I DON’T KNOW WHERE I'M A-GONNA GO WHEN THE VOLCANO BLOWS

Ground she's moving under me. Tidal waves out on the sea. Sulphur smoke up in the sky - Jimmy Buffett

Volcano Watch: Capital Markets in a Regime of Randomness

As Jimmy Buffett once sang, “I don’t know where I’m a-gonna go when the volcano blows.” Same here, Jimmy. But let’s be clear: the volcano is going to blow. The only mystery left is when it happens—and whether we’re standing uphill holding a mojito when it does.

For now, the lava flow has paused—Trump’s tariff poker game seems to have folded (or at least taken a bathroom break), and markets have done what they always do in the face of ambiguity: ripped higher, priced in a perfect world, and poured themselves a daiquiri.

I’m not joining them at the bar.

Let’s call this what it is: we’re living in a regime of randomness. I don’t mean "regime" in the formal government sense—though if you want to use that word, I won’t argue—but in the sense of chaotic, policy-by-instinct governance. That sort of unpredictability screws with capital allocation. It muddles corporate strategy. It shortens decision horizons for CEOs and wrecks the discount rate calculus for investors. And yes, it bakes volatility into capital markets whether you see it on the VIX or not.

It’s remarkable how quickly investors can go from “the world is ending” to “this is easy money.” Markets have a way of making the hard look easy-until they don’t. As Cliff Asness likes to remind us, the two extremes to avoid are abandoning your strategy at the first sign of trouble, or stubbornly refusing to adapt when the world changes around you. The trick, as always, is to question your approach rigorously and keep improving, even when it feels like you’re just rearranging deck chairs on the Titanic.

Buffett and Munger have always preached the gospel of “one-foot hurdles”-find the easy, obvious opportunities and step over them. You don’t get extra points for degree of difficulty in investing. In fact, you usually just get bruised. As for me, I’m always a little bearish unless the market’s been demolished. Right now, I’m more nervous than a turkey in November. This is a time to be picky, not greedy.

Longtime readers know I rarely dish out stock tips. But for those of you who remember the April 6th edition—“Dips Gonna Dip! Be Ready!” I mentioned Entain PLC when it was trading in the low 500s (pence, not dollars-let’s not get carried away). It’s now around 785 pence, After another round of research and a long walk with a calculator, I think it’s close to fully valued. Similarly, I mentioned Caesars and MGM. My current assessment is that they reside in the realm of fair valuation – not screamingly cheap, but not outrageously expensive either. As for Penn Entertainment? Well, their management and board continue to exhibit a remarkable disregard for shareholder interests. Until Mr. Snowden finds himself permanently locked out of the building, I’d continue to steer clear.

So where does that leave us?

Honestly: nowhere particularly exciting. No home runs today. No magic beans. Just a reminder that surviving in this kind of market requires humility, skepticism, and maybe a little bit of Munger’s old motto: “It’s not supposed to be easy. Anyone who finds it easy is stupid.”

Stay selective. Stay sane. And remember, the volcano may have quieted for now, but the magma is still simmering beneath the surface. Don't mistake a lull for the all-clear.

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