February 2025

The Slice

A Monthly Market Update & Investment News Roundup

Cutting through the noise...so you don't have to.

Good morning,

Stocks sold off last week after Chinese AI upstart DeepSeek released a new large language model that poses a direct threat to firms like OpenAI. Tech leaders called it a "Sputnik Moment" for American AI.

What is DeepSeek? Morgan Brown, chief of AI at DropBox may have said it best: "Traditional AI is like writing every number with 32 decimal places. DeepSeek was like 'what if we just used 8? It's still accurate enough!' Boom - 75% less memory needed."  

And it may actually be closer to 95% cheaper to run. Less memory means  lower computing costs and less chips. U.S. based chipmakers such as Nvidia took that news on the chin: Nvidia alone lost $589 billion of market value (which is equivalent to Exxon + Nike, combined) in one day. Yikes.

But while last week was painful for chipmakers, the customers of chipmakers - Meta, Apple, and Google - all had positive weeks as investors came to grips with potentially lower outlays on hardware. And smaller, less profitable AI startups now have another model they can use that is much more affordable than the status quo. So it wasn't all bad...and after all, Sputnik eventually got us to the Moon. 

Here's what you need to know.

Markets

News & Notes

• California Wildfires (Video): An insurance adjuster explains the road ahead for policyholders as they rebuild. (WSJ)
  
  Also:​​​​​​​
  • ​​​​​​​"Their wealth was in their homes. Their homes are now ash." (WSJ)

• Here Come the Tariffs: The Trump Administration announced 25% tariffs on Canada, Mexico and an additional 10% levy on China set to take effect Tuesday. (WSJ)
  
  Also:
  • Former trade chief Robert Lighthizer on tariffs and why he says we need them (60 Minutes) 
• Davos: Interview with David Solomon (Video): Goldman Sachs CEO David Solomon shares his vision for how capital markets and the economy will fare under Trump 2.0. (CNBC)
  
  Also:
  • S&P Global's Dan Yurgin on the outlook for Energy in 2025 (CNBC)
• Retirement: Inherited an IRA recently? New rules take effect for Inherited IRAs and ROTHs. (Barron's)
   
• DeepSeek (Audio): China challenges U.S. for AI dominance. (NYT)

• Government Efficiency: Vivek Ramaswamy may no longer be at the helm of the Department with Musk, but the math to $2T worth of cuts still looks daunting. (JPM)
   
• Travel & Spend:
  36 Hours: Antwerp (NYT)
  36 Hours: Barbados (NYT)
  36 Hours: Quebec City (NYT)
  36 Hours: Ghana (NYT)

(Pie)Chart of the Month

In 2008, the EU and the U.S. had similar sized economies, as measured by GDP. Sixteen years later, the U.S. economy has effectively doubled, while growth in the eurozone has remained stagnant. One reason for American dynamism is its capital markets: There have been roughly 200 new public companies created since 2000 totaling roughly $18T vs. Europe's $2T and 60 companies.

PieCapital's current positioning for clients, which incorporate BlackRock allocation models, remains overweight the U.S. vs. Europe and other international equities relative to the All Country World Index. To learn more about how we approach portfolio construction, you can book a discovery call here.

JPMorgan, "Eye on the Market: Outlook 2025," as of December 17, 2024.

Firm News

Q&A: An Interview with Doug Hale, Director of Private Client Services at Sentinel Risk Advisors.

I sat down with Doug Hale recently to ask him about his perspective on the California wildfires. Doug leads Sentinel Risk Advisors’ Private Client Insurance practice. He recently wrote an article covering increases to NC homeowners' base rates for 2025 and 2026.

PieCapital: In light of stories we’re hearing about insufficient coverage in the wake of the California wildfires, what can policyholders do to avoid that situation going forward?

Doug Hale: Ask your agent for a formal review. I see new clients with policies that weren’t reviewed by their agents in 8-10 years, while prices have risen 30, 40%, 50% and more over that time. A simple review can be a great reminder to revisit any new assets on your balance sheet and potential gaps in coverage. A great example we’ve seen recently is flood insurance. In the three months following (Hurricane) Helene, we’ve added more flood coverage for our clients than I’ve seen in the last two years, combined.

Given spiking costs for labor and lack of supply of housing for places like Los Angeles, are there any additional riders or provisions that can help ensure that someone has appropriate coverage?

It’s a great question. Pay attention to the coverage you’re getting. Are you paying for replacement cost of your home or actual cash value?  If you have cash value insurance (sometimes referred to as face amount coverage) and you own a $1MM house, the most you will ever get is $1MM in the event of a loss.  But if you have a replacement cost policy, the cost of inputs like materials and labor are taken into account to make you whole. Replacement cost comes with higher premiums, but understandably so.

There’s been some talk of “parametric insurance” coverage for large scale disasters such as hurricanes, earthquakes and wildfires What is this, and is this something you recommend?

Parametric coverage means the payout is based on the event itself, not the loss. You could for example, get 100% covered in the event of an earthquake that was over, say, a 7 on the Richter scale, but zero payout if the earthquake was only a 5, or maybe only a percentage thereof. Candidly, these policies aren’t popular right now, but I can see them becoming a lot more so after what we’ve seen in California and western NC.

Thanks Doug.

Military Veterans Startup Conference

PieCapital will be at the Military Veterans Startup Conference in San Francisco Feb 5-6. If you're a founder seeking advice on your personal balance sheet, have questions about plans to exit your company, or just want to connect, schedule a 30-minute meeting by sending an email to hello@piecapital.com. 

Snow Day!

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