It is becoming clearer that white-collar displacement is not the immediate threat many feared, even with approx. -100,000 job listings reported in the US and unemployment exceeding expectations. The question is: are these conditions truly driven by AI, or is this a normal cycle?
My inclination is that this is a normal cycle. AI will displace some, but it will hire others, ultimately providing the incentive for the printing machines to stay on. Because the market is already pricing in the worst-case scenario, there is little room for further downside. When the “worst” is already priced, the median scenario after the “worst” being true becomes a positive surprise.
The market is currently swinging through a max-fear pendulum. Having already been shaken by AI and labor conditions, investors are now projecting that same fear onto the conflict with Iran. Oil prices reacted surprisingly during the weekend, largely because the absence of sophisticated players allowed fear to dictate the flow.
A spike toward $120 is only a “macro nightmare” if it sustains for weeks, creating inflationary pressure that forces quantitative tightening (QT) and crushes risk-on assets.
However, the market often reacts euphorically to the resolution of a worst-case scenario. When the Strait of Hormuz—the world’s most critical checkpoint—remained functional despite the tension, the correction of oil back below $100 provided massive sentiment relief.
Asian markets reacted aggressively to this unwind: the KOSPI fell over 20% from peak to bottom, Japan dropped 13%, and Europe and the UAE fell 10% and 16% respectively. This correction moved quickly to price in the close of the Strait, predicting “oil at $120” nightmare. Now, any relief prints massive performance for traders. Any shift in expectations away from the absolute worst-case scenario forces the market to reprice aggressively to the upside.
Recent news suggests a shift in the geopolitical landscape. The Iranian regime may not change, but it remain question is if they will adapt. With the US and Trump-aligned interests suggesting the immediate escalation is cooling—and measuring by the specific quantity of missiles sent from Iran; forcing the the Iran weakness—it appears the war may not broaden. Key players like the UAE, Saudi Arabia, and Qatar have not escalated. Even reports of Iran deploying naval mines (with an arsenal of 2,000 to 6,000 available) failed to keep oil prices elevated after American forces neutralized several minelayers.
If war escalation and its impact on oil were not already priced in, they are now. Any further relief will send markets to new highs. In an environment of conflict and softening labor markets, the only solution is to print money. While war is inflationary, the stimulus required to build arsenals, ships, and interceptors costs billions. As nations in Europe, Asia, and the US pressure their budgets to increase defense spending, we will see further fiat depreciation and government debt expansion. This environment sends risk-on assets high.
Admittedly, the biggest threat remains: if oil stays above $100 for an extended period, the inflationary pressure will force a reduction in monetary stimulus. However, with the G7 releasing 400 million barrels from reserves to mitigate supply shocks, the probability of a controlled ceiling is high.
This brings us to the KOSPI trade. Following the weekend news regarding the Strait of Hormuz, the KOSPI dumped to $5,100 before recovering slightly to $5,250. While the -10% swing was jarring, the market has already discounted the oil problem. Furthermore, Lee Jae-myung has moved to block the exponential effect of oil on the internal economy by limiting fuel growth to 5% a week (move that many other nations followed). With a potential 100 trillion won stabilization package and central bank intervention on the horizon, the “market holocaust” is being held at bay. The leverage is back on.
In terms of risk-reward, betting on a collapse here is widely asymmetric compared to betting on a long. We are looking at a potential 20% recovery versus a 10% downside. If the KOSPI hits the $4,800 “worst-case” level, it becomes a generational opportunity. Korean earnings are growing, equities are healthy, and a V-shape recovery would likely be triggered by margin calls and subsequent government stimulus.
As oil settles back below $100, Bitcoin is once again positioning itself as the premier investable asset. The macro conditions are aligning perfectly with our vision: Gold up, Bitcoin up, Fiat down, debt up. High-quality SaaS and crypto-first companies are entering the best possible conditions for growth.
This is intended to be a thought exercise, and not financial advice. Reach out in open conversations, DM me or comment anytime.
I’m aiming to provide clarity about the world day-by-day, and I hope you get smarter and more financial intelligent every day. Each day we increase our chances of winning.
Thanks, Joao