The End of American Exceptionalism

Theme and Background

This chapter explores the current state and potential risks of the U.S. stock market. The report points out that although the U.S. market performed strongly in 2025 (the S&P 500 index rose 17.7%), an extreme speculative atmosphere is pervading the market, valuations are at historical highs, and the institutional foundations that have supported America's long-term prosperity are being eroded.

Core Viewpoint

The author's core argument is that the current extremely high valuations of the U.S. stock market are forming a dangerous divergence from the deteriorating institutional fundamentals, and the speculative frenzy driven by "vibe investing" is unsustainable and will lead to disappointing long-term returns. A counterintuitive judgment is that despite the market crash in 2022, investors have not become rational, and speculative behavior has instead resurfaced in 2026, reaching similar or even more extreme levels.

Key Arguments and Data

The report supports its views through historical comparisons and specific case data:

1. Fund Performance Comparison: The Fundamental Value fund managed by the author achieved a net return of 33.0% in 2025, significantly outperforming the S&P 500 index (17.7%). Since its inception in 2016, cumulative net return reached 507.6%, with an annualized excess return of 5.7%.

2. Global Market Comparison: In 2025, global stock markets outside the U.S. delivered a return of 32.6% in U.S. dollar terms, also outperforming the S&P 500 index.

3. Speculative Cases and Valuation Extremes:

• Waton Financial: Merely because its stock ticker was "WTF", it surged 5 times on its first trading day, but fell back to near its IPO price in less than six months.
• Dogecoin: A joke cryptocurrency that had a peak market capitalization of over $60 billion, comparable to the top 200 U.S. listed companies.
• Tesla: As an automaker with ordinary profit margins, its earnings have fallen 75% from their peak two years ago, and its brand value has been damaged, yet it still commands an absurd valuation of $1.6 trillion.
• Costco: A high-quality but slow-growing company (annual growth below 10%), with a P/E ratio of 50 times.

4. "Volatility Decay" of Leveraged ETFs: The report points out that leveraged ETFs, due to their daily reset mechanism, can incur significant decay during volatility.

Underlying Asset (2025 Performance)	Corresponding Leveraged ETF (Same Period Performance)	Leverage Multiple
Apple (up 9%)	AAPU (down 8%)	2x
MicroStrategy (up 380% in 2024)	LMI3 (down 47%)	3x

5. Options and "Story Stock" Mania:

• In 2025, option trading volume set a record for the sixth consecutive year. Among S&P 500 index options, zero-day-to-expiration options accounted for over 50% of average daily volume in the third quarter, with retail investors accounting for nearly half of the volume.
• "Story stocks" (companies with very little revenue but grand visions) have proliferated: at the peak of the internet bubble in 1999, there were 16 non-pharma/biotech companies with a market cap over $1 billion and trailing 12-month revenue below $20 million; today, that number has exceeded 30.

Companies/Assets Involved

• Short/Overvalued U.S. Companies/Assets:
• Tesla: Bearish. Reasons: sharp decline in earnings, valuation severely decoupled from fundamentals, reliance on unfulfilled promises of autonomous driving and robotics.
• Costco: Points out its overvaluation. Reason: slow growth but P/E ratio of 50x.
• MicroStrategy: Mentioned as a speculative case, with huge share price volatility.
• Waton Financial: Mentioned as a case of irrational market speculation.
• Leveraged ETFs (such as AAPU, LMI3): Points out their design flaws leading to long-term return decay, reflecting market speculation.
• Dogecoin: Mentioned as a case of irrational speculation in the cryptocurrency market.
• Overall Strategy: In 2025, the report profited by going long on cheap international stocks and shorting overvalued U.S. stocks, and expects this strategy to remain effective in 2026.

Investment Implications

For investors, this means they should be wary of the dual risks posed by "vibe investing" and the erosion of institutional foundations in the U.S. stock market. The specific direction for action is: reduce exposure to U.S. assets with extremely high valuations and narrative-driven characteristics, and instead seek international investment opportunities with solid fundamentals and reasonable valuations. Investors need to avoid participating in speculative instruments such as leveraged ETFs and zero-day options, and remain highly vigilant against "story stocks" with very low revenue but grand narratives.

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Theme and Background

This section explores the current market, particularly the speculative frenzy and capital expenditure (capex) boom surrounding the artificial intelligence (AI) sector. The report argues that the market is repeating historical patterns, assigning excessively high valuations to "narrative stocks" and transformative technologies while ignoring fundamental economic laws.

Core Thesis

The author’s central argument is that the current speculative frenzy and extremely high valuations for AI-related assets are based on a flawed "this time is different" assumption, which defies basic economic principles. The social value created by technological progress overwhelmingly flows to users in the form of consumer surplus, not to producers; intense competition and commoditization rapidly erode the excess profits of early movers. The current surge in capital expenditure is distorting the overall market's earnings performance, and this situation is unsustainable.

Key Arguments and Data

1. Historical Performance of "Narrative Stocks":

• Among the cohort of "narrative stocks" from 1999, no company managed to build a sustainable business without going through bankruptcy or debt restructuring.
• The 2021 sample consisted of 27 companies with a total market capitalization of $217 billion. Four years later, the median decline for this group was a staggering -86%.
• Over the past twelve months, these companies generated $9 billion in revenue, but EBITDA stood at a shocking -$8 billion.

2. "Alchemist Fallacy" and Economic Laws:

• Citing research by economist William Nordhaus, the report notes that historically, producers capture only about 2% of the social value created by transformative technologies, with the vast majority flowing to consumers in the form of new products, services, or lower prices.
• The report uses examples from 19th-century railroad construction and 20th-century fiber optic buildouts to illustrate the common pattern of capital-intensive technology booms: early excess profits → capital influx and investment surge → oversupply intensifies competition → prices and profits decline → investor losses.

3. Current Competition and Commoditization in AI:

• Compute Layer: NVIDIA's dominance in GPUs is facing challenges from competitors such as Google TPUs, AMD, and Huawei.
• Model Layer: Although pioneers like OpenAI and Anthropic are ahead, fast-follower labs have already released LLMs that match the capability of leading foundation models from just a few months ago, with open-source models close behind.
• Infrastructure Layer: Hyperscale cloud providers and new cloud service providers are racing to allocate servers for compute-intensive customers, but services are highly homogeneous, making it difficult to maintain long-term pricing power.

4. Current AI Capex Distortion of Market Earnings:

• Cloud providers and labs invest hundreds of billions of dollars annually, which directly forms the revenue and profits of AI "pick-and-shovel sellers" (manufacturers of GPUs, memory chips, turbines, cooling systems, etc.).
• However, these costs are capitalized on the balance sheets of hyperscale cloud providers and depreciated over asset lives. Due to the massive scale and rapid growth of AI construction spending, depreciation charges lag far behind cash expenditures.
• This means that at the index level, current AI investment is creating "artificial profits," essentially recognizing potential future earnings early. When AI capex growth slows, depreciation will catch up to expenses, mechanically dragging down the overall index’s profitability.

Companies/Assets Involved

• Short/Bet Against Companies: Rivian (RIVN), Virgin Galactic (SPCE), Nikola (NKLA), Blink Charging (BLNK). The report cites these as examples of 2021 "narrative stocks" and has profited from shorting them. The report states it is currently short more such stocks.
• AI Ecosystem Companies:
• Producers/Technology Providers: OpenAI, Anthropic (facing model commoditization and competitive pressure).
• Infrastructure and Hardware Providers: NVIDIA (facing competition), AMD, Huawei, Google (TPU), hyperscale cloud providers (limited pricing power).
• "Pick-and-Shovel Sellers": Manufacturers of GPUs, memory chips, turbines, cooling systems, etc. (currently benefiting directly from capex, but the future earnings sustainability of their customers is questionable).

Investment Implications

1. Avoid High-Valuation "Narrative Stocks": Historical data show that stocks trading at extremely high sales multiples significantly underperform the market over the long term. Investors should avoid participating in such speculation.

2. Be Cautious of AI Thematic Investing: One should not simply infer that producers will enjoy sustained excess profits due to the immense utility of AI technology. Competition and commoditization are inevitable, and most value will flow to users, not shareholders.

3. Identify and Exploit Market Pricing Errors: Current market pricing of AI-related assets may ignore the temporary distortion of earnings from the capex boom and future competitive pressures, creating opportunities to short overvalued names or find other cheap opportunities.

4. Monitor the Turning Point in the Capex Cycle: Investors should be wary of the moment when AI capex growth decelerates, as this could trigger a downward revaluation of overall market earnings.

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Theme and Background

This section explores the capital recycling phenomenon present in the current artificial intelligence investment frenzy, as well as the risks of excessively high valuations and extreme concentration in the U.S. stock market. The report draws a parallel between the current mutual investments among tech giants and the vendor financing model seen during the internet bubble era, and analyzes the potential threats that extreme market valuations and concentration pose to investment returns.

Core Thesis

The author's core argument is that the current extremely high valuations and extreme concentration in the U.S. stock market—especially in AI-related stocks—are unsustainable, bearing similarities to the internet bubble period. A counterintuitive assessment is that although the tech giants are highly profitable, their high-growth era and best period for stock returns have already passed, and current lofty valuations make it difficult to replicate past success in the future.

Key Arguments and Data

1. Cyclical Nature of AI Capital Expenditure:

• Microsoft invests in OpenAI, which then uses the funds to purchase Microsoft cloud services.
• Nvidia invests $100 billion in OpenAI, and OpenAI will use this capital to lease Nvidia chips.
• Microsoft and Nvidia invest $15 billion in Anthropic, which pledges to purchase $30 billion in computing capacity from Microsoft Azure.
• The report compares this phenomenon to the "vendor financing" model during the internet bubble, when Cisco provided loans to clients to buy its equipment.

2. U.S. vs. Global Market Valuation Comparison:

• U.S. market valuations are at dangerous highs: the S&P 500 forward P/E is roughly 23x, the cyclically adjusted P/E (CAPE) is near 40x, the dividend yield is slightly above 1% (near historic lows), and the equity risk premium is negative (the 10-year Treasury yield exceeds the S&P 500's earnings yield).
• Non-U.S. markets offer more attractive valuations:

Market Region	Forward P/E	Key Characteristic / Comparison
Europe and Japan	~15x	Approximately 30% discount to U.S. valuations; Japanese corporate balance sheets are cash-rich, and the real economic discount is even larger.
Emerging Markets (e.g., MSCI Latin America Index)	Only 10x	Offers dividend yields above 5%; the valuation gap with the S&P 500 (nearly 15x P/E) is among the widest in modern history (for most of the 20 years before the pandemic, the gap was within 5x).

3. Market Concentration Risk:

• Return Concentration: J.P. Morgan data shows that in the three years following the launch of ChatGPT, AI-related stocks contributed an astonishing 75% of the S&P 500's total return. Over the same period, the actual earnings growth of the other 490 companies in the index was negative (since 2022).
• Valuation Concentration: As of the end of the third quarter, 35% of the S&P 500's total market capitalization consisted of companies with a price-to-sales ratio over 10x based on the past 12 months, exceeding the 25% peak of the internet bubble.
• Index Composition Concentration: The top ten holdings in the S&P 500 ETF (SPY) account for over 40% of assets, a record high. Apple, Microsoft, Google, and Nvidia each account for more than 5% (the single-security limit for a "diversified" fund under SEC rules), with Meta close behind.

4. Case Study: Apple:

• Decoupling of Stock Price and Fundamentals: From Bireme Capital's founding in 2016 through the end of 2025, Apple's stock price delivered a total return of 11.8x, but its sales grew only 2.0x and net profit grew 2.5x over the same period.
• Valuation Expansion and Buyback Effect: The P/E ratio (TTM) rose from 10x in 2016 to the current 33x. Over the past decade, Apple repurchased $731 billion of its own stock, with $92 billion in buybacks in fiscal 2016 alone. This caused earnings per share growth (3.7x since 2016) to far outpace net profit growth.
• Growth Slowdown: iPhone sales have stagnated over the past four years. The company's sheer size means that even a successful new product has a negligible impact on overall results.

Companies/Assets Involved

• Companies Viewed Bearishly/With Caution:
• Apple: The report explicitly states it is currently short this stock. It believes Apple's high-growth period is over, that the current valuation (33x P/E) does not match mid-single-digit sales growth, and that massive stock buybacks will find it difficult to generate outsized returns going forward.
• Microsoft, Nvidia, Google, Meta: As the core of extreme market concentration, the report argues that although these companies are highly profitable, their best period for stock returns has passed, and competition among them is intensifying.
• Other Companies Mentioned:
• OpenAI, Anthropic: Representing AI startups that receive cyclical investments from tech giants.
• CoreWeave, Crusoe, Nebius: Cloud service and data center builders that received investments from Nvidia.
• Cisco: Serves as a historical analogy for "vendor financing" during the internet bubble.

Investment Implications

For investors, this means:

1. Avoid the U.S. Market Valuation Trap: Be wary of the U.S. stock market built on a few extremely high-valuation giants; its extreme concentration and negative equity risk premium signal high risk.

2. Turn to International Value Opportunities: Actively allocate to high-quality companies in cheaply valued Europe, Japan, and emerging markets (especially Latin America), which offer significantly higher dividend yields and substantial valuation discounts.

3. Reassess Future Returns from Tech Giants: Future return expectations for mega-cap tech stocks like Apple need to be substantially lowered. Past stock price success should not be extrapolated; factors such as valuation compression, slowing growth, and diminishing buyback effects must be considered.

4. Monitor AI Ecosystem Sustainability: Be vigilant about the potential bubble risk arising from the internal circular flow of capital in the AI space, as historical lessons are worth heeding.

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Theme and Background

This section explores the deep-seated risks behind the high valuations of the US stock market, namely that the institutional advantages underpinning its historic premium are being eroded. The report uses Apple as an example, pointing out that the current market is pricing "perfect" expectations in an "imperfect world," but institutional decay is a more fundamental threat than high valuations themselves.

Core Thesis

The author's central argument is that the key pillars supporting the historic valuation premium of US equities—superior institutions (such as the rule of law, independent agencies, and fiscal discipline)—are being undermined by the current administration at an unprecedented speed, scale, and brazenness. This institutional decay will directly affect the equity risk premium and earnings trajectory, making current high valuations unsustainable. The counterintuitive judgment is that the problem lies not in specific policy disagreements but in systemic damage to the institutions themselves, and this damage is accelerating, transcending partisan divides.

Key Arguments and Data

The report enumerates specific manifestations of institutional decay along two dimensions: "rule of law" and "corruption."

1. Erosion of the Rule of Law:

• Diminished Judicial Authority: The long-standing "presumption of regularity" principle (presuming that the executive branch acts in good faith) by the courts is now shattered. Judges across different ideologies (including Trump appointees) have dozens of times condemned the government for blatant false statements, defiance of court orders, retaliatory actions, and fabricated accusations.
• Talent Drain at the Department of Justice: A large number of career prosecutors (including Trump appointees) have resigned in protest or been fired, leaving the DOJ short of nonpartisan civil servants needed to maintain institutional integrity.
• Blatant Legal Violations:
• Illegal disregard of the TikTok ban for over a year, with the eventual transaction plan (with acquirers as political allies and the government) appearing to not meet legal requirements either.
• Open defiance of the law regarding the release of Epstein documents, failing to comply with deadlines, improperly redacting names, and withholding millions of documents.
• Weakened Oversight Mechanisms: Over twenty inspectors general were fired without notice to Congress (as required by law), undermining anti-fraud capabilities of federal agencies. Taking the Chicago office of the Commodity Futures Trading Commission (CFTC) as an example:

Time Period	Staff (Lawyers & Investigators)	Enforcement Action Recoveries
2024	20 people	Over $17 billion
2025	0 people	Less than $10 million

• Attack on Federal Reserve Independence: In an attempt to control the Fed, the administration tried to fire a Fed governor, demanded the removal of Chair Powell's powers, and initiated a criminal investigation against Powell using building renovation issues as a pretext. Powell noted that the criminal threats stem from the Fed setting interest rates based on the public interest rather than presidential preferences.

2. Corruption and Self-Dealing:

• Profiting from Direct Litigation: Trump filed a $10 billion lawsuit against the Internal Revenue Service (IRS), an agency under his control.
• Using Office to Promote Cryptocurrencies: Profiting through his crypto company World Liberty Financial and related meme coins. A dinner was held for top $TRUMP coin holders, directly linking access to the President with the act of purchasing. After the dinner, the Securities and Exchange Commission (SEC) dropped its lawsuit against Justin Sun, the largest $TRUMP holder.
• Abusing Pardon Power to Pave the Way for Business: Pardoned Binance founder Changpeng Zhao (convicted for allowing sanctioned Iranian crypto exchanges, Russian drug traffickers, and Hamas militants to launder billions of dollars through Binance). After the pardon, Binance helped launch and legitimize WLF's stablecoin, potentially generating hundreds of millions of dollars in annual revenue for WLF.

Companies/Assets Involved

• Apple: As a microcosm of the overall US market, noted that its valuation already prices in "perfection" but faces risks from the deteriorating institutional environment.
• World Liberty Financial (WLF) / $TRUMP meme coins: The Trump-linked crypto firm and tokens, used as examples of leveraging the presidency for economic gain.
• Binance: The crypto exchange whose founder was pardoned by Trump, and subsequently provided commercial support to WLF.
• TikTok: Its acquisition deal is argued to circumvent the law and serve political allies.
• U.S. Steel / Nippon Steel: Mention of the Biden administration's misuse of the CFIUS process to block Nippon Steel's acquisition of U.S. Steel for political gain, serving as evidence of bipartisan institutional decay.

Investment Implications

For investors, this means the foundation of the "stability premium" that investing in US equities relies on is shaking. When the rule of law, regulatory independence, and anti-corruption mechanisms are systematically weakened, the predictability of the business environment declines, and the risk premium for long-term investment must be raised. Therefore, investing based solely on historical valuation multiples or earnings growth expectations is dangerous; the accelerating institutional decay must be incorporated into pricing models as a core risk factor. This reinforces the plausibility of the report's overall argument: to avoid US assets whose valuations already reflect "perfect" expectations but whose institutional foundations are corroding, and instead seek market opportunities with more reasonable valuations and more stable institutions.

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Theme and Background

This section examines how the Trump administration’s domestic governance and foreign policy are eroding the foundations of U.S. national institutions. The report focuses on corruption and cronyism in government decision-making, the undermining of the international order, and attacks on science and professional systems.

Core Argument

The author’s central thesis is that the Trump administration’s actions are systematically transforming the United States into a kleptocratic, crony-capitalist “banana republic,” severely damaging the rule of law, international credibility, and the long-term foundations of prosperity. A counterintuitive insight is that this institutional decay is occurring against a backdrop of extremely high stock market valuations, where the market has yet to fully price in the associated risks.

Key Arguments and Data

The report supports its claims of institutional decay with specific cases and data:

1. Conflicts of Interest and Foreign Policy Transactions:

• During the U.S.-Vietnam tariff negotiations, Trump’s sons visited Vietnam and secured construction permits for a $1.5 billion luxury resort for the family business. Subsequently, Vietnam’s tariff rate was reduced from one of the world’s highest originally planned levels to half the announced rate.
• In May 2025, the U.S. government agreed to supply the UAE with a large quantity of sought-after Nvidia GPUs. It was later disclosed that WLF, under a secret agreement in January 2025, sold shares to UAE-affiliated investors, receiving $500 million, the majority of which flowed to Trump family entities.

2. Domestic Cronyism:

• Trump threatened to block the opening of the Gordie Howe International Bridge, a project fully funded by Canada and jointly owned by the U.S. and Canada. Subsequent reporting revealed that hours before the threat, the Secretary of Commerce met with the billionaire owner of a competing toll bridge, whose business would be harmed by the new bridge’s opening.

3. Decline in Global Corruption Rankings:

• The U.S. ranking in the global corruption index has fallen to its worst level ever.

4. Undermining International Order and Trust:

• The report notes that U.S. allies in Europe (e.g., Canada) are shifting toward developing relations with China.
• European investors alone hold approximately $10 trillion in U.S. stocks, posing a significant risk of capital outflows.

5. Attacks on Science and Professional Systems:

• Appointment of Robert F. Kennedy Jr., the nation’s most prominent vaccine skeptic, as Secretary of Health and Human Services.
• Measles cases in 2025 reached their highest level in 34 years, despite the disease having been declared eliminated in the U.S. two decades earlier. The vast majority of cases occurred among unvaccinated children, with only 7% of measles patients having a vaccination record.
• Kennedy dismissed all 17 nonpartisan expert members of the Advisory Committee on Immunization Practices, replacing them with severely unqualified anti-vaccine appointees, leading to chaotic meetings and glaring scientific errors.

Companies/Assets Involved

• Trump Organization: The core vehicle for the Trump family’s conflicts of interest, e.g., obtaining approval for a $1.5 billion resort project in Vietnam.
• WLF: A company with an unspecified full name, whose sale of shares to UAE-affiliated parties allegedly served as a channel for interest transfers.
• Nvidia: Its GPUs were used as bargaining chips in geopolitical transactions.
• Toll bridge owner: An unnamed billionaire whose company competes with the Gordie Howe Bridge and attempted to influence policy through cronyism.

Investment Implications

The erosion of U.S. institutional foundations constitutes a significant tail risk. Investors should be alert to:

1. “Sell America” trade: Foreign capital (especially the $10 trillion in U.S. stocks held by Europeans) may flow out due to declining U.S. credibility and institutional risk, triggering severe asset repricing.

2. Disappearance of geopolitical premium: The U.S.’s “exorbitant privilege” as a stable leader and the reserve currency status of the dollar may be impaired, increasing the risk premium on U.S. assets.

3. Sector-specific risks: Reversals in public health policy could affect related industries; damage to judicial independence could raise policy uncertainty for all businesses.

4. Strengthen diversification: This further supports the report’s overall recommendation to avoid overvalued U.S. stocks and pivot to international markets with more stable institutions and cheaper valuations.

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Theme and Background

This chapter examines how, under the Trump administration, the independence and scientific decision-making processes of key U.S. institutions (such as the FDA and CDC) have been subject to political interference, along with the erosion of political norms. The report argues that this undermining of science, information, the rule of law, and administrative norms is systematically damaging the institutional foundations on which the United States has long prospered.

Core Argument

The author's central thesis is that a series of actions by the Trump administration—including interfering in independent agency decisions, undermining scientific research and information transparency, and trampling on long-standing political norms—are systematically weakening the United States' institutional advantages. This model of "rule by man" replacing "rule of law and principles" creates enormous policy uncertainty, damages the business investment environment, and may lead to an outflow of talent and capital.

Key Arguments and Data

The report supports its views through multiple specific cases and data points:

1. Interference with Scientific Institutions:

• FDA: Commissioner Vinay Prasad repeatedly overruled career scientists' decisions, for example, personally rejecting Moderna's first mRNA flu vaccine application, only to later reverse course under industry pressure. Internal memos show he overruled professional reviewers' opinions to restrict Moderna and Novavax's COVID-19 vaccines.
• Research Budgets and Brain Drain: The Trump administration has terminated nearly 8,000 grant awards. In 2025, the National Science Foundation (NSF) lost 40% of its scientists.

2. Immigration and Brain Drain:

• Nearly half of Fortune 500 companies were founded by immigrants or their children (including Tesla, Google, Nvidia).
• Currently, the number of tech workers leaving the U.S. for Europe exceeds the number moving in the opposite direction.

3. War on Information:

• Within hours of a weak jobs report, Trump fired the director of the Bureau of Labor Statistics (BLS).
• He shut down the CIA's World Factbook database, the USDA deleted climate science resources, and the CDC removed key datasets on HIV infections and adolescent risk behaviors.

4. Erosion of Political and Administrative Norms:

• Legislative Process: In 2025, the Senate majority party used the "nuclear option" (overruling the nonpartisan parliamentarian's ruling) for only the fourth time in history. Trump publicly urged the abolition of the filibuster.
• Fiscal Powers: Abused the "pocket rescission" loophole, demanding Congress cancel already-appropriated funds too late in the fiscal year, thereby freezing them before expiration.
• Interference in Civil Society:
• Demanded that Intel fire its CEO and, using the CHIPS Act funding as leverage, secured a 10% stake in the company for the government.
• Used government funding and research grants to pressure U.S. universities, undermining their academic independence.
• Threats to Media and Legal Profession:
• The FCC Chairman used mob-like language to threaten ABC's broadcast license.
• Paramount, while having a merger pending FCC approval, paid Trump $16 million to settle a meritless lawsuit and canceled a late-night show critical of that settlement.
• At least 30 news organizations (including the far-right Newsmax) returned their press credentials after refusing to sign the Pentagon's new interview access policy.
• The Trump administration threatened to revoke government contracts, block access to federal buildings, and suspend security clearances to punish top law firms that represented disfavored clients or hired disfavored lawyers.

Companies/Assets Involved

• Moderna & Novavax: As biotechnology companies, their vaccine approval processes have been directly affected by political interference at the FDA, facing significant regulatory uncertainty.
• Intel: Subject to direct government intervention, the government used CHIPS Act funding as leverage to obtain a 10% stake in the company.
• ABC & Paramount: Media companies have faced threats and pressure from government regulators, with business decisions (such as licenses, programming content, and litigation settlements) influenced by political factors.
• Top U.S. Law Firms: Facing threats of government retaliation for representing specific clients, their operating environment has deteriorated.

Investment Implications

For investors, this means that when evaluating U.S. assets (especially industries that rely on stable regulation, long-term R&D, and talent inflow, such as biotechnology, technology, and higher education), a "political and institutional risk premium" must be factored in. Policy volatility, politicization of scientific decision-making, and the weakening of rule-of-law norms will increase the unpredictability of business operations and long-term investment costs. The report suggests this reinforces its stance of avoiding overvalued U.S. stocks and may drive capital flows toward markets with more stable institutions and higher predictability. Companies that depend on government contracts, operate in heavily regulated industries, or require highly specialized talent face significantly elevated risks.

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Theme and Background

This chapter delves into the erosion of America's institutional advantages and its profound impact on market trust. The report points out that the current breakdown of U.S. political norms and the excessive concentration of executive power are undermining the foundations of the rule of law, property rights, and institutional stability—cornerstones on which the long-term prosperity of capital markets depends.

Core Argument

The author's central thesis is that the extremely high valuations of U.S. equities are built on "perfect" assumptions, which are becoming fragile as the institutional foundation weakens. A counterintuitive judgment: the U.S. no longer holds a competitive edge in key technologies and industries, and its traditional advantage in institutional stability is being eroded by internal actions, potentially leading to capital outflows and a long-term reduction in investment.

Key Arguments and Data

The report supports its views with comparative data and specific case studies:

1. Consequences of Institutional Erosion: The report emphasizes that when governance norms collapse and government credibility declines, the trust foundations of the market—contracts, property rights, and impartial enforcement—become eroded, and capital will seek safer havens.

2. U.S.-China Competitiveness Comparison: The report cites data indicating that the U.S. has fallen behind China in multiple future-critical industries and technologies.

Sector	China's Advantage	U.S. Status
Number of leading technologies (ASPI data)	66 / 74 items	8 / 74 items
Global share of shipbuilding capacity	>50%	0.1%
Annual STEM PhD graduates	Approximately double that of the U.S.	-
Number of AI researchers	Approximately three times that of the U.S.	-
AI-related patents and papers	Far outnumbers the U.S.	-

3. Investment Case: Airtel Africa:

• Initial Investment Thesis (2023): Bought at approximately 9x forward P/E, favoring its market share in African mobile communications (a growth industry by year) and the continued growth and profitability of its mobile money business.
• Crisis (2023-2024): The Nigerian naira collapsed (from approximately 460 to 1,600 against the U.S. dollar), while regulators did not approve price increases, causing its Nigerian business to shrink by over 50% in U.S. dollar terms.
• Turnaround (2025): In January 2025, the Nigerian Communications Commission approved a 50% across-the-board price increase. The effect was immediate: for the quarter ending September 2025 (fiscal Q2 2026), EBITDA in the Nigerian market grew by over 70% year-on-year. Based on $247 million in EBITDA for the quarter ending December 2025, the Nigerian business could generate $1 billion or more in EBITDA over the next twelve months, nearly doubling the $522 million achieved in the fiscal year ending March 2025.
• Overall Growth: In the first nine months of fiscal 2026, total group revenue grew 25%, with Francophone Africa rising 19% and East Africa rising 18%.

Companies/Assets Involved

• Airtel Africa plc: The report is bullish. This company was a key driver of the fund's 2025 performance, with its share price more than tripling over the year. It is a mobile network and mobile money services operator in 14 African countries, with 179 million users (CAGR of 10.4% since 2017) and EBITDA of $2.9 billion in calendar 2025 (CAGR of 12% since 2017), growing at roughly twice the rate of its main competitor, MTN Group.
• MTN Group: Mentioned as Airtel Africa's main competitor, with a growth rate approximately half that of Airtel.

Investment Implications

For investors, this means reassessing the over-reliance on and overly optimistic pricing of U.S. assets. The report's operational strategy provides specific direction: avoid U.S. equities where valuations are disconnected from fundamentals (even consider shorting them), and instead invest in high-quality international stocks with more attractive valuations (often half of comparable U.S. companies). The Airtel Africa case illustrates that in markets where institutions are relatively stable or undergoing positive changes, high-quality assets suppressed by short-term crises can offer significant investment opportunities.

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Theme & Background

This section details several cases of undervalued quality companies that Bireme Capital has identified and invested in globally, spanning markets such as African telecommunications, Mexican infrastructure, Japanese semiconductor materials, and European software services. The backdrop is a report advocating for avoiding overvalued U.S. equities and pivoting toward cheap opportunities in international markets.

Core Thesis

The author's central argument is that, against a backdrop of elevated global valuations (especially in the U.S.), it remains possible to find investment targets in other markets with extremely low valuations, quality businesses, and significant growth potential. The counterintuitive insight is that for these companies, which are overlooked or undervalued by the market, the drivers of value (such as franchise rights, market monopolies, and industry consolidation potential) are not fully reflected in their stock prices, offering attractive risk-adjusted return opportunities.

Key Arguments & Data

1. Airtel Africa (Airtel Money business):

• Growth Drivers: Population growth, rising mobile penetration, increasing data usage per user, growth in mobile money penetration and usage per active user.
• Key Data: Airtel Money's EBITDA has grown over 20% annually since 2017. If its subsidiary were to list at 15x expected 2027 EBITDA, the 80% stake held by Airtel would be worth more than half of its total market capitalization.
• Investment Status: Held since 2023, one of the core positions.

2. PINFRA (Mexican toll road operator):

• Market Valuation Comparison: The Mexican stock market is extremely cheap; 43% of non-financial, non-utility, non-materials, and non-energy companies with a market cap over USD 100 million trade below 10x EBIT, compared to about 10% in the U.S.
• Company Quality vs. Valuation Divergence: PINFRA's EBIT grew from MXN 2.5 billion in 2011 to MXN 11 billion last year, with return on capital consistently above 15%. Yet it trades at just 7x EBITDA and 10x P/E.
• Peer Comparison & Potential Value:

Company	EBITDA Multiple
PINFRA	7x
Global Peers (e.g., Ferrovial)	15-25x

• Return Estimates: A conservative liquidation scenario yields an approximate 8% real (inflation-adjusted) IRR; a more realistic reinvestment scenario yields a real return close to 15%. If sold, private equity typically acquires similar assets at 12-15x EBITDA (its non-core port business sold this year at 22x EBITDA).

3. RS Technologies (Japanese reclaimed silicon wafer supplier):

• Market Position: The world's largest supplier of reclaimed silicon wafers, with a market share of approximately 30%.
• Growth & Capacity: EBIT from its reclaimed silicon wafer business grew from JPY 1.5 billion in 2015 to JPY 10 billion. Plans to expand capacity by 30% in Taiwan and Japan, and quadruple output at a new plant in Shandong, China.
• Valuation Comparison & Implied Asset Value:

Company	EBIT Multiple (approx.)
RS Technologies	8-9x
Peers (e.g., Phoenix Silicon)	30x (2025E)

• Implied Value: Holds a 33% stake in GRINM Semiconductor Materials Co. At GRINM's current valuation, this stake is worth over JPY 100 billion, roughly equal to RS's total market cap. Even applying a 70% discount to this value, plus RS's share of GRINM's net cash, accounts for approximately 50% of RS's current market cap.

4. SoftwareOne (Software distribution & IT services market):

• Financial Performance: Revenue grew steadily from CHF 830 million in 2020 to CHF 1.0 billion in 2024, with EBITDA margin exceeding 20% and annual dividends exceeding CHF 50 million (dividend yield ~5%).
• Valuation Comparison:

Metric	SoftwareOne	Peers
Forward EBITDA Multiple	~5x	7-10x
P/E Multiple	~9x	11-16x

• Merger Analysis: Merger with Norwegian company Crayon Group, with an exchange ratio of 0.8233 SWON shares plus NOK 69 cash per Crayon share. The author would typically oppose such a transaction that dilutes shares by ~50% to acquire a higher-valued company (~9x forward EBITDA). However, this merger is attractive due to no cash premium, up to CHF 100 million in cost synergies, Microsoft's support, and continued private equity takeover interest in the combined entity.

Companies/Assets Covered

• Airtel Africa (Bullish): African telecom operator; core thesis focuses on the revaluation potential of its rapidly growing mobile financial services business, Airtel Money.
• Promotora y Operadora de Infraestructura S.A.B. de C.V. (PINFRA) (Bullish): Mexico's largest toll road operator; bullish on the wide gap between its extremely low valuation and its stable cash flows and growth prospects.
• RS Technologies (Bullish): Japan's leading reclaimed silicon wafer supplier for semiconductors; bullish on its core business growth, capacity expansion, and the significant implied value from its stake in GRINM.
• SoftwareOne (SWON) (Bullish): Swiss software distribution and IT services provider; bullish on its extremely low valuation and the potential synergies from the merger with Crayon, along with a potential revaluation from privatization.
• Crayon Group Holding ASA: Mentioned as SoftwareOne's merger partner; its SME-focused business complements Microsoft's channel strategy.
• GRINM Semiconductor Materials Co.: An associate of RS Technologies; its listed valuation constitutes a key implied asset value for RS.

Investment Implications

The implication for investors is to broaden their horizons globally and actively seek companies in unfashionable markets (e.g., Mexico) or niche sectors (e.g., semiconductor materials, software distribution) that possess solid business fundamentals, clear growth logic, strong market positions, yet trade at valuations significantly below peers or intrinsic value. Specific directions include: focusing on telecom companies with high-growth fintech operations, infrastructure concessionaires with stable cash flows and extremely low valuations, tech supply chain companies with hidden assets or monopoly-like positions, and quality enterprises whose stock prices are depressed due to short-term events (e.g., strategic adjustments, mergers) but have clear potential for recovery.

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Theme and Background

This section is the concluding part of the report, primarily containing performance disclosures, disclaimers, and brief commentary on the development prospects of artificial intelligence (AI). The context involves the author supplementing details on fund operations and specific technological trends after articulating core investment views.

Core Thesis

The author holds a differing perspective on the current optimistic market expectations regarding the imminent arrival of AI, particularly artificial general intelligence (AGI). The core judgment is that the realization of AGI may be farther off than many believe, and the current scaling of architectures based on large language models (LLMs) is unlikely to directly lead to AGI.

Key Arguments and Data

1. Historical Experience (Prior): The history of AI development is a cycle of boom and bust, where the emergence of new capabilities often leads to overly optimistic predictions about the imminent arrival of AGI.

2. First-Principles Analysis: Although large language models are impressive and useful, from a fundamental standpoint, simply scaling up existing architectures is unlikely to give rise to AGI.

3. Performance Data:

• Performance of the Fundamental Value Fund (FV) since its inception on June 14, 2016, is net of a 1% management fee and a 10% performance fee.
• Performance calculation methodology: Before October 2023, returns were based on the dollar-weighted average return of the Interactive Brokers model portfolio; after November 2023, returns are based on the dollar-weighted average return of all accounts fully invested in the strategy and not customized by the client.

Companies/Assets Involved

• Birema Capital: The issuer of the report and the fund manager.
• Fundamental Value L/S Strategy: The long/short equity strategy discussed in the report.
• SPY ETF: Used as a performance benchmark; its performance tracks the S&P 500 index and includes fees and dividend reinvestment.

Investment Implications

1. Implications for Technology Investing: Investors should remain cautious regarding narratives in the AI field, particularly those claiming proximity to AGI, and avoid paying excessive premiums due to technology hype cycles.

2. Implications for Fund Selection: When evaluating the fund's historical performance, investors need to carefully review its fee structure (1% management fee + 10% performance fee), performance calculation methods, and related risk disclosures. The report explicitly states that past performance does not guarantee future results.