Inflation and a Bubble?
Financial headlines continue to be dominated by the war in Iran and coming public listings of artificial intelligence stocks and SpaceX. This is really a tale of two different stories but they both need to be followed closely.
With respect to the war, the on-again, off-again prospects for a quick end to the conflict appear much more elusive than the US Administration has previously indicated. We believe this could lead to a potential energy shock in the short-term, which could result in increased volatility for risk assets. While it would be positive for the energy sector, the impact of increased prices and lack of petro chemical products could put the global economy at risk. Over the medium-term, even with a political solution, we believe that energy prices will be higher at the margin. This could also lead to increased structural inflation.
Figure 1 presents inflation data for the major economies of the world. We have presented this data before, and we have been watching it quite closely. As the chart shows, there has been a clear uptick to inflation since the end of 2025. As noted above, we believe this trend will continue higher, and we are focused on it.
At the other end of the spectrum is the continuing strength of AI stocks. This has led to what many investors are calling “bubble” type developments. Usually at the end of a cycle, companies start listing their shares for public trading, as this is the last place to raise money after all of the private financing that has been completed. SpaceX, Anthropic and OpenAI either are, or intend to, list their shares at never-before-seen valuations creating the biggest IPOs in history. Furthermore, Alphabet Inc. (GOOG US) is doing a huge equity raise ($85 Billion) with even Berkshire Hathaway participating. We are also reading about datacenters that are using debt financing with special purpose vehicle guarantees from chip suppliers. For someone who has been in the business for almost 30 years, I have seen this type of activity before, and it does cause some concern.
“This means that” we were in a conference last week and met several chemical companies from Europe. We asked management about inflation pressure from input costs. Most said they have yet to see supply chain cost pressure but had implemented redundancy to be conservative. We found that surprising given our conclusions and the data noted above. In our opinion both these developments need to be watched very closely.
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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
For more information, please follow the links above to review the fund term sheets.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Pathfinder Conviction Fund are presented based on the master’s series of each fund. The Pathfinder North American Equity Portfolio and The Pathfinder North American Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder North American Equity Portfolio (January 2011), Pathfinder North American High-Income Portfolio (October 2012) Pathfinder Partners’ Fund (April 2011), Pathfinder Conviction Fund (April 2013), and Pathfinder International Fund (November 2014).
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