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Friday, October 9, 2026

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@StableBread 5 clicks

Fajasy on X

The S&P 500 lost 18% in 2022, and the Bloomberg U.S. Aggregate, the main U.S. bond index, lost 13%, its worst year since it began in 1976. Over the same year, $XLE, the S&P 500 energy sector ETF, returned 64%, gold was flat, and cash earned ~1.5%. Now what if I told you there's a framework that would've said to own cash and energy in 2022, not stocks and bonds? That framework is called Gave's Four Quadrants, after Charles Gave, co-founder of Gavekal, a macro research firm. It uses two ratios built from market prices, the S&P 500 vs. Oil and Gold vs. Treasuries, to place the economy in one of four environments, and it describes what to own and what to avoid in each. Here's how stocks, bonds, gold, and cash tend to perform in each environment: → Deflationary boom: Stocks, bonds, and cash rise, and gold underperforms. → Inflationary boom: Stocks and gold rise, cash does very little, and bonds fall. → Deflationary bust: Bonds and cash rise, gold stays fairly stable, and stocks fall. → Inflationary bust: Gold and cash rise, while stocks and bonds fall. In my backtest of Gave's rules from 1970 to September 2026, a portfolio split equally between cash, the S&P 500, and either 10-year Treasuries or gold, whichever the framework favored, would have returned 5.7% per year after inflation. Its max drawdown was 28%, vs. 54% for the S&P 500. As of the end of September 2026, the two ratios place the U.S. in an inflationary boom phase. But since January 2025, the S&P 500 to gold ratio has been below its 7-year average, which has often come a few months before the S&P 500 to oil ratio drops below its own 7-year average. If that happens, the U.S. is back in an inflationary bust phase, like 2022. So how do you read the two ratios yourself, and what do they say to own today? That's what I walk through in my new ~20-minute video!
@StableBread

Fajasy on X

The Navy plans to buy more ships, and BWX Technologies $BWXT doesn’t charge a set price per reactor. $BWXT makes the fuel, reactor cores, steam generators, and other reactor components for the Navy’s Virginia- and Columbia-class submarines and Ford-class carriers. $BWXT now produces two to three of these reactors/year, Joe Miller, president of Government Operations, said at its Investor Day on September 29, 2026. The Navy buys under multi-year pricing agreements, so orders arrive in large blocks: → February 2025: $2.1B of naval reactor component contracts. → July 2025: $2.6B, including options. → May 2026: $1.45B, mostly long-lead material (parts ordered years before a ship is built) under the first of five annual task orders through 2030. → October 2026: $189M of naval fuel, to be completed by August 2027. $BWXT’s plants carry large fixed costs, so final pricing depends on how many ship sets (all the reactor components for one ship) the Navy orders, CFO Mike Fitzgerald said at Investor Day. The Navy’s 30-year shipbuilding plan, released in May, calls for (1) “buying two attack boats per year for the next 30 years,” meaning Virginia-class submarines, (2) a new carrier every four years instead of every five, and (3) 15 nuclear-powered Trump-class battleships, per USNI News, the U.S. Naval Institute’s news service. $BWXT’s own read of the plan is naval growth of 4-6%/year from the existing ship classes. Each Ford-class ship set takes ~8 years to deliver, so ordering a carrier every five years left gap years with one ship set in $BWXT’s plants instead of two. CEO Rex Geveden said on the Q2 call that the four-year cadence takes out “that revenue bathtub that we’ve been going through” and has “a bigger volume impact than even adding a battleship.” The next carrier’s long-lead orders come in 2028, but Fitzgerald said at Investor Day the faster cadence won’t really show up in $BWXT’s numbers until around 2030. A Trump-class battleship would use one Ford-class reactor (a carrier uses two), so $BWXT could build the reactor on its existing lines, but Congress still has to fund the program. Fitzgerald said $BWXT’s 2030 targets exclude the battleship program, so congressional funding would be extra growth.
@convequity 3 clicks

Convequity on X

We exited $LITE at the start of 3Q26 and stayed out at the 4Q26 rebalance. Lumentum's exposure to AI optics is real, but it depends on design choices that are still open. 1. Lumentum is one of the suppliers of high-power lasers for external laser sources, where the laser sits in its own module and feeds light to the optics. Growth in AI optics lifts this business only as far as customers choose these designs. 2. Co-packaged optics (CPO) puts the optics in the same package as the chip. Some CPO designs keep external lasers, which suits Lumentum. Others move the light source closer to the package, or replace lasers with microLEDs, tiny LEDs used for short links. Wider use of these would cut demand for its lasers. 3. Laser and silicon-photonics technology built for LiDAR (laser-based sensing) is being adapted for data-center links, which could bring new competitors. We have added LiDAR exposure and will cover it in Part 2 or 3 of our 4Q26 rebalance series. 4. Optical circuit switching (OCS) connects fibers by steering light between them. Lumentum's MEMS switches use tiny movable mirrors and suit many ports, low loss and paths that stay in place for long periods. Designs that must change paths quickly and in smaller units are more likely to use silicon-photonics switches. MEMS should win a meaningful share, but probably not all of it. Lumentum keeps credible exposure to external lasers and OCS, but both depend on unsettled design choices. At the 4Q26 rebalance, that uncertainty was enough for us to stay out.

Investor Letters

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Molina Healthcare was increased at $198 to a full position, with political-season benefits supporting the long-term thesis.

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Sea Limited Earnings Update: A quick look

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