No Dark GPUs, No Bear Market: The AI Cycle Meets the Bitcoin IPO

[00:00] Uh first of all, thank you and welcome to everyone who's uh who's joining for the first week. Busy week with uh my Substack on the Bitcoin IPO. So, uh for those of you joining for the first time, first of all, subscribe if you haven't. Secondly, uh the goal of this since the day I started it was really to go through the traditional macro world economics, the stock market, connect it back to what's happening our artificial intelligence, which is acting as an accelerant to lead us into the digital economy, and finishing
[00:33] with how that's all related to what's going on with crypto today, but also comparing kind of the movements that have happened within side crypto with the traditional finance world uh because there is a change in assets that are going from the fiat assets, which are still half a quadrillion, uh into the crypto world. And that that move is in the very early innings. Today, we'll go through at the end a lot of what I wrote about and just some of the charts to help people understand why uh I wrote it. So, first we'll go through the recap recap. Um instead of
[01:04] an AI bubble week, the focus is going to be on breath, the retail bloodbath. Um it did look like a bottom to me on Friday. I'll go through the reasons why, but more importantly, uh whenever you're in kind of a correction within side a bull market, you're looking for what the structural bull market story is. And I'm going to cover that and why the banks are something to watch, why despite the breath problems, equal weight is still a positive story, not a negative. The Fed is getting closer to needing to change things up. They've already announced QT changes, uh but
[01:35] there's more that has to come because the liquidity problems are evident um because they're raising lots of money right now in T-bills. Uh and that liquidity problem that uh you know, people have talked about, it's happening. Um Job fears continue to rise. Obviously, New York City behind me, socialism is rising. I'm going to put that in the context of how people should be thinking about it because it's not the end of it. The week in AI, and then really spend time on on Bitcoin. So, S&P, despite all the panic and all of the you know, fears
[02:06] that were going on, by the time the week ended, the S&P was only down 1.6%. Again, look at how many up moves we've had since the liberation day lows. And every three or four weeks, we end up having a down week. So, next week last week should not have been anything different. Qs, down a little bit more. It was actually the worst week for the Qs since liberation day, but again, the rally in all of the AI-related names had been massive. Uh IWM continues to hang in there. Despite a bad week for tech, it
[02:37] actually outperformed, only down 1.9% by the end of the week. And what I want to highlight here is you can see this nice hammer formation in terms of the S&P breaking below the 50-day. It was the first time we had been below the 50-day since April um or May 1st. And we actually closed back above it. Uh the white line here, we closed almost unchanged. That is when the shutdown started. We've had no data. We've gone down. We've gone up. We've gone down. I would say this is exactly what you should have expected when
[03:07] there's no economic data and everyone's freaking out. Uh we had two strong non-seasonal months in September and October. November has been a slight negative so far. Would not be surprising if all the seasonals continual continually remain um messed up. In terms of the sectors over the week, so we finished down 1.63%, but there were more sectors up and down. Another sign of a of a bull market, not a bear market, means it was rotation. And it's very interesting to me that energy was on the positive side. I'm going to highlight also that despite industrials
[03:37] being down, it's a very good week for transports. When transports and energy are going up, that's usually a leading indicator for PMIs. I'll get into that. Get the market a mint because it has bad breath. So, bad breath week, which means there were a lot of stocks going down and a lot of stocks that were down big. But most importantly, you started getting these um I've uh for for people that used to work for me, I used to highlight the Hindenburgs all the time in terms of the omens. It actually was a good sign historically, especially back here in
[04:08] 2020, but again, that was the COVID shutdown. Uh but it these signals are generally, when they're in clusters like decent, a lot of them happened in '07 uh around the time of the peak. The only problem is now, uh there's 2,000 names in the Russell 2000 that have a combined market cap of $3 trillion. Nvidia is now $5 trillion. It's not the same as it was back then. We've had so much concentration that the market is dominated by the Mag 7. So, the breath indicators are not as useful
[04:38] as they used to be. In terms of whether we finally have had a decent correction, uh this is the percentage of names above and or I'm sorry, above the 50-day moving average for the Russell, the S&P, and the Nasdaq composite. They're all below 40%. We've done enough of a correction at this point that we are oversold. Um spec names, uh I created this index. I show it occasionally. These are the Put Acalo in here. Put the quantum names in here. These are the names that show up on Twitter or on X that uh retail
[05:08] loves to trade. They have a higher beta. They don't make money at this point. They're definitely more speculative in my mind. And when they show signs of weakness, generally the market starts to follow and they lead. So, you had a leading indicator here in July before we had a sell-off. You had a leading indicator here where they sold off, the S&P went back up. And basically, now the S&P was pulled down. So, you look for a point where these are oversold. This is the retail channel. This is a big part of what's driving the market. So, when they're losing money and they're bailing out of things for the time being, you
[05:38] get that. So, here are, believe it or not, these are the two weeks. So, this is from October 15th to November 6th, down 28% in that spec name. But look how many of these names um I created. It's 29. Again, I got all of these from X. You can see all of them. It's an equal weight creation, but a lot of names are down 30, 40%. You've had a big correction. So, everyone that was complaining about a bubble, and I highlighted that a lot of the energy AI names were definitely bubble names, you got that. Um this is not systemic. This is not something to care. They gave up basically all the gains from the
[06:09] summertime. Uh this is the S&P overlaid with the Renaissance IPO ETF. And this is back to 2023. This becomes important because this is actually a very good sign. These IPOs are somewhat similar to the spec names in the fact that they're retail. But then when you do a Venn diagram, the other part that they are is these are IPOs. These are real businesses. These have had uh good stories attached to them. So, they peaked the same time at the spec names did, which was back in September. And they've sold off. This says retail
[06:40] was again in a position where they're getting stopped out. They're taking profits. They're doing whatever. So, this ETF, which has things like Circle and Fermi and things like that that have been in there, they eventually pulled market down. Now, if you go back and look at the times that the RSI, and this is the 5-week RSI, so just to show that this is more extensive. Each time it's hit this area here, which is right around 28, uh these are the lines in the sand for the S&P.
[07:10] The bottom, the bottom, the bottom, the bottom. And then up here, this was not the bottom, but this was before liberation day. And I'm going to treat this as a slightly different thing. Bitcoin had peaked in here in December uh or the altcoins did and started to break down, which I'm going to highlight why for people that are more focused on crypto, why you want to look at the TradFi markets and which part of them are the closest in terms of the bridge of watching performance. The fact that this is oversold and this has been a buy sign for the S&P has very good implications for Bitcoin when looking
[07:41] for signals like that. At the same time, you got similar story in the VIX. So, in this case, the VIX hit basically 22 intraday, sold off on Friday. Again, another looks like a a position that that'll hold. But if you go back and look at each of the times that we hit 22, what I'm looking at is this day, this day, this day, this day. Not the actual peak, but just to show how good of a signal this has been. Again, day before the bottom.
[08:11] Little bottom of this correction, but again, the risk-reward had shifted. You kind of tested the actual low, the actual low. So, when you combine the VIX and the IPO, we have a lot of bottoming signals. Aside from the short-term signals, the candlestick formation, the IPO, the spec All of that stuff, John wrote for 22V. For those of you who don't know, I do a lot of work for 22V. I will be posting a lot of uh idea-based stuff on the website. We're going to have a uh a paywall set up. So, for people that are trading, looking for ideas within said
[08:43] AI that maybe are a little less purely momentum-driven and actually have a fundamental story behind them and fit, I'll be doing a lot of that work uh going forward. It's not on the site yet, but you can go to 22V. But John wrote is fantastic. He and I did a presentation at Robinhood, uh a panel discussion. We're going to be doing a lot more on this going forward. But what John says, we've known each other since the '90s, uh when banks and financials are strong, markets almost cannot go down. And the reason this is the case is if you're worried about credit,
[09:13] banks usually lead the way down. The same way that small caps usually lead. Equal weight usually leads. The last thing to go, the caboose of a, let's say, the beginning of a bear market, is the safest names. You get the junk to go down first. That obviously is what we saw with spec names and with IPO, theoretically, a little more leverage, a little more retail. But when the banks are strong, markets almost never can go down. And here we are, seven of seven of these big banks have good, strong technical scores. John's work is fantastic in this from a long-term perspective. Um here's a photo
[09:43] of it. This is the S&P uh 500 bank stocks. This is the uh level three GICS for the banks. We made highs in late September, all-time highs. So, when you make all-time highs in banks this close, we got a long way. This was a top in stocks, it'll be a topping process. And that's the point is the banks will start to lead, small caps will start to lead, junk will start to lead, credit spreads will start to widen. We don't have that with banks right now. We actually went up last week in in these stocks and banks despite the weakness in stocks and
[10:13] we're back near the all time highs. That is a structural sign that credit is fine and that the system is good. European banks, a much weaker area in the market has been Europe lately. They peaked back here in March, but the bank stocks continue to go. European banks made new 52-week highs this week. Um equal weight made highs last week. Again, you hear about breath, equal weight S&P which is underperformed the S&P and they show that chart going straight down, which is true. This is
[10:43] part of the AI demolition which will continue, but a bull market is when equal weight is still going up and we made all time highs in equal weight last week. Still too early, there'd have to be a topping formation. Russell, same thing, higher all time highs last week. This is just a correction off of an extended move. Uh this was a good chart. This is from the compound uh podcast I listen to occasionally. They do a good job. Especially with the slides. Um and this just shows that the S&P is currently 13% 13% above its 200-day moving average. John Roque does
[11:14] a lot of this stuff as well. Whenever you get up to this point, you should expect some mean reversion within a bull market and I think that's what we got. Most importantly, the thing that drives stocks at the end of the day is the leading indicator is going to be the estimate revisions. These lines here, red line here, the white line is the estimate revisions. They are going down when the S&P is going down. This is the 20-week moving average. So, if I move this backwards, it is a leading indicator, but the most important thing is the zero line. If estimate revisions are fine, these are
[11:44] corrections within inside a bull market. You actually need stuff to go lower below zero in my opinion for that go. We have still have very positive over the last 20 weeks and the current numbers are still up here. Estimate revisions, which means earnings, the forward-looking part of of earnings is still good. And here we go, the earning season. Over 91% of the companies have now reported, 82% have reported actual EPS above estimates, which is above the 5-year average. The earning season has been great. It's not just the earnings in terms of revenue, 77% of of companies have reported actual
[12:16] revenues above consensus, uh which is above the 5-year average. So, things have been strong. Mike Wilson put that out for the S&P 500 revenues are up 2.3% in Q3. 2.3% Revenues are generally, if they're right now at this point of the cycle with um with nominal GDP, if they're greater than nominal GDP, then the S&P 500 is doing fine. They were 2.3% in Q3. Right now, nominal GDP is about 1.5% a quarter. So, again, an annualized increase 0.8 for quarters, 3.2%.
[12:48] Revenues are just rock solid right now. Um we think this is an underappreciated story and see this trend continuing in 2026 driving a broadening in earnings contribution across major and secondary indices. I agree with Mike and I think a lot of this is going to come from the PMIs. Uh I will keep saying it on this video every single week. PMIs are going higher. Call me in 6 9 months if I'm wrong. Uh until then, I think you're making a mistake if you're not focusing on the broadening out of the market. Elevated profit margins are also happening. Here's the AI story which I spent a lot of time with this week
[13:19] writing papers on for 22V. I'll show I'll show some of that. Um you've got revenues outperforming and then at same time you've got bottom line that is outperforming due to profit margins. That is a very very strong side and when you're looking at profit margins, it is not just the tech names. So, the blue uh side here is this quarter. The S&P right now 13.1% profit margin. Last year, 12.5% at this time. Profit margins are increasing and remember,
[13:50] the fear of this year was that the tariffs would bring inflation higher which would hurt consumption and hurt the ability of of companies' profit margins. AI is offsetting that. In terms of profit margins and just seeing so you guys don't have to deal with this chart, which again I showed last week and said everyone's going to talk about it. The forward PE ratio getting near all time highs or towards the bubble tops. The difference now is the profit margin. So, this is a profit adjusted forward PE, which is in my opinion also not
[14:22] enough because profit margins continue to move higher. So, when you go through this and you look at forward profit margins making new all time highs, what I just showed you back then. AI is just happening. AI agents are coming. We've seen the labor side. This is going to be increasing profit margins, which means the PE ratio should be higher. Uh once profit margins start to go down, this will come down very very sharply if they move together. That's what I think is going to be the case eventually, but for the time being the adjusted PE is
[14:52] here. It becomes a greater and greater risk as profit margins move up if they fail. QE for the mind. So, what I did is basically just make sure that people understand how big the artificial intelligence side is for liquidity within side the stock market. You are fighting a massive battle when profit margins are going higher and when artificial intelligence is the tailwind. The problem you're running into is the operating leverage that comes on top of it. So, QE was something that people fought throughout 2010 to 2019.
[15:24] They were fighting it because they believed that the government would eventually fail on this. What was happening is by moving rates to zero, the stock market was incredibly cheap relative to bonds. So, any of you that have heard of you know, heard about the basement lately, ultimate the basement, move rates to zero and then you're forcing money into asset classes that are actually producing returns and stocks were getting that. So, you also had companies that could issue debt at close to zero and then go buy back their stock, which was yielding a significant amount in earnings yield plus a dividend yield. So, by retiring
[15:55] the stock, by buying it back, you were getting an increase in earnings per share. There's a bigger increase in earnings per share with artificial intelligence because of the operating leverage. If you want to see the report, reach out to 22V. But that is tremendous liquidity. Here is nominal GDP. So, continuing with the structural side and why you shouldn't be worried. When we've had corrections like this, this is the S&P in terms of earnings. When you have corrections, they are going to happen from nominal GDP coming down or it's going to end up being a
[16:25] buy. Now, in this case here, we didn't have nominal GDP coming down. This was from the Fed raising heights aggressively. We have the Fed cutting rates. We have nominal GDP still going higher and we have profit margins going higher. This is not a time to be bearish. And this is another reason. When you're looking for whether nominal GDP is going to be up, you can fight whether this will eventually be a problem. It's not going to be a problem next year. When they cancel CapEx, you can go with it. But that's not happening right now. So, these numbers are massive. This is why the PMIs are going to go higher as
[16:55] people start to realize that the data construction on this stuff really just started this year and honestly didn't start until after the one big beautiful bill, which allowed people to deal with the depreciation and the the of front-loading a lot of this stuff and still having free cash flow. But remember too, we had a tariff situation which still delayed purchases of things. Now we're starting to get into it. The build out is happening now. The PMIs have been delayed and I think now that China and US have basically put a truce
[17:25] on for a year, which I'll go through. We did that. In terms of the bubble side, Oracle, probably the best example, gaps higher on massive numbers and now it's come back. Nothing has changed. They're issuing debt. They're building things out. Oracle's getting cheaper. It was expensive. You've had and you've had the pullback that was necessary. In terms of the economy, we're not getting economic data. The Johnson Redbook, which is a weekly data point that comes out on retail sales. So, we may not be getting thing from the government, but the white line here is year-over-year red Johnson Redbook. Basically a straight line and
[17:57] overlaid with this is PCE year-over-year, which is basically consumption continuing. One of them's 5.7, the other one's 5.55. This is the way to look at what's happening in the economy. Nothing has changed. The economy is still growing. What is coming down are inflation expectations violently, too. Spec names peaked here. This has come down. This was all around the time of two things. One is the Fed cut rates. Number two, the whole situation with the private credit side started to blow up here in this point. You've seen inflation
[18:27] expectations come down and I think this is going to continue and I think this is the surprise going forward. We have gas at the pump at three bucks. Until gas at the pump moves higher, I expect inflation expectations to move down now that we're past the worst of the tariffs. Junk spreads sitting near all time lows. Again, these are all structural reasons why nothing has changed except for the posts and next by permabears. What has changed and what's important is the pressure that's happening within side
[18:59] >> [sighs] >> the liquidity side of the market. So, since September, and this is a normal process around quarter end. But what we've seen is this is a chart that highlights the reserve balances. So, you're getting into the uh less reserves. You're getting into the SOFR rate, uh the spread, everything and the way I'll make this simplified for people don't go through. There's more strain within side the funding markets. This has been there now. This is why the Fed is stopping QT. Reserves nearing no longer ample. This
[19:30] is the reason, the gross issuance of Treasury. So, I want to make sure you see this. We get this massive move higher in 2020 for COVID with all the money we've spent. That brings the deficit higher, brings debt to GDP higher. Well, we have massive rollovers happening in Treasury. So, those of you who've listened to Michael Howell, uh who at the time was very bearish around this time of year, at the beginning of the year, because this would be a big rollover point for Treasuries. Well, this is the pressure that's happening. Uh that is what's happening right now is we've got a lot
[20:01] of issuance that are going over. Joseph Wang, who's phenomenal, if you don't follow him as someone who studied the Fed for years, um Fed will need to expand its balance sheet by 700 billion a year. May start in December to head off year-end funding pressures. A structurally worsening TGA and insatiable demand for repo financing leave them little choice. So, I'm not going to go through the TGA and how it's raised up to a trillion. But, let's just say there's a bunch of factors that are going to keep things at the higher level. They'll go down, they'll go up. But, for the main point as
[20:31] Fed John Williams says, "Central bank may soon need to grow its balance sheet." I'm not calling it QE, but this gets important because a lot of what drives markets is a combination of sentiment, but also the liquidity of the market and liquidity's bad. The jobs picture. This was a big announcement this week. Um basically the most amount of layoffs in the Challenger uh for October. So, these are the October numbers back to 2003.
[21:02] This is not just some, you know, random occurrence. I still see people saying the Fed should be raising rates. The labor market is weak and anyone who doubts it to me is just just not being honest. Um remember, it was the SAHM rule last year when we saw the unemployment rate go up to here. It's continued to move higher. This is within side the University of Michigan. This is the probability of losing a job during the next 12 months. Historically, when this is up here, you've got the unemployment rate moving
[21:32] higher. You've had all these stories this week about the labor market being weak, about more layoffs. It's continuous and it's starting to grow. The more that it gets published, the more that people worry about it. But, this is a growing part of the economy and something that to me is structural. I do not believe people are going to be losing jobs. I just believe hiring will remain very weak and the unemployment rate will continue to have a natural drift higher. And if the labor participation rate ever starts to tick back up again, you're going to start to see the unemployment rate go
[22:02] higher, because that's what's actually kept it down by about half a percent right now. This is the stock market saying that things are getting worse. So, this is the human resources uh GICS level three relative to the S&P. It has collapsed very recently. Um this is the PMI over it. So, we've got kind of the jobs market coming down. And when you're thinking of this, this is like um ADP, paychecks, stuff like that, different companies that make it up. Now, Powell has has talked about the
[22:34] K-shaped economy. And in the most recent uh Fed statement, which I didn't get to go through last week cuz I had too many slides, he stated that many, many public companies are saying there's a bifurcated economy. Customers at the lower end are struggling and buying less and shifting to lower cost products. But, at the top, people are spending. He's talking about the K-shape. Powell also directly linked part of the struggle at the bottom of the K to AI. You see a significant number of companies either announcing that they're not going to be doing much hiring or actually doing layoffs. And much of the
[23:05] time, they're talking about AI and what it can do. The reason this is important, um if you go back and look at the statement from July and then the statement from September and then the statement from October, in July did not even acknowledge AI as an impact to labor. In September, there was a little bit of conversation. And then at this one, he highlighted that he is now speaking to companies. Remember, I highlighted in September a lot of stuff happened. You had Bernie Sanders come out and basically say 100 million people are going to lose his job. You had 44 economists, including Ben Bernanke and Janet Yellen, sign a letter
[23:38] with other economists across the country telling uh to the Secretary of Labor saying that AI is going to have an impact and we need to start getting prepared for it. So, this statement and everything going in, Powell rejected comparison between today's investment AI and the dot-com bubble, emphasizing these companies actually have earnings. They're making strategic long-term bets on productivity. He called it a real and difficult issue for the US economy and that's because of the K-shape. So, traditional pathways for employment are being hurt. Now,
[24:11] Mondani wins in New York. Um and people start focusing on socialism and is this bearish for the market? Uh whatever your opinion is on politics, whatever it is, socialism has never proven to be good for stock markets or for anything in general. And Peter Thiel basically was reminded or was uh bringing up again through X, not from him, but from people sorting around, something he wrote in January 5th of 2020. Remember, this is before COVID. To Mark Zuckerberg, Sheryl
[24:41] Sandberg, and Marc Andreessen, as well as others, "I would be the last person to advocate for socialism. But, when 70% of millennials say they are pro-socialist, we need to do better than simply dismiss them by saying that they are stupid. When one has too much student debt or if housing is too unaffordable, then one will have negative capital for a long time and/or find it very hard to start accumulating capital in the form of real estate. And one if one has no stake in the capital system, then they may well turn against it. I am bringing this up because everyone should realize that this was
[25:13] going to happen, not just due to AI, but exponential innovation and the Great Financial Crisis, where the government had to get more involved, had to let students throughout that and COVID basically have their debt delayed. All of this stuff has set this up where people believe they'd eventually be able to make money and then AI comes and hits them in the face. This is all related to exponential innovation and I'll go through why. 41% of recent college grads are under- underemployed. This is the word you need to think about. This is not an unemployment situation. We are
[25:43] not going to have a recession. But, if a kid went to school to graduate with finance, can't get into a finance degree, and ends up working at Whole Foods or ends up working in retail, that is underemployed. They're stuck in jobs that don't even need a degree, per the New York Fed. Think about that. 41%. That's why socialism starts to rise and this should not be this will not be the end of it. Did Joseph Schumpeter predict socialism? And if so, was what was an exact quote? Schumpeter predicted that capitalism would
[26:13] eventually undermine itself from within. So, Joseph Schumpeter is an economist from the 1940s. Think about the prediction, 85 years later. Not through an external socialist revolution, but because the very success of capitalism would erode the social and psychological foundations. The social and psychological foundations that kept it strong. If you don't believe there's a corporate ladder, you've been hit uh from a psychological basis. If you can't afford to go out and do things with friends, go out and eat, go out and drink, you've impacted the social side.
[26:44] You've impacted the confidence side, the empowerment side. He argued that the entrepreneurial entrepreneurial spirit and sense of individual stake in capitalism would decay as large companies, bureaucracies, and elites replaced the small entrepreneur and younger generation who benefited from less ownership or independence turned structurally, intellectually against the system. Capitalism inevitably, by virtue of its own achievements, creates, educates, and subsidizes a vested interest in social unrest. Basically, you get to the point where
[27:14] the intellectuals, the educated, the people start to vote against the system. Now, Milton Friedman came back and the reason that this is important to connect the two of them, he believed in capitalism and freedom, which everyone absolutely believes in. But, if the current system isn't working and the educated people don't understand where it is, they just know that they can't afford to live in this, that's what drifts us that way. A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both. We've lost freedom
[27:44] and we've lost the ability to compete. And that's what he's talking about, the ability to compete. I do believe every person watching this and all people that have joined me for the first time, I am very, very big on teaching kids, particularly college kids, how to embrace AI and how to get their trained for to being entrepreneurs. You have to be an entrepreneur. You have to be willing to use AI to move into different things. AI is the the ability and using it is the ability to survive through this process and get more money. Freeman believed that economic freedom,
[28:14] the ability to choose your work, spend your money, own your property, and voluntary exchange was the foundations of all other freedoms. If the state controlled economic life, as in socialism, political and individual individual freedom would eventually vanish. That is the reason why, to some degree, socialism was going to happen. There'll be more money that is handed out. I'm sure for the midterms, this is the one other reason to be bullish. There will be more handouts. There will be more printing of money in some form. And this is what all leads to Bitcoin at the end of the day and the reason why
[28:44] it's structural, because there is no way to stop this process until AI starts to lower prices and we get deflation coming down at a basis and hopefully everyone has their job at that point. So, you can read this stuff on your own, but the main point is a free society does not promise that anyone will succeed. It only offers the freedom to try. The urge to guarantee success leads inevitably to coercion. I'm here to help people with AI uh and to teach people how to do this stuff. So, let's just keep moving on and go into
[29:15] that's my little bit on on socialism and what happened in New York City. Now, we got more economic data. University of Michigan uh consumer confidence continues to collapse. This is the current conditions. We made new all-time lows. This is back to 1980. I just want to remind people, when you hear bubble talk, this is where we were just before the Nasdaq bubble peaked in 2000. This is where we were at the bottom of the Great Financial Crisis.
[29:45] Here's where we are now, below that level, nowhere near that level. This is not a bubble. This is a K-shaped economy that is seeing profit margins go higher because the labor market is under pressure and because the adoption of AI is leading to more efficiency. Um this is uh the uh consumer confidence uh expectations relative to the misery index. The misery index is the unemployment rate plus the inflation rate. So, this is inverted. So, we're at a level right now where everyone should
[30:16] be confident because anyone who's got a problem with inflation at 3.something percent, which is nothing, it's even less than wages, has the ability of getting a job cuz the unemployment rate is four. So, you get this 7.3, the combination of the two, but sentiment is down here. So, a lot of this actually is psychological. A lot of this can be changed over time, but people need to be empowered. Um I do think that this is a perma situation that we're in. This is expected income versus the unemployment rate inverted. So, normally when people are expecting
[30:46] that their income is going to decrease, which is basically what this says, the unemployment rate's much worse. Everyone has a job basically still. Um not everyone, but we're near all-time lows in this. Um this is an important one just as a leading indicator in my opinion. Small business profits. So, small business profits are starting to go higher. Uh this survey is back to 1980. This is overlaid again with the consumer confidence. So, we haven't seen this tick higher. I think a lot of this has to do with politics at this point, but I think the small are sending a good
[31:17] signal for the PMIs because here it is overlaid with the PMIs. Small businesses are getting better. Domestic side is getting better. And when you go through the PMI numbers, you will realize uncertainty, uncertainty, uncertainty, wild fluctuations, unpredictability, volatility. This is from the most recent ISM number. We still have new orders relative to inventories at a healthy level, but you saw the S&P Global Manufacturing PMI has a very different chart and is near the highs of the last four years. The ISM the PMI is down
[31:48] here. The difference between the two is one is highly focused on domestic, the other one is more focused on international, and in particular depends a lot on imports and exports. Higher production underpinned by fastest demand growth in 20 months. Tariffs still weigh on exports and underpin further steep rises in prices. Uh growth was domestically led as new exports fell. The export and import side has been one of the main points of this. So, you have to think that now that
[32:18] we're through the tariff situation, and yes, I realize they might be reversed by the Supreme Court in the in four to eight weeks. Uh but we'll deal with that when we come to it. The uncertainty index. This is the economic Bloomberg economic or US economic policy uncertainty index produced by Baker, Bloom, and Davis, still sitting near all-time highs, but more importantly is the duration. This is the 10-month average of that. The prior times COVID. The prior time the Great Financial Crisis. So, we're at
[32:48] levels where there's a lot of money market cash. There's a lot of people that haven't done stuff. There's a lot of PMI new order demand that has to be filled. Inventories are being drawn down. You're in a situation where as this comes down, and it still has not come down much. This 10-month average is 404. The most recent reading for November was 380, which comes in around here. We're still even above what the 10-month average was here, but we just got the China-US truce. So, remember, we haven't been in this position at any point until now.
[33:19] Uh and I want to highlight again, the PMIs are going higher because the amount of dollars being spent on the CapEx side is massive. And again, to highlight that this just started, this is DRAM prices, which have accelerated, as I highlighted, since September. This is a function of the data centers. So, the buildout, the prices for this, it's going on massively now around the globe. This is the driver of everything. This has shot higher recently. So, PMIs overlaid with it, you're going to get a move higher.
[33:49] >> [snorts] >> Um the PMIs This is the uh five-month average of the export index of PMIs. So, just to show how low it is. Exports are as low on a five-month basis as they were during COVID when we had shutdowns. This here is an important indicator to watch, which as this ticked higher, we got a sharp move higher in this. This is the transport sector relative to the S&P. A lot of guys used to work for me. I've been waiting for this to go higher. I was at a dinner this week. We talked about transports. Some good stuff going
[34:20] on in transports finally. We just had the biggest weekly move. Sorry, this is an eight-day rate of change on the transports relative to the S&P. So, that same chart you just saw, this is the biggest move since coming uh coming out of uh 2022 after rate hikes, and then before that, the COVID problem. So, we are starting to see, and if you look at the chart, last week was a great week. This is on an absolute basis, the transport index. It actually made its highest closing level since July while the S&P was going down. This looks like
[34:52] a reverse head and shoulders. We get above this level. John Roque and I have been talking about this. Some of the names are starting to break out. This is one of those places that from a trading perspective, I'd be looking at transports. You've already had CHRW uh C.H. Robinson come out and have an AI bump. Our stock's up 50% uh since its lows in May. I would just start paying attention to the transports because here's COVID. Sorry, here's the tariffs. This is liberation uh time. This is when the tariff fear started, and this orange
[35:22] line here is PMI exports. The export level has been incredibly low, as I've mentioned. If I do a five-month average, you can see how long we've been down here. This is the the PMI for the uh the S&P Global. So, this is really the difference between the two. If all of a sudden we're going to start seeing more imports and exports, think exports. Soybeans are going to happen and go to China. They're going to order a massive amount. Just that revving up may be enough to get things going, but also knowing what the tariff situation is in China for 1 year
[35:54] is a big deal. It means people can order stuff and not have to go through this process. So, I would watch for the China-US truce to filter through. The one thing I've learned over the years, transports are leading indicator for a reason. The reason they're a leading indicator for the reason is because hedge funds and anyone that uses alternative data has global satellites on everything going on from the trucking side, so the stocks start being the shorts start being covered the second that the quant strategies start to see that they should be covering it, and that will lead to PMIs going higher. We're not there yet, but the transport
[36:25] chart did phenomenal last week. I would be paying attention, particularly since energy was the best performing sector, because that's the other place that you would cover short shorts if all of a sudden transportation's going to pick up. Energy and transportation PMI related, pay attention. S&P Global Manufacturing relative again, similar thing. This side is the PMI, so this is the difference. It's the export imports. This is the thing that's kept it down. I would pay attention. All right, the AI recap pretty quickly. Not a lot in AI this week. Podcast-wise, definitely listen to the BG2 podcast. He
[36:55] had on Satya Nadella and Sam Altman. Uh again, Sam Altman was I don't know. Kind of uh a jerk on the thing, and that that's what got a lot of press, but they did cover a lot of things. They covered AGI because the deal that they're structured between Microsoft and OpenAI is on this. I don't know how they're going to figure that out. Went through the compute versus the revenue. No compute glut. Satya Nadella did talk a lot about the SaaS business being under pressure, the agent tier replacing this, the golden age of margin expansion, but
[37:26] also just this concept of token factories, and this gets back into the buildout and how important it is. Uh worth the listen. Not a great listen, but worth it. Um this is the part where a big question I keep hearing is how OpenAI do 13 billion in revenue, but have 1.4 trillion dollars in spending. I think it's important just to stay on top of this stuff because Gerstner's an an investor in OpenAI. So, for him to talk about it, you should hear the response if you haven't heard of it. That's why these types of podcasts are important. Gavin Baker, someone I've referenced on
[37:56] here, one of my favorite people to listen to along with Gerstner in the space, was interviewed at A16Z. Again, another good one to listen. We are not in a bubble. Unlike the 2000 telecom bubble with 97% dark fiber, meaning the fiber that was laid down, we didn't need it. Demand wasn't high enough. Well, there are no dark GPUs. They are all fully being utilized. So, yes. ROI and AI CapEx, another risk that people see. Already raised big tech RO return on
[38:26] invested capital by 10 points. So, he's saying we're not even close to what people will be worried about. We may get there. He's very honest on this, but we're not anywhere close to it. Spending is existential, meaning it has to happen. Larry Page from Google supposedly said he'd rather go bankrupt than lose this AGI race. Again, the spending is going to happen. The ROC uh IC is there. And he even acknowledges the round-tripping, saying there is round-tripping, but they're minor. Money is fungible, but not small scale. If you want to go listen to it, The Artificial Intelligence Show. Again,
[38:56] I've highlighted Paul Retzer I last week I did. I listened to this is one of the ones I listen to every week. You guys ask. Uh they cover a lot of different topics. They cover a lot on the labor side. They did here. They talked about Powell warning job creation is pretty close to zero and saying the um companies are telling him it's bifurcated economy. Agents still early. They even highlight they can only automate at this point 1 to 2.5%. So, I want you to think about that. So, if Karpathy says agents are it's still early, they're acknowledging in this
[39:26] it's early, but they're also saying by the end of next year, it could be 7 to 10 times this number. That's the adoption that's coming. Merkle, really big story. I've highlighted to a lot of people. Still have yet to meet a person that spent the time on it. Merkle, Merkle, Merkle, very, very important. They just raised money at $10 billion. The The founder is 22 years old. They are creating the reinforcement learning economy. Again, this is going to have impacts on training for all jobs. This is highly, highly deflationary. The
[39:58] Wharton survey, 75% of leaders report positive gen ROI. They go through that report as well. So, Merkle, if you guys haven't seen it, they're training people to with domain expertise to train the models. So, these are expert model training and they're talking about how these are jobs that people can go get today. They need more. They have They're doing this. 30,000 workers so far that are doing this for this company. They need them for every job. These will be jobs that then could be brought even into places. So, this is a
[40:29] way for people to use AI to get paid. They're $50 to $100 $140. And if you doubt this is happening, it is happening. Here's a a report if you want to read on how it'll become. And they're arguing that we're not going to replace uh people. People are going to be working aside from machines. And this is the argument about the positive side. There's somewhere in the middle. I think it's going to be a little bit more disruptive uh in terms of the psychological side, as I mentioned. But there's no doubt in my mind that we are not going to lose all labor in the next 5 years. To highlight to you from a
[41:00] personal experience, so this is my LinkedIn an email I get from them. I have have a consulting business for AI and for crypto. And here we go. Merkle. Merkle, Merkle. These are job listings for me for consulting side in terms of looking for places that are looking for consultants. Here are the prices, 70 $70 an hour, 90 to 200,000 a year. Half of these jobs are Merkle. It's happening already. Palantir's earnings came out. A name that retail loves, but institutions hate
[41:30] because of the valuation and because Alex Karp is always out there. But, they are incredibly important to getting a sense as to the adoption side. Will we be be seeing profit margins go lower? The easiest way for profit margins to get better is by more people using AI. So, these guys, "The adoption of AI across industries has reached a new level with enterprises now seeking real operational deployments, not just pilots. We are seeing unprecedented demand from both existing and new customers deploying full-scale AI
[42:00] architecture to address regulatory risk, supply chain, and productivity challenges." If you are a business leader or someone who has not adopted AI or still sitting there worried about it, you are falling way behind. Reach out to me. AI is no longer theoretical for our clients in manufacturing, healthcare, transportation. Remember C.H. Robinson. Our platform is being used to drive outcomes. I don't know if Palantir's involved with this, but I will tell you that companies need to be using artificial intelligence. Every major company we speak with now has AI adoption on their boardroom agenda.
[42:32] Our commercial pipeline for AI deals has doubled quarter over quarter. Think about that. Palantir was already going higher and in the last quarter commercial deals have doubled. Commercial revenue is up 121% year over year. Customers increased by 45%. They signed 204 agreements over $1 million each in the quarter. Palantir's commercial pipeline has doubled quarter on quarter. All right. So, this is the Substack that I posted. This is the X
[43:02] sign. I got 2.7 million views. I appreciate all you guys for not only viewing it, but obviously spreading it around. I had a lot of nice contacts and and meetings with people. I'll be doing a lot more podcast. So, I want to take you guys through the charts that support this idea and some of the stories and also help to give you some artificial intelligence on how you can do these types of brainstorming on your own. So, here's the chart in the channel that Bitcoin has been in. We went down to the bottom end of the channel. We held. I think we're doing exactly what we need to do.
[43:32] It is still sort of a post- apocalyptic time period from the 2021 period. And this is what the Bitcoin IPO was about. Bitcoin has gone higher. The altcoins have not. You have not taken out the highs in basically anything else except for Bitcoin and Ethereum for about a week. Other than that, this reminds me a lot of the post-dot-com bubble. And so, I've talked about this as an IPO. We've had massive amounts of selling that started in May all throughout this period by OGs. I'll show some of that information. But somehow or another, the
[44:03] channel has worked itself higher. Fear has now reached basically similar levels to the last lows that occurred before we had the rally. This is the way that bull markets trade. You get consolidation. You get fear dropping off and then you get the next wave. And the next wave usually spikes up to the next one and forces people in. We get overbought again. We get into the greed side, which we never did back here. And that's why this doesn't feel at all like a blow-off top, as Pomp and I talked about. I want to remind people the reason I
[44:33] think this is an IPO is because of this. And I want you to just pay attention. So, I was trading indexes at Morgan Stanley and running the ETF business at the peak in 2000. This was a large book for the firm. We were dominating in in options, but also in ETFs. And this is the collapse that happened in the Nasdaq back then. So, when people talk about a bubble, this was a bubble. And I want to reiterate, the Nasdaq doubled in '99. Forget what it did in early
[45:04] 2000. It doubled, which I don't even have this whole thing here, in '99. This is actually QQQ, but it is the Nasdaq. It doubled in '98. So, you were up 100% in '98. You were up 85% in '99. And then you still had a surge at the beginning part of the year and eventually collapsed to finish down for 2000. It took forever. Basically, 16 years from the peak for the Qs to get through the intraday highs. During this period in here, look what happened. The grind. The grind. The
[45:36] grind. Then a collapse in the Great Financial Crisis. This is when Google IPO'd. During this whole situation where it was going sideways. This is when salesforce.com IPO'd. They IPO'd in here. They want They would have been better off IPO'ing in here, but they raised the capital in here and the VCs were trapped with bad investments that sat there. This is very similar to me like crypto. The overhang after the bubble burst, 2002. Many stocks were trading below their IPO prices. We have a similar situation going on right now.
[46:06] VC and insider investors desperate liquidity or redemption sold into every rally. That's what's happened to me for Solana, Ethereum, for every altcoin, for Bitcoin. VC and insider investors. These are the people that were the initial investors, the whales back then. Analysts at the time referred to as a lockup overhang that created persistent supply ceiling for tech equities. This is why you don't get bearish during this and that you be grateful that right now every time there's a falloff, just like there was
[46:36] back in Nasdaq, there was money going to work in it. Again, it took 16 years for the Nasdaq. It's not going to take that long. We're already now about 4 years past the peak in crypto. Everything is about 1/3 in the time period of the Nasdaq, which means to me we're near the ending of this already for altcoins and for everything, the ones that are real. You had the venture fund dimension, LP redemption pressures, underwater portfolios, limited ability to raise new funds. Think about the endowments. Think about the private equity market. Think about the private credit market. VCs in
[47:07] no different period and you have AI that has come out and been a headwind. So, here's all the OG selling. I mean, it's very clear at this point. Super whales cashing out of Bitcoin. That's why it feels like the pressure. Another thing that feels the same. When the Nasdaq got up here, look at how volatile it was in 2000 and 2001. And then we eventually went down and then there was no vol. The Nasdaq or the Qs actually traded with a 15 vol on average for a period of 3 years leading
[47:37] into the Great Financial Crisis. Looks a lot like Bitcoin vol collapsing and going down. This is the maturity side. This is why I brought it up in there. The crypto ecosystem today rhymes with the post-dot-com period. The capital overhang. Entrepreneurs risk tolerant falls after a bust. You have a lot of people that either left it or people that don't want to get involved in it again. And And again, the people that have survived are just trying to cash out cuz they need money on it. There's a lot of this overhang that's there. And you've had policy and market resets. The good thing is this time,
[48:07] unlike where you went through Sarbanes-Oxley, global research analyst settlement, you had all these things. We're now in a positive period. This should end up speeding it up. Time to recover. VC cleanup cycles, regulatory resets. All of this is good. Expect a prolonged cleanup and concentrate phase in private markets with AI capturing the marginal VC dollar. This is a really critical point. AI is capturing the marginal VC dollar. And as I've said on Pomp and I wrote in, unfortunately, crypto's connected to
[48:37] some degree to two elements, the private market. And again, it does through the VC world. A VC was a very big funding part of what had happened. If you're not able to raise funds for anything, and in particular crypto, because you're not taking any of these investments that take a long term to play out, it's really hard when endowments and pension funds and insurance companies are licking their wounds from this. The global private markets report, "Crypto may be liquid, but for the tokens and the altcoins and all of that stuff, they're not liquid. They're not the same. This is something where you have to have a long-term viewpoint. And
[49:08] unfortunately, the private markets become a comparison for this. So, global private markets navigated on conditions 2024 leading to an uneven recovery. But think about all the issues going on in private credits right now. Private equity right now. So, the venture market today, a triple shock. You've got crypto. You've got SaaS. These are the losses. And then you've got AI. This is the competition. So, AI is a competitor right now. And like I said, that's where you're going to get your 10-baggers. So, here's the chart
[49:39] of all coins. Still not taking out the highs of 2021. Still basically unchanging here, but this is a very positive-looking chart and to me looks a lot feels a lot like the NDX. Here's Google. So, Google IPOs in 2004 and this looks a lot like the way Bitcoin's trading. You go up, you go down, you consolidate. I mean, this is over the course of into 2007. So, you're talking about 1 2 3 years from their IPO, they had four consolidations on this. And I don't want
[50:11] to scare people, but then even in Google you went from basically this high in 2006 all the way to 2012 low and you hadn't done anything. This is what happens even with technologies that end up winning. Bitcoin at the end of the day is a very, very big part of the digital economy. It is also part of Like I said, this is the overlay with the Renaissance IPO ETF. When IPOs underperform or when retail underperforms, Bitcoin that's a lot of the fuel that comes with it. If OGs are selling, you need the option buying. You've got Bitcoin miners that are still
[50:42] overriding. You have Asian investors looking for yield that are still overriding. It has performed excellent with all of the selling pressure. It still may go lower, but you have to have a time frame and ability to look through during these consolidations when fear is this low. This is Bitcoin overlaid with that SPAC name index. I just want to show this because these are the things that are directly correlated with it and it has an impact even on MSTR and the premium. So, MicroStrategy has lost everything as vol has come down
[51:12] and as interest in Bitcoin and as the SPAC names have come, it is the holy trinity of problems that have occurred for MicroStrategy. Uh but in the end, the NDX has continued to move higher and Bitcoin is correlated to AI. So, AI is going to continue to drive profit margins, it's going to continue to drive the inequality, it's going to continue to drive socialism. These are not bad things for Bitcoin. Despite what people may have from the OG side, this is the inevitability. It has to be driven by the globe. It is not a
[51:43] dollar weakness story. It is not a US story. It is a global story. That is the reason I got involved in it. For those people that have not watched it and are starting to get more interested in crypto, tech experts break down the incoming AI crypto collision that will redefine global power. This is the one podcast that you need to listen to. This was from Moonshots a couple months ago. I've highlighted it before. In my In these are the quotes, the most important quotes. In my mind, this is probably the most significant economic legislation and change that we've seen
[52:14] in our lifetimes. The implications are staggering. It completely rewires how the economy will work. Crypto is not a side invasion, but the new financial layer of the internet comparable in impact to the creation of the internet itself. For the first time, the internet gets its financial layer and when we give our AI agents, again, this is why Bitcoin is the purest AI trade. You may not like it today because you don't see it. I see it and the reason I see it is because all of the assets will eventually be moving over to
[52:45] the digital economy. Once you open up these wallets and the money's there and Bitcoin is outperforming, it will get more and more because AI agents are the key to the future of crypto. It will get access to that, the economy will explode. AI is intelligence, crypto is money, together they form the new operating system for the global economy. Watch the episode. And finally, you know tokenization is coming when the IMF has what is tokenization and they have a video that you can go watch.
[53:15] That's it for me. Uh again, thanks to everyone who joined for the first time. Hopefully, you learned something. I'll be back next week. See you.