I’ve just updated my Keeping Score page for last year’s performance.

The headline investment story of 2025 has been the unfolding of AI as a major factor in worldwide economic growth, including not only the global makers of software and enabling hardware but also materials suppliers, power sources and the substitution of AI for humans doing repetitive tasks.

A second major theme has been the weakness of the $US, and the substitution of gold as a store of value, as holders of Treasuries worry that Washington favors a weakening currency in order to reduce the real value of government borrowings.

A third, evident in the sector breakout of S&P results, is the deep underperformance of the Consumer discretionary and Consumer staples sectors–the former typically high in the performance vanguard in up years for the S&P. Last year, however, the S&P gained +16.4%, while Consumer discretionary was only ahead by about +5% and Staples by +1%.

A fourth is an elaboration on the third. For the first time in many years, the S&P 500 has been an extreme laggard among major world stock markets, despite its AI strength.

–recalling Y2K

I’ve been reading a lot of stock market commentary recently suggesting that the US stock market is in a position similar to where it was at the close of 1999. My experience is that although a stomach-turning drop in share prices in general is the thread that binds all bear markets together, they also have their own distinctive characteristics that determine which stocks get especially hammered, as well as how badly and for how long.

I think Y2K was different enough from today’s situation that it’s not a good model for what’s likely to happen now. Specifically:

The runup in stocks throughout 1999 was mostly about that new phenomenon, the internet. It was about AOL and email, e-commerce dreams (aka vaporware) like pets.com, and the laying of mammoth amounts of worldwide fiber-optic cable to meet anticipated demand for internet services. To a lesser degree, it was also about the emergence of extensive cellphone networks.

(btw: The Y2K worry itself was centered on the idea that a design flaw in the creaky 1960s-era programming that supported (and still does, I think) the big multinational banks meant that the global financial system could not deal with transaction dates for years beginning with “2.” Because of this, the argument went, the world’s banking computers would all cease to function at the stroke of midnight on 12/31/1999. That collapse would possibly trigger the end of the modern world as we knew it back then. Survivalists began to buy up silver coins, paying 10x face value for them–farmland in rural areas, and wooden plows, too.)

What halted the 1999 rally:

—Y2K came and went without any disruption. So the loose money policy adopted by central banks around the world, fearing what Y2K might bring, looked excessive

—Henry Blodget of Merrill and Mary Meeker of Morgan Stanley were both investigated for what turned out to be wildly overoptimistic descriptions of newly-listing internet companies. Meeker apparently convinced authorities that she believed what she wrote. Blodget, on the other hand, paid a large fine and consented to a lifetime ban from the securities industry when his work emails made it clear that he didn’t.

Think: Pets.com or eToys.com

On the other hand, Nvidia also IPOed that year, too.

–wave division multiplexing devices appeared that enabled a single fiber optic cable strand to send 256 messages at once, rather than the one anticipated in the runup in price of cable networkers and Corning, the major supplier of fiber optic cable. I think there are still stretches of cable laid back then that are yet to be used.

–advances in chip and network design eliminated the need for expensive cellphone network components, tanking the stocks of their suppliers

–AOL bought Time Warner for around $162 billion, the disastrous kind of merger that screams excess and therefore often rings the we’re-at-the-market-top bell

One area in which the US today clearly matches up with 1999, oddly enough, is in stock market performance vs. the rest of the world. The S&P was up by about +21% for the year back in 1999. This compares with +27% in $US for the EAFE index of developed non-US markets and +61% for emerging markets. So the 1999 US was also a laggard, as it has been in 2025.

One of the bigger contrasts I see between then and now is in branding. In 1999, we were still the shining city on the hill. Now we’re the land of ICE, detention camps, deportations, declining healthcare for the less well-off, tariffs…–and we’re debating whether the Navy killing of a hundred or so people suspected to be drug runners is a series of war crimes, with comparisons being drawn between now and the cruelty of the Axis powers of WWII. Arguably, these echos of the 1940s make US goods and services less attractive, especially to Europeans.

What immediately followed the 1990s, a decade when growth investors continually pummeled their value counterparts, was a mass layoff of value portfolio managers–and, as these things often go, a gigantic value stock market that lasted for the next several years. My guess is that we’re not going to see a repeat of this phenomenon, at least for a while. If growth investors buy earnings and value investors buy assets, the big stumbling block for the latter is current Washington policies that, to my mind at least, damage the intrinsic worth of US-based businesses in general, and those that serve US consumers in particular. Not to get too wonky about flavors of value, I think most value investors will likely stay on the sidelines until we see some catalyst for change.

In the 1970s, I spent six years at Yale getting a degree in continental European philosophy, with the idea of becoming a college professor. That didn’t turn out well, although I regard this as a lucky escape. I fell into the stock market instead.

I mention this mostly because Yale was a pioneer in private equity in the 1980s and, because I was interested in the excellent economics department that led the charge for Yale, I paid a lot of attention to what the university was doing.

Its general argument was that, like many other private universities, Yale had a very large endowment, the bulk of which it wouldn’t need for many years. So, why pay a price for the liquidity that publicly-traded equities provide, but which Yale didn’t need? Why not, instead, hire its own researchers and take stakes in carefully vetted privately-held companies, where growth would likely be higher and where there were none of the fees charged by public market managers who seldom, if ever, matched their target indices.

Two subsequent developments:

–the success of Yale caught the attention of state-run public employee pension plans, which are by and large defined benefit plans. This means the plan guarantees specified payments to retirees throughout the course of their retirement. This is in contrast to defined contribution plans, which pay out a lump sum on retirement. This is the norm for non-government entities.

A second characteristic of the public plans is that many are substantially underfunded, meaning that under reasonable assumptions about how the funds’ investments will grow, there isn’t enough money in them to meet their promised payouts. The problem gets worse during the periodic downturns in the stock market, when the size of the apparent underfunding (based on market prices for the investments) can get considerably bigger.

If bad comes to horrible, state legislators can always raise taxes to cover any deficit. But no one wants to do that.

Hence the two-pronged appeal of private equity to state-run pension plans: the potential for higher returns and that private investments remove the negative optics of a writedown in the plan’s assets because of cyclical fluctuations in the stock market.

One possible cautionary thought: I’ve read that Trump’s attack on major research universities has prompted Yale to look for possible buyers for some of its private investments. It has apparently found that its value estimates are on the high side. Hard to know whether this is the first round of haggling over price or whether the university has to some degree overvalued its private holdings. My guess, though, is that whatever the Yale situation is, it’s better than that of more recent entrants into the private equity market.

…more in the new year.

As regular readers may know, I started out as an oil analyst shortly after the Iranian revolution and the success of the OPEC cartel in fixing prices sent crude oil soaring. And by “soaring” I mean from around $1 a barrel to producers in 1970 to $35 or so for the easiest to refine grades.

The speculation back then about “peak oil” was about when the demand for oil, driven by world economic and industrial expansion, would finally exceed supply. This, the consensus thinking went, would drive prices to the sky.

The reality was that the new supply brought into production because of higher prices ultimately sent the price into a quarter-century decline, before increasing world demand drove the crude oil price to $100+ per barrel.

This was not the simple interplay between price and production. The world’s big producers break into three camps, with three different price objectives:

–Saudi Arabia, for a long time the dominant OPEC producer, which has decades of reserves that can be brought to market at extremely low cost (a few dollars per barrel). Its pricing strategy has been to keep the crude price low, to discourage the development of substitutes–to minimize the chances of the world shifting away from oil

–the rest of OPEC, which has higher costs ($30?) and shorter-lived deposits. So its strategy has been to seek the highest possible current price

–the US, now the world’s #1 producer, relies on very high cost ($50-ish) and environmentally unfriendly hydraulic fracturing (“fracking”) for the bulk of its output. So it wants the highest possible near-term price.

What it seems to me has changed very recently is that it looks like we’ve finally reached peak oil. But it hasn’t been peak supply. It’s that with more efficient usage and alternative sources of energy, we’ve reached–and maybe already passed the high point–peak demand.

More next year.

I have a high level behavioral rule that I should act to maximize participation in gift-giving holidays. So this is a great time of year for me. I wish the same for you.

I turned on Bloomberg radio in my car on the way into town. The A team wasn’t broadcasting. …instead, the bench, both interviewers and guests. The latter is usually a good thing, since my experience is that publicizing yourself and your firm–although an important task–gradually wears away any edge over the competition that you might have.

Anyway, the interviewee was particularly interesting on current consumer behavior in the US. What I took away is that people are doing what they always do during bad economic times (and “bad” here doesn’t necessarily mean the economy is already contracting, although that’s a real possibility). It may mean instead that if the trend rate of nominal GDP growth, pre-Trump II, was 5%, consisting in 1% productivity growth, +1% growth in the domestic workforce, +1% immigration +2% inflation, it’s now 4.5%.

That doesn’t sound so bad, except that the figure now consists of 1% productivity growth, .5% growth in the workforce, -1% immigration + 4% inflation. So real growth, meaning factoring inflation out, has fallen from +3% to +1%. And that’s making the heroic assumption that the figures the government is releasing haven’t been tinkered with too much. I’m acting on the assumption that the economy is basically flat in real terms, with prices rising much more steeply than we’ve been used to over, say, the past twenty years.

So people are adjusting to harder times. Back to the Bloomberg interview, this means less patronage of bars and restaurants, more eating at home. Less alcohol, too, with trading down and shopping harder for discounts.

I’m beginning to entertain the thought that the real 2026 issue for the domestic economy will be less the tariffs–the harm to the economy likely won’t get worse–but rather Trump’s desire to do things that erode the value of the dollar (whether he understands this is the outcome of his policies or not).