We shared a telling analogy in July. The US shale boom and Silicon Valley were both profitless technological revolutions funded by cheap capital and carrying enormous benefits to society. The main point was that sequencing matters when a boom turns into a bust. 

By examining the shale experience from 2010 to 2020, we pinpointed three stages: the first focuses exclusively on growth; the second, when things go south, is marked by capital discipline; and the third is defined by the distribution of free cash flow to shareholders.

When companies are seen to be making progress in the second stage the market rewards them with higher share prices. Many stocks can double, even if this amounts to a countertrend rally. We see evidence of this beginning to take form in tech. 

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