The AI Crash Is Over. Here’s What Comes Next

[0:00] Making it through the summer.
[0:02] Uh
[0:03] rally continues into all-time highs. Val
[0:06] falls off sharply.
[0:07] Uh the biggest question I've been asked,
[0:09] and as I mentioned last week, I'm
[0:11] spending a lot more time with uh RIAs.
[0:15] And
[0:16] also with the institutions, and the
[0:18] biggest question
[0:21] I received post uh let's say situational
[0:24] awareness in the
[0:25] the
[0:26] breakdown in uh in factor val was how to
[0:30] hedge AI going forward. So, I'm going to
[0:31] go through that. I put together a prompt
[0:34] for you guys uh
[0:35] on something connected back to the uh
[0:40] thematic portfolio, so you can run that.
[0:42] I'm also going to start to hopefully
[0:46] give you guys some stuff on agents. Uh
[0:49] Gavin Baker interview, uh I'll basically
[0:52] make sure uh that I emphasize this is a
[0:56] must-listen to, regardless of your views
[0:59] on AI. Uh I've said a lot of these
[1:02] things,
[1:04] but I think, as I take you through it,
[1:06] um it's really important to make sure
[1:08] that you at least hear what he's saying
[1:10] based on a trip out to Silicon Valley.
[1:12] Uh
[1:13] I didn't get a chance because I record
[1:16] on Fridays during the summertime most of
[1:18] the time. That'll probably be the case
[1:19] going forward, but
[1:21] after I recorded um the US intervened in
[1:25] dollar-yen, and I will uh give you my
[1:28] thoughts on that because there was a
[1:29] major reaction in gold this week.
[1:32] And uh I think this is all going to lead
[1:34] into Bitcoin, uh and I'm going to go
[1:37] through why and how
[1:41] what my Substack that I wrote last week
[1:43] kind of connects everything back to it.
[1:44] So, um last week I talked about uh
[1:48] the bounce that had occurred in the
[1:52] final 2 days post the
[1:55] Citadel buying from situational
[1:57] awareness, and how it reminded me of
[2:00] prior panic situations where we finally
[2:03] had a cleansing event and that you can't
[2:06] especially in in the moves that we had
[2:08] seen that were historic with the
[2:09] volatility with the factor drop that
[2:15] you had to look for follow through days
[2:18] and basically what I wanted to see was
[2:20] two conditions one hold the the bounce
[2:25] pretty much across the board and then
[2:27] secondly I wanted to see factor
[2:29] volatility in the volatility stuff come
[2:31] down to indicate that people were either
[2:34] a hedged or they had taken their gross
[2:35] down. Now I had seen the data that the
[2:37] gross was down but
[2:39] we obviously got
[2:41] almost all of that. So
[2:44] on the queues I posted this in X but the
[2:48] four-day rally which included one day
[2:51] last week and the first two days of this
[2:53] week ended up getting close to 10% and
[2:57] you can see that over the course of the
[2:58] last 17 years since the great financial
[3:01] crisis ended you can see these days over
[3:05] time uh
[3:08] and a lot of these are obviously very
[3:09] famous bottoms in terms of liberation
[3:11] day and obviously COVID
[3:13] also this one here in 2022.
[3:16] This one here
[3:18] was a let's say a bear market rally in
[3:21] early 2022. The difference was then
[3:25] we were below the 200-day moving
[3:27] average. This is something I brought up
[3:29] before bull markets stay above the
[3:31] 200-day moving average which is pointed
[3:33] upward. That's what we did in 80 plus
[3:36] percent of the AI thematic names which
[3:38] is why to me I was looking for where to
[3:41] put money to work. That's why we went
[3:43] through it that way. In terms of the S&P
[3:45] rate of change four-day rate of change
[3:47] the biggest one over the last year of 6%
[3:52] and just to give you an idea how vicious
[3:54] that rally was, we had been trading in a
[3:57] range. So, every week that I came in
[3:59] here, I kept saying the same thing,
[4:01] which is this is a pennant flag
[4:03] formation, whatever you want. And to get
[4:05] bearish charts like this is a very
[4:06] dangerous thing, but in particular when
[4:09] you're seeing Qs fall and you're seeing
[4:11] factor stuff collapse, you're looking
[4:13] for contagion on this, which is very
[4:15] difficult to happen when
[4:17] you have earnings growth at
[4:20] post-recession type times. Well, I'm not
[4:22] going to go through all of it you guys
[4:23] had, but the range that we were in
[4:26] basically from May
[4:30] to July. So, we're talking about 1 to
[4:33] almost 3 months, a 3-month pennant.
[4:37] And guess what? The rally we had was 6%
[4:41] bigger than the entire range that we saw
[4:43] for that time period.
[4:45] That is not something to fade. Um
[4:48] the S&P for the week up 3.6%.
[4:52] Qs up 5%.
[4:57] The thematic portfolio was up 6 and 1/2.
[4:59] It was the second biggest week of the
[5:03] year.
[5:05] In terms of where we stand year-to-date
[5:07] now in the S&P, again, I'll say this
[5:09] over and over again, this is a bull
[5:10] market.
[5:12] Every sector is up on the year. The S&P
[5:14] is up 13%.
[5:18] Pennant formation
[5:20] in there for a solid 3 months
[5:23] breakout higher than this. We not only
[5:26] hold after the Monday Tuesday, we make
[5:28] new all-time highs
[5:30] today.
[5:32] IWM made new all-time highs this week.
[5:35] New York Stock Exchange Composite made
[5:37] new all-time highs this week.
[5:39] The equal-weight S&P made new all-time
[5:41] highs this week.
[5:43] In terms of the KOSPI cuz I had a lot of
[5:44] people reaching out saying this is still
[5:46] a problem there. This is not a problem.
[5:48] The KOSPI is up 61% year-to-date. This
[5:51] is the KOSPI 200.
[5:53] >> [clears throat]
[5:53] >> The technology sector is up 116%.
[5:56] This is after a collapse, okay? And I'm
[5:59] not going to go through today, but on
[6:02] days now where SK Hynix is down
[6:04] slightly,
[6:06] the name the sectors that I showed, the
[6:08] machinery and the construction side,
[6:10] have
[6:11] been um leading on the way up and
[6:14] holding their gains. So, again, this is
[6:16] what long short is about. You get
[6:18] deleveraging on both sides and at some
[6:20] point you
[6:22] start to go the other direction.
[6:25] This is the DAX breaking out to new
[6:27] all-time highs.
[6:30] This is the FTSE breaking out to new
[6:32] all-time highs.
[6:34] Here's the big thing for the week. So, I
[6:36] showed you guys this. This is the
[6:38] market-neutral momentum. This is the uh
[6:42] So, this is the sector-neutralized
[6:43] market momentum. This is market
[6:45] momentum. This is technology momentum,
[6:47] and this is the industrials momentum.
[6:50] And if you look at all of these, the
[6:52] last 6 days,
[6:55] the drop-off in volatility says that
[6:58] funds are hedged.
[7:01] Here is the
[7:03] 7-day realized vol of the tech
[7:06] momentum [clears throat] vol.
[7:08] Uh basically collapsing,
[7:12] which is indicative of what I just
[7:13] showed. But, the what the main point is
[7:16] that we've seen factor volatility drop
[7:18] off. That is usually what happens after
[7:21] this. And as I've said, it takes a long
[7:23] time, particularly when you're below the
[7:24] 200-day moving average. You've knocked
[7:26] people out. Um anyone that's vol
[7:28] targeted just cannot lever back up. Any
[7:31] of the pods that were hurt, that had
[7:33] their risk management either reduced,
[7:36] it's the summertime. This is why we're
[7:39] going to rally on lower volume,
[7:41] and everyone is going to be put in a
[7:43] position of chasing. They don't want to
[7:45] chase, they're going to read about
[7:46] seasonality, they're going to read about
[7:47] September, they're going to read about
[7:48] the midterms and all of this stuff.
[7:51] And in my opinion, I've heard enough
[7:52] podcasts this week from quote-unquote
[7:56] market people who
[7:59] are in the game, I think, of being
[8:01] bearish. Uh
[8:04] they remain bearish in the rally and
[8:07] they're looking for a false breakout.
[8:08] So, we'll see if we get that, but
[8:11] this is really hard to be bearish on
[8:13] this stuff when this is going on.
[8:15] Um the VIXY Q for single name ball
[8:20] has fallen sharply, too, and it's
[8:21] basically in this period now all the way
[8:23] back to where it was before this whole
[8:27] thing
[8:28] rallied. Not where the panic started,
[8:30] but where it goes. So, we've seen mean
[8:32] reversion now on the ball side. In terms
[8:34] of the VIX,
[8:35] you're at the lows since January. So,
[8:38] for everyone who reached out to me
[8:39] saying the contagion was coming, they
[8:41] were buying S&P puts,
[8:43] uh
[8:45] you not only lost on the direction, you
[8:46] lost on the ball and the ball never
[8:49] really in was indicative of the panic
[8:51] that we saw with factor volatility at at
[8:53] 45-year highs on some measures.
[8:56] Uh we never got it in the S&P.
[8:58] CDX, um
[9:01] I talked last week about the silliness
[9:03] in the hyperscalers and how the
[9:06] companies with the best balance sheets,
[9:07] people are
[9:08] looking at their CDS uh and especially
[9:11] when they go into X. Here's what the CDX
[9:15] index did, basically the same as the
[9:17] VIX.
[9:19] There's no credit issues at all.
[9:21] Earning season, uh I'm not going to show
[9:23] you this number, but you know it's up
[9:25] near 50% in terms of earnings growth.
[9:27] Sales growth, though,
[9:29] uh
[9:30] we're just killing it.
[9:32] Killing it.
[9:33] And as you'll notice, this is across
[9:35] sectors. Um the AI trade from an
[9:38] earnings basis is just taking everyone
[9:40] up with it. Here's the revenue growth
[9:42] now up at 15% and I just want you to
[9:45] look that since Q1 of 25
[9:48] basically this has gone on. Now, what
[9:50] happened in Q1 of 25?
[9:52] Donald Trump took over as president and
[9:55] sentiment changed on the business side.
[9:57] He put tariffs
[9:59] in place. Everyone got worried, but the
[10:02] AI trade was now in full force.
[10:04] Uh and that's what is driving this. This
[10:07] is the certainty over the AI CapEx. So,
[10:09] these are the CapEx numbers basically
[10:11] driving this. It's having a huge impact.
[10:13] Margins
[10:15] last year at this point 13%. This year
[10:17] 17%. And again, not just technology, it
[10:21] is
[10:22] margins are increasing and as AI
[10:24] adoption and AI agents go, you're going
[10:26] to see more of this.
[10:27] Uh the breadth
[10:29] again, I highlighted last week that it
[10:32] was a good sign that we basically had
[10:34] two prints higher than these two
[10:36] and we followed through this week.
[10:39] The 50-day is up to the highest level
[10:41] since July 14th and most importantly
[10:44] the 200-day slope
[10:47] 80 plus percent pointed upward.
[10:51] Uh this has been the best quarter for
[10:53] years
[10:55] in terms of the earnings
[10:58] estimates beats.
[11:02] If you don't believe um
[11:05] well, when I If you don't believe the
[11:06] earnings
[11:07] then look at the revenues. They continue
[11:10] to move higher and this is the PMI which
[11:13] soared higher. I can remember it was a
[11:14] year ago PMI was below 50. I was writing
[11:17] papers on the
[11:20] PMI heading up towards 60 and what that
[11:23] would mean all on the back of the AI
[11:24] trade. Now, it's fairly consensus, but
[11:28] we're almost at 60 now and more
[11:30] importantly
[11:31] uh
[11:33] this implies that we're going to get
[11:34] closer to it. So, we continue to move
[11:37] higher, revs keep going up, and we got
[11:39] durable goods this week, non-defense ex-
[11:42] air,
[11:43] again, up at a level that
[11:46] is very close to 60. So,
[11:48] again, for anyone who has faded this,
[11:50] it's not just the earnings reports now,
[11:53] you're seeing it at the PMI level,
[11:55] you're seeing it global stock markets
[11:56] around the world, and you're still
[11:58] seeing revisions go higher.
[12:00] Here is the AI thematic portfolio with
[12:03] all four parts. Remember, you've got the
[12:05] Morgan Stanley one here overlaid with my
[12:08] 100 name one. The Morgan Stanley one was
[12:10] just created later. For those of you
[12:12] want to trade it, you can call up Morgan
[12:14] Stanley desk, they have it. You've got
[12:16] the concentrated portfolio, which has 10
[12:19] names, and then the more global
[12:21] concentrated portfolio, which has 25.
[12:23] Again, these were put together so that
[12:25] you can have an index.
[12:27] I think if everyone learned anything,
[12:29] the indexes are really important when
[12:31] you have this much volatility. So,
[12:34] I want to get into the hedging side down
[12:36] some of the conversation. So, I showed
[12:37] this slide last week. Uh I believe the
[12:39] market is changing structurally, and
[12:41] this is never going back to the way it
[12:43] was before, because AI is compressing
[12:46] economic time.
[12:47] Um I think you're going to see that with
[12:49] the rest of the year. I'm going to go
[12:50] through the payroll numbers from
[12:52] yesterday, and I want you to reach out
[12:54] to every one of your favorite economists
[12:55] and ask them
[12:57] why they're not seeing the weakness.
[12:59] This is not about people um necessarily
[13:02] being replaced by jobs. This is not
[13:03] about jobs being lost,
[13:06] but this is about wages. This is about
[13:09] the fact that digital employees are
[13:10] here, and they're coming
[13:12] incredibly quickly, because the adoption
[13:14] pace is picking up. I'm going to take
[13:16] you through Palantir, which is um
[13:19] a name that I own personally, but also a
[13:21] name in the model portfolio,
[13:23] which just showed their corporate
[13:24] numbers. Since we can't get Anthropic
[13:26] and OpenAI in terms of numbers that
[13:28] we're getting released, you can look at
[13:29] Palantir's. These numbers are insane in
[13:32] terms of the adoption. When the adoption
[13:33] picks up, the AI agents are going to
[13:35] come and the AI agents come, not only
[13:37] are you going to have less hiring, you
[13:38] will start to see more job losses in
[13:40] public companies. You'll have job
[13:42] creation in private AI native companies,
[13:45] which I'll go through. Terminal value
[13:47] gets harder to ask to estimate, which
[13:49] makes it more difficult that companies
[13:51] all of a sudden can go from trading at a
[13:54] 30 PE to a 20 PE in a very short amount
[13:56] of time. We've seen that in many many
[13:58] places and I think you're going to
[13:59] continue to see it. I think Google's
[14:01] kind of going through that right now. Um
[14:04] I won't read all of these, but all of
[14:05] these things, including this one, which
[14:07] Gavin Baker brought up, too.
[14:10] The the fact that everyone
[14:13] has access to it and everyone can create
[14:15] a backtest, everyone can create an
[14:17] optimized portfolio, everyone can find
[14:19] the names that are working, leads to
[14:21] more momentum, it leads to crowding. And
[14:23] again, it leads to bubbles, parabolas,
[14:25] and speed crashes. Exactly what we had
[14:27] this year, what I wrote about. The speed
[14:29] crash has occurred, it's over. The
[14:31] bottom is in as far as I'm concerned on
[14:33] a probability basis. If we take out the
[14:35] lows, I'd be surprised, uh mainly
[14:38] because I continue to believe people are
[14:41] way too bearish relative to the reality
[14:43] of the earnings growth that's coming. I
[14:45] also don't believe you're going to ever
[14:47] see that type of move again uh that we
[14:49] saw in the first quarter, but you never
[14:51] know. So, with that hedging side, how do
[14:53] you deal with bubble bubbles, parabolas,
[14:55] and speed crashes?
[14:57] Well, those are all based on
[14:59] price and time, which I started to show
[15:01] you last week, but I'm going to go
[15:02] through one of the demos in terms of how
[15:04] I how I'm handling this. And for the
[15:06] subscribers, this will become part of
[15:09] the way that I'm going to identify
[15:10] things. I built turbulence models. The
[15:12] turbulence models because everything was
[15:14] so correlated, they never really showed
[15:16] leading problems. The breadth did, and
[15:18] that's how I'm going to kind of go
[15:19] through this. So, I try to learn from
[15:22] what happens and look for the signals
[15:23] that will warn you. This is one signal
[15:25] that will warn you when factor vol
[15:28] continues to move higher and break away
[15:31] from index vol. The reason factor vol is
[15:34] is so much different than say single
[15:36] name equity vol, which also broke away
[15:38] and I showed last week,
[15:40] this has got a long short component of
[15:42] it and this is directly related to gross
[15:44] leverage. So, the great thing about
[15:45] factors are as gross leverage is going
[15:48] to all-time highs and I'm making the
[15:50] call that we are at peak gross leverage
[15:53] and that we will see leverage come down
[15:55] over the course of the next few years
[15:57] because of what I showed before that AI
[15:59] is compressing time, it's making it more
[16:01] crowded and it means the sharp ratio of
[16:03] this stuff is going to come down. I
[16:04] think factor vol is structurally going
[16:06] to be higher. I don't think we're going
[16:08] back down here. Maybe we come back down
[16:10] into 25, but if we spend now the rest of
[16:12] this year in the 30 to 25. And again,
[16:15] this is an equal weight of four separate
[16:17] factors. It's not just momentum because
[16:19] I have value in there, I have quality
[16:21] and I have beta. And so, I'm averaging
[16:23] them all in there. You can see the
[16:24] difference in the breakaway from the
[16:26] S&P, which means using index
[16:29] puts is not going to work the way that
[16:30] it used to.
[16:31] So, here's what I am using and this is
[16:33] the price in time side. So, right here
[16:36] when we when we got to 50% or almost
[16:39] 50%. This is a 50-day rate of change on
[16:42] my thematic portfolio. So, again, for
[16:45] those of you on the AI side that are
[16:47] more tech focused or you're more
[16:48] industrial focused or you're more
[16:49] utility,
[16:51] you need this tool. You need to have
[16:53] access to this data and the reason is
[16:56] because there are no indices that are
[16:58] diversified to this level. This is
[17:00] global. This is across sectors. This
[17:03] involves 100 names that are involved in
[17:05] there. There are chemicals, power
[17:07] companies, industrial companies. So, it
[17:09] is diversified.
[17:11] 50% move
[17:13] over 50 days. So, 50 trading days, which
[17:16] means slightly more than 2 months. To be
[17:19] up 50% you're going to fall. Now, here
[17:22] is the historical levels. At 20% I think
[17:25] the risk grows and I think that's when
[17:27] you need to combine it with
[17:30] this.
[17:31] These happen to peak at the exact same
[17:33] time.
[17:34] So, rate of change does not mean that
[17:37] the thematic trade goes down. It just
[17:39] means you start to run in. So, I've
[17:40] always used rate of change. In the past,
[17:43] before we had exponential
[17:46] uh innovation, in 2007 my model gave a
[17:49] recession
[17:51] uh warning or not it gave a recession
[17:53] signal in September of '07.
[17:56] So,
[17:57] in September of '07 is when the warning
[17:59] went out that we were going to have a
[18:01] recession. And the reason was because
[18:03] year-over-year S&P, the 252-day rate of
[18:07] change of the S&P,
[18:09] had basically started to turn negative.
[18:12] Once that happens, historically, that
[18:14] means we're at a bad point. When you add
[18:17] in corporate profits, you add in jobless
[18:18] claims, again, this is before
[18:20] exponential AI or before exponential
[18:23] innovation with software. So, for me,
[18:26] this is the way that I'm replacing this.
[18:28] I'm looking for
[18:30] the rate of change to be up at a level
[18:32] which doesn't make sense, which shows
[18:34] the crowding, it shows the AI agents, it
[18:36] shows everyone pushing everything. And
[18:38] then I'm looking for breath to be
[18:39] breaking down within inside the 100
[18:41] names. You need a diversified portfolio.
[18:43] So, this is the way I'm going to measure
[18:44] it. I gave you guys the warnings back
[18:46] here. We didn't make a high in the index
[18:49] until right around here.
[18:51] Then we didn't violently fall on the
[18:53] memory names and stuff here. So, I
[18:54] talked about selling Micron in here.
[18:56] This is when I got rid of all of it. It
[18:58] was early.
[19:00] I rotated to silver, to Bitcoin, and to
[19:04] Eli Lilly, and to some other names.
[19:07] The main point was those names in the
[19:09] month of July, go look what they did.
[19:12] Silver and Bitcoin
[19:14] Well, silver was flatish. Bitcoin was up
[19:17] a good amount. Lilly was up. You're
[19:19] trying to navigate where you're still in
[19:21] a position to buy when you get the puke.
[19:23] So, this is the way it looks and this is
[19:24] the way I'm going to go through it. This
[19:26] is the whole year actually.
[19:28] It's the It's the rate of change. So,
[19:30] once you break above
[19:32] this level, then the warning sign
[19:34] starts. So, we broke above this level.
[19:36] We started peaking in terms of the
[19:40] the breadth, we were up at 90% believe
[19:44] it or not. We're above the 20-day moving
[19:46] average and then gradually we broke
[19:47] down. You can see how this goes. Now,
[19:50] the four-week average peaked here and
[19:52] rolled over. So, as time goes on, I
[19:55] believe this is going to happen now more
[19:57] often and I think this is the way you're
[19:59] going to have to deal with it.
[20:00] I've had a lot of subscribers reach out
[20:03] about a bunch of names that just haven't
[20:05] bounced yet. Things like Camurus, I own
[20:08] this one. Fluence, I own this one.
[20:11] Entegris did go higher. I own this one
[20:13] and Palantir, I didn't include the price
[20:15] today. It's all the way up here now.
[20:18] For all the Palantir haters and all the
[20:20] short people and the people that go,
[20:22] you're missing something on this one.
[20:23] It's the only software name I own
[20:27] personally and then you've got Cadence
[20:29] and Synopsys that are part of the
[20:32] the thematic portfolio that are software
[20:34] design. I'll probably be talking about
[20:36] them soon
[20:37] because there's been some stuff. So,
[20:39] that's the way that I'm kind of working
[20:41] through with people to automate things
[20:43] on the hedging side, to use my index for
[20:46] that, but also to use the breadth and to
[20:48] use the different parts. This is the
[20:50] thing I was saying on an earnings
[20:52] mosaic. So, what I did create and the
[20:54] prompt will go up over the weekend.
[20:57] I created a prompt for you guys that
[20:59] will basically spit out something like
[21:00] this. You can use it in Gemini. You can
[21:02] use it in ChatGPT,
[21:04] but basically this will use and this is
[21:06] to give you a sense where if you take my
[21:07] technical sheet and you update you put
[21:11] the technical sheet into chat GPT
[21:14] and then or Claude or Gemini or
[21:16] whichever one you want Grok and then you
[21:19] just run the prompt it will go out and
[21:21] get the earnings commentary from the
[21:22] week and put it together with a bunch of
[21:25] different things including kind of a
[21:26] look at a mosaic side. So this was from
[21:29] Eaton you had Eaton report this week.
[21:32] You also had Schneider report. They're
[21:34] both on the electric side. They both
[21:35] happen to be participants in Vera Rubin.
[21:38] So it will go through and it will look
[21:40] at and give you basically a recap of
[21:42] that with some of the most important
[21:44] commentary that was in there. I'm trying
[21:46] to help you guys especially as times
[21:48] were goes so this is what it does. This
[21:50] is what you'll see up there.
[21:52] I'm trying to keep you guys going with
[21:53] the AI side. Again, if you guys want to
[21:56] access to the tools, if you want access
[21:58] reach out to Mark Wailing, go to the
[21:59] website.
[22:00] We're doing more and more of these but
[22:02] in particular I'm doing more and more
[22:03] presentations for RIAs where I'm also
[22:06] doing regular calls with them. They're
[22:08] setting things up that way so you can
[22:09] reach out to Mark. I did want to
[22:11] reference this because this is where we
[22:13] we are in the agentic side. This is a a
[22:16] a text
[22:17] exchange with my son. Uh
[22:20] he's a entering his junior year at
[22:23] college. He is not a computer science
[22:26] major. He I put him through
[22:29] Python boot camp when he was a junior in
[22:31] high school.
[22:33] I have my AI chief of staff spitting out
[22:35] new sub agents on the regular. This is
[22:37] what he's doing at his internship.
[22:39] He even said I prefer chat GPT Gemini
[22:41] coding is insane though. I got the
[22:43] information from YouTube and AI.
[22:46] Your kids have to be doing this guys. He
[22:48] is guaranteed to have a job at whatever
[22:50] firm he works because he has already
[22:52] built a chief of staff. He's spitting
[22:54] out those new sub agents. There's
[22:55] absolutely no reason
[22:57] why your kids can't do this. So remember
[23:00] the knowledge brain thing that I put in
[23:01] there, I will be doing AI agent stuff
[23:03] for the subscribers. I will probably be
[23:06] going through some videos
[23:07] as we get into this year. I got a lot
[23:10] going on with the crypto side, but my
[23:12] goal is to really make sure that you
[23:13] guys realize that the agentic side is
[23:15] here and if you're not using it, you're
[23:17] falling way behind. So, let's go through
[23:19] the Gavin Baker side. Again, this is a
[23:21] must listen. The reason it's a must
[23:23] listen is cuz very seldom do you find
[23:25] someone who is this knowledgeable about
[23:27] the AI trade from a very high level,
[23:30] which Gavin is. He speaks about it
[23:31] regularly. He's asked questions on it
[23:33] regularly. He invests in it. It's very
[23:36] hard to find people that know this from
[23:38] the industrial side all the way out.
[23:41] I'm not going to read all these up. I'm
[23:43] just going to go through the speaker
[23:44] argues the AI sell-off is disconnected
[23:46] from the quantitative data. He says he
[23:48] has not found a real negative demand
[23:50] metric.
[23:52] So, I just want to make sure that you
[23:54] guys, if you listen to this,
[23:57] if you just listen to the first 5
[23:59] minutes of this,
[24:00] these are all quotes from the first 5
[24:02] minutes.
[24:04] Nvidia actually, as we record this, is
[24:06] at the lowest forward PE of the last 10
[24:08] years.
[24:09] I've bought a decent amount of Nvidia
[24:11] over the course of the last 3 weeks. It
[24:14] looked good for a while, broke back down
[24:16] again, now it's looking better.
[24:18] I believe with Vera Rubin coming out and
[24:20] with all the chatter on this and the
[24:22] fact that it's this cheap, but also
[24:23] going through the token per watt needs
[24:26] and realizing how quickly they're
[24:28] they're coming out with this stuff, I
[24:29] just can't see a sign with what GPUs are
[24:32] doing, the price of them which he goes
[24:34] through,
[24:35] that they're not going to benefit from
[24:36] this at this level. So, they've done
[24:38] their multiple compression, it's been
[24:40] significant.
[24:42] I just it's it's not it's not going to
[24:44] double for you, I'm sure, in in in a
[24:45] short amount of time, but I think when
[24:48] you're looking at kind of safer names
[24:50] that already have seen their multiple
[24:51] compressed, I still think Nvidia is one
[24:53] of the best ones. Um
[24:56] not a single instance of deceleration,
[24:58] nothing. In fact, every metric rate is
[25:00] accelerating. Whether you cut GPU
[25:02] availability, whether you cut GPU rental
[25:04] pricing, whether you cut the spot price
[25:06] of DRAM this month to grow, everything
[25:07] is actually accelerated.
[25:09] So, when you go through all of these and
[25:12] you hear what he says about Anthropic
[25:14] and you hear what he says about deep
[25:16] compute prices and the anecdotal stuff
[25:18] that he gets out there.
[25:21] I He's basically saying that these
[25:24] companies
[25:26] Microsoft, Meta, Amazon, the
[25:27] hyperscalers, the critical part of this
[25:29] because if you've been bearish on them,
[25:30] which most people have, they've called
[25:32] this a bubble, they've been wrong.
[25:33] They've said ROIC will not come through,
[25:35] they've been wrong.
[25:37] Maybe they'll be right. The CDS is wider
[25:40] for justified reasons cuz they're still
[25:41] leveraging up more and more and I'll go
[25:43] through the reason why it does make
[25:45] sense in a second, but
[25:47] you can't argue the fact that at this
[25:49] point there's a chance that they could
[25:50] see significant revenue very short-term
[25:54] if for no other reason because they are
[25:56] building so much compute and the value
[25:59] of that compute is going up and he talks
[26:01] about it here.
[26:02] The same type of B200 cluster that
[26:04] rented around mid $2 per hour 7 months
[26:07] ago is now expected to rent for just
[26:10] under $4 per
[26:11] GPU hour. So, remember all the stuff
[26:15] about these chips won't survive, their
[26:17] lifespan. We have a bottleneck in
[26:21] compute.
[26:22] So, you have to go through all compute
[26:24] has value right now regardless of where
[26:27] it is. Open source would love to be
[26:29] using this stuff. So, let's just
[26:32] forget all the stuff that you've heard
[26:34] on this.
[26:35] Don't get all bearish on this because of
[26:37] something that isn't true by the data.
[26:40] If you see this data start not to happen
[26:42] and that's what he goes through,
[26:44] it's like the breath that I have on the
[26:46] index. If one thing is going down,
[26:48] that's fine, but when people look at the
[26:49] token index and that's their thing and I
[26:51] say on this video, even the people at
[26:54] the place that provided say it's not
[26:56] bearish on
[26:58] on market. It just means more and more
[27:01] of the usage is going on open source,
[27:03] which makes sense.
[27:05] It doesn't mean it's bearish. It doesn't
[27:07] mean that Anthropic's revenues aren't
[27:08] going to grow, but very smart people
[27:10] that I've known in the business for a
[27:11] long time were saying that to me. So,
[27:14] we've had a point that if you can listen
[27:16] to someone like him and go through it,
[27:18] it's there.
[27:20] It's rewiring the market structure. So,
[27:22] he got into the same thing that I talked
[27:25] about.
[27:26] He even brought up the probabilistic
[27:28] Bayesian interpretation of the future,
[27:29] which I write about all the time and I
[27:31] talk about all the time.
[27:32] AI compresses economic time, but it it
[27:35] may also compress market time.
[27:38] The month of July
[27:40] for momentum was worse than any year
[27:44] over the data that I have.
[27:46] So, that's how we're compressing market
[27:49] time. Bubbles, parabolas, and speed
[27:52] crashes.
[27:54] Here are the key quotes from the
[27:55] transcript. You guys
[27:59] can pause it and look at it on your own,
[28:01] but here's the most important one. We
[28:02] are in a cute compute shortage.
[28:05] And at the same time, 500,000 people,
[28:08] maybe 250,000 are using a generative AI.
[28:11] So, my son is one of them. He's spinning
[28:13] out sub-agents.
[28:15] But only 250,000 of 8 billion people.
[28:18] What happens when we go from 500,000 to
[28:21] 1%? To 100 million? To 500 million?
[28:24] Guys, I say it all the time.
[28:27] There will never be enough compute,
[28:29] ever. We will continually be building
[28:31] compute. We'll be doing it in different
[28:33] ways. We'll continue to get more
[28:35] efficiency. Everything will keep
[28:36] happening, but nothing is on the horizon
[28:38] for that to go away. So, when we see the
[28:41] prices of GPUs on older stuff start to
[28:44] head down, at least we're at a point
[28:46] where the newer stuff is saturating some
[28:48] of the demand ahead of adoption, but the
[28:50] adoption is happening because of agents.
[28:52] And once you set them off, they're
[28:55] tireless workers. So, it is exponential
[28:57] against
[28:59] the physical side. No amount will ever
[29:01] be enough. The math behind hyperscaler
[29:03] CapEx. This is my post earnings paper
[29:07] that went out this week
[29:08] on the hyperscalers and the reason why
[29:12] you should not be playing for them to
[29:14] break apart.
[29:15] Now,
[29:16] I got a lot of questions saying does
[29:18] this mean you're bullish on
[29:19] hyperscalers? No, not relative to the
[29:21] infrastructure trade. Nothing changes in
[29:24] that front. I still think they're going
[29:25] to have heavy competition, and here's
[29:27] the other reason why.
[29:29] The hyperscalers quarterly free cash
[29:31] flow, when we think they're going to go
[29:33] positive as a group by Goldman Sachs.
[29:36] Look how long this is out. So, here's
[29:38] the problem.
[29:40] They're going to keep spending money on
[29:42] hoping they get the revenues in the
[29:43] door.
[29:44] I I understand they have the cloud
[29:46] revenues, but the cloud revenues are not
[29:48] going to be enough in my opinion. You're
[29:50] going to need to have products, you're
[29:51] going to have need to have other things,
[29:53] or you're going to get priced like a
[29:54] utility or real estate company, cuz
[29:56] eventually, when the compute isn't
[29:59] as
[30:01] outsized in terms of supply versus
[30:03] demand as it is now, and by then we
[30:05] could have a lot of innovations. We
[30:08] could have a lot of things on the
[30:09] algorithmic side. Things could change.
[30:12] There could be breakthroughs in hardware
[30:13] that when we go to uh humanoids and we
[30:16] go to cars and we go to all this,
[30:17] everything could change. Now,
[30:19] I still believe we're going to need more
[30:21] compute, we're going to need more
[30:22] hardware, but
[30:24] whether their businesses will be there
[30:26] is a question, and that's why their
[30:27] multiples should be compressed, and
[30:29] their CDS should be
[30:32] wider. It There's a risk there. So,
[30:35] it's [clears throat] not a
[30:36] a a risk that I want to
[30:38] go out there and trade, but if you're
[30:39] buying their paper
[30:41] and you want to
[30:42] buy some CD I of course you do. If
[30:44] you're trying to short the AI trade and
[30:46] you want some stuff out there, of course
[30:47] you go buy CDS in this, especially when
[30:49] it just keeps moving. Um I just want to
[30:51] bring this up quickly cuz I think
[30:53] [clears throat] this is a sign about the
[30:55] problem inside these companies. So, I
[30:58] also believe that this is a big deal
[31:00] what happened this week with Jeff Dean
[31:02] leaving.
[31:03] And also, Demis Hassabis kind of moving
[31:06] into another area.
[31:08] This is a big deal to me and this is
[31:10] because Google is the perfect example of
[31:13] a company where
[31:15] they released AlphaFold,
[31:18] which makes them no money.
[31:20] If it makes them some money, it's coming
[31:22] through something, but for the amount of
[31:24] people using it to release it free,
[31:28] it's probably created some conflicts
[31:30] inside cuz they are spending tons of
[31:31] money, they're taking tons of debt. They
[31:33] need actual consumer products,
[31:35] corporation, they need something to come
[31:38] through and I think this is where the
[31:39] people who are trying to leave a legacy
[31:42] on this technology, the talent, are
[31:44] getting frustrated with the bureaucracy
[31:47] at big companies. And I think you're
[31:49] going to see this over and over again.
[31:51] It's reason why I'm negative on all
[31:53] public companies by the time we get to
[31:55] 2030, the bureaucracy is going to be a
[31:59] killer. At the same time, you're going
[32:01] to have AI native companies growing
[32:03] rapidly.
[32:04] Okay, I just want to remind you on the
[32:06] memory side. I wrote this paper
[32:09] is in June, AI equals memory. This is
[32:11] after I had sold my Micron. This was not
[32:14] to buy anything. This was just to let
[32:15] people know that memory will remain in a
[32:17] shortage and it is something to watch
[32:19] when it comes to the trade, but it's
[32:21] also something to watch closely to see
[32:23] if we ever get to the point where
[32:25] catches up to compute. So, on the SpaceX
[32:27] earnings call,
[32:29] Elon Musk
[32:31] basically reiterated what I wrote in
[32:32] that paper. The limiting factor
[32:33] currently is memory. The memory output
[32:35] is increasing by around 20% a year. So,
[32:38] supply is increasing by about 20% a
[32:40] year. The demand is increasing by 200% a
[32:43] year, maybe higher.
[32:45] If you've got demand increasing faster
[32:47] than supply, economics 101 would suggest
[32:48] the price increases.
[32:50] Uh again, I'm bringing this up because
[32:56] watch memory.
[32:58] And this goes through more compute does
[33:01] not solve the bottleneck without more
[33:02] memory. So, the memory side is going to
[33:04] be needed and that's what I wrote about
[33:05] is that memory is needed for all parts
[33:07] of this when you start thinking about
[33:09] what AI agents need, but especially when
[33:11] you get into consumer agents, we need
[33:13] lots of memory on everything that we do.
[33:16] Palantir shares jump on uh
[33:19] otherworldly sales improved forecast.
[33:23] This is what I was saying. This is
[33:24] commercial revenue. This is the adoption
[33:26] side of companies.
[33:28] This is the growth rate. 54%, 64%. These
[33:31] are year-over-year. They're not only
[33:33] growing by this much,
[33:34] they're still growing faster.
[33:37] So, 149%.
[33:39] So, in Q2 last year, they had 306
[33:41] million of revenue. This year, it's 764.
[33:43] So, whether it's quarter-over-quarter
[33:46] growing at 20-plus percent or whether
[33:48] it's
[33:49] it doesn't matter. These guys are
[33:51] growing rapidly. And everyone is focused
[33:54] on them and commercial was not their
[33:56] business. So, it's starting from a small
[33:58] pace. This just shows the adoption pace
[34:00] that's going. They closed on 220 deals
[34:02] of at least 1 million, 98 deals of at
[34:04] least 5 million, and 78 deals of at
[34:06] least
[34:07] 10 million.
[34:11] Only reason I brought this up is to just
[34:13] show you that the bear porn just remains
[34:16] out there.
[34:17] Here are new business formations.
[34:20] This is what the story is, guys. This is
[34:22] AI native companies. They're starting
[34:24] their own businesses. That's what I did.
[34:27] This is how This is what's happening.
[34:29] It's going parabolic with AI adoption.
[34:32] All started with Opus 4.5.
[34:34] The rise of million-dollar companies
[34:36] with just one employee. So, this is
[34:39] what's happening to disrupt the profits
[34:41] of the Fortune 500 companies eventually.
[34:43] It will take some time because these are
[34:45] small, but it's coming.
[34:49] The age of abundant intelligence and
[34:50] scarce Bitcoin. Two printing presses
[34:53] running at once. One dilutes the unit
[34:55] you measure wealth in.
[34:58] That is the debasement of your money.
[35:00] The other dilutes the durability of the
[35:02] corporate claims you bought into to
[35:03] protect that wealth. So, this one is
[35:05] from the government and the printing
[35:06] press.
[35:07] This is the AI printing press, which
[35:08] will disrupt public companies.
[35:12] That's in my Substack.
[35:13] Okay, 30-year yields. So, I put this
[35:16] line here cuz basically we took it out.
[35:19] This was a big story.
[35:20] Um
[35:22] I'm writing a paper right now on the
[35:25] JGBs
[35:26] as the widow maker from the 1990s.
[35:30] And how every time
[35:32] I get a technical chart or a person
[35:35] saying we just broke out, this is going
[35:37] to collapse,
[35:38] rates are moving higher,
[35:40] stocks pretty much almost always rally.
[35:43] Now,
[35:44] the reason is
[35:46] cuz the government doesn't really have a
[35:48] choice. So, if you're going to fight
[35:50] something
[35:51] and you want to be bearish on the
[35:52] equities because of bonds, the
[35:54] government, if the bond yields go too
[35:55] high,
[35:57] they clearly are going to do something.
[35:59] They've done it repeatedly. We know
[36:01] that. They did that on liberation day.
[36:03] Okay, we don't care if equities go down.
[36:05] Then when the bond market went down,
[36:06] they cared that equities went down and
[36:07] they had to do something. Here is the
[36:09] relationship between corporate tax
[36:10] receipts
[36:13] and household
[36:14] equities
[36:16] asset values.
[36:19] If you have asset values go down in
[36:20] stock market, you're going to have tax
[36:22] receipts go down at a time when we have
[36:23] 5 to 6% deficits. That's why Lyn Alden
[36:27] wrote about why nothing stops this
[36:29] fiscal train. It is still in place, guy,
[36:31] and we learn more about it this week
[36:33] because it's not just the US, it's the
[36:35] whole globe. So, when you see these
[36:36] charts and you got the US and you got
[36:38] the UK and you got JGBs and you even got
[36:41] bonds.
[36:43] They're all 30-year yields around highs
[36:46] of some level and what did happen so on
[36:48] Friday night Scott Bessent has to
[36:50] explain why he helped Japan strengthen
[36:53] the yen.
[36:54] So, I believe this is more a signal.
[36:58] Um Scott's obviously a savvy market
[37:01] person and he's trying to find a way to
[37:03] help the BOJ for a variety of reasons
[37:06] and one of the reasons is because they
[37:08] own a lot of treasuries and he doesn't
[37:09] want them to have to go in the market to
[37:11] sell the treasuries to be able to go out
[37:13] and
[37:15] buy the yen.
[37:17] So,
[37:18] first coordinated move since 1998.
[37:22] Long view, US props up the yen to
[37:24] support treasuries.
[37:27] Then Bessent is urging the Fed to help
[37:29] defend the Japanese yen using
[37:32] FEMA and hoping to expand the capacity
[37:35] of it. So, then you got the Wall Street
[37:37] Journal and Nick
[37:39] Timiraos
[37:41] Why Bessent is leaning on the Fed to
[37:43] help prop up Japan's currency. I want
[37:45] you to remember that cuz last week Kevin
[37:46] Warsh spoke. So, last week you had
[37:48] situational awareness. You had Kevin
[37:50] Warsh. Market got angry at Kevin Warsh
[37:53] cuz he didn't either raise rates or he
[37:54] didn't say he was going to raise rates,
[37:56] he gave no guidance. Nobody knows what
[37:57] to do. He didn't even say
[38:00] I think we're kind of getting the sense
[38:03] here that uh it's going to be really
[38:04] hard for Warsh to raise rates if the
[38:07] Fed's going in to help Japan and we need
[38:09] interest rate differentials there and
[38:10] he's actually going to the Fed and
[38:12] trying to see if they can raise the
[38:13] borrowing limit. Seems like the Treasury
[38:15] and the Fed might be a little closer
[38:17] than um they used to be.
[38:20] Uh then we go through and we're starting
[38:23] to talk about the unintended
[38:24] consequences and I think
[38:26] I think the joint US
[38:29] Japan support at the end is unusual. The
[38:31] way it is being financed is
[38:32] unprecedented and adds liquidity when
[38:33] the punch bowl of the US economy and
[38:35] markets is already overflowing.
[38:39] And he pledged to do whatever it takes
[38:42] to help.
[38:45] Again, I think the bazooka he doesn't
[38:48] want to do anything, but I think he's
[38:49] hoping we can stay away from 164 and
[38:53] maybe they'll raise rates in September,
[38:55] but if Warsh raises rates in September,
[38:57] then what does it really accomplish,
[38:59] which is one of the reasons why
[39:01] I'm shocked after this last 2 weeks that
[39:04] we still have a 45% chance of a rate
[39:07] hike in September, which is why I like
[39:09] all the debasement trades, as I talked
[39:12] about a few weeks ago, thinking that
[39:14] people were getting way too over their
[39:16] skis on rate hikes.
[39:19] Remember, a lot of places were talking
[39:20] about three, at least two, before the
[39:23] end of the year and now I'm now we still
[39:26] have one in change in there. We'll see
[39:27] where it goes. Uh, the policy fails to
[39:31] tackle the underlying problem can easily
[39:32] backfire. Not least drawing the Federal
[39:35] Reserve into exchange rate policy at an
[39:36] especially awkward moment. That's the
[39:38] awkward moment what I'm talking about.
[39:40] Um,
[39:42] Treasury has now spent all the ammo in
[39:43] their exchange stabilization fund.
[39:46] They can probably find other ways, but
[39:47] unless interest rate differentials
[39:49] change, it's all waste. So, we're back
[39:50] to the interest rate differentials.
[39:52] Then a former ex former Japan PM warns
[39:56] FX action won't save yen without 2.3
[39:59] trillion growth strategy. This is the
[40:01] run it hot into a scarcity of tools that
[40:05] the central banks can use. Can the US
[40:08] Treasury save the yen?
[40:11] Kevin Warsh is facing more than a
[40:12] communication problem. Um,
[40:16] I wanted to bring this up again because
[40:19] I think last week
[40:20] was a big week. Situational awareness,
[40:24] Kevin Warsh not raising rates,
[40:26] and then the Fed doing what they did
[40:28] with the BOJ, the first coordinated move
[40:31] since 1998.
[40:33] I think with all of that at the end of a
[40:36] historic month where we had deleveraging
[40:38] of significant size, there's a lot of
[40:40] similarities between October of '98 in
[40:43] there, a lot of them. And I believe when
[40:46] we look back as long as those lows are
[40:47] in place that that will be a time that
[40:50] we started to see a reality check
[40:53] that when the US is intervening in the
[40:56] Japanese currency market to help their
[40:59] treasury market, the fiat system might
[41:02] be in trouble. Uh
[41:05] especially when I go through some of the
[41:07] charts. So, we're 45% as of Friday for
[41:10] the Fed to raise
[41:12] rates, and and that's after the payroll
[41:14] number. And we're at 63% for the BOJ.
[41:18] Uh Darius Dale put this out on the
[41:20] quarterly refunding,
[41:22] the Fed has little choice but to
[41:24] continue monetizing US sovereign debt
[41:26] over time. The Basically, the refunding
[41:29] announcement, there's
[41:31] whatever Kevin Warsh people thought he
[41:33] was,
[41:34] again, this is why why nothing stops
[41:36] this fiscal train. It is we just have
[41:39] too big a debt, too big a deficit.
[41:41] Remember when Paul Tudor Jones went on
[41:42] and did the math and said there's just
[41:44] no way to solve this. They're running it
[41:45] hot, but they're not making any impact.
[41:47] So, here we go.
[41:49] During Donald Trump's tenure as
[41:51] president,
[41:53] July was the biggest 30-year
[41:56] yield rise in a month.
[41:59] So, back here is when he drew the line
[42:01] in the sand for the equity market. So,
[42:03] here's what happens to the S&P after the
[42:05] bond market ends up going higher.
[42:08] Bond market goes higher, guess what?
[42:10] Oh, you're starting to get the picture
[42:12] here. So, the S&P has rallied when rates
[42:14] go higher because everyone starts
[42:16] getting bearish on it and the Fed or the
[42:18] Treasury needs to step in. Nothing stops
[42:20] this train. We keep doing the same
[42:22] thing. So,
[42:23] gold is waking up that maybe Warsh is
[42:25] not going to be bad for gold. Maybe he's
[42:28] not going to raise rates. So, gold
[42:31] over the course of the last 16 years, it
[42:34] was the third biggest week for gold.
[42:36] Now,
[42:37] this was
[42:39] one of the largest printing press weeks
[42:41] of all time.
[42:44] This is when gold was out of control.
[42:46] This is a big week in gold, up 7.2%.
[42:50] Here's the chart. Broke through the
[42:52] 50-day. Look how long we were below the
[42:54] 50-day. We broke below the 50-day
[42:56] over here. We hadn't been back above
[42:59] since March. In fact,
[43:01] it was the third longest time that we
[43:03] had been below the 50-day moving
[43:05] average. Now,
[43:06] here are the returns 3 months out from
[43:08] the time of breaking back above. We'll
[43:10] see what this one is.
[43:11] But, year-over-year at the break point,
[43:16] most of the time these things were down
[43:17] big.
[43:18] Gold's in a bull market. So, again, I go
[43:20] back to what I said before.
[43:22] When you're in a bull market and you
[43:25] correct and then you consolidate and
[43:27] then you break back above the 50-day,
[43:29] things can run pretty hard. I think
[43:31] there is an absolute reason
[43:33] to be thinking that gold, silver,
[43:36] platinum, Bitcoin, all of them, assuming
[43:39] that the Fed is not going to cut rates
[43:41] in September,
[43:43] which again, I'm surprised we have 45%.
[43:46] We'll see what happens with the
[43:47] inflation data next week, but I think
[43:50] we're getting closer and closer to this
[43:52] and the market is telling you the
[43:53] signals where people like, well, why
[43:55] don't I just short Treasuries and go buy
[43:56] gold and go buy this? I think either way
[43:59] right now,
[44:01] I'm going to win because they're going
[44:02] to come in and stop it, but I don't
[44:04] think it can go down. So, here's what we
[44:06] got. Platinum breaks above the 50-day.
[44:09] And again,
[44:11] nice rounding chart. We'll see if
[44:13] there's follow-through. Silver finally
[44:15] closed above the 50-day today. I have a
[44:18] good-sized position in silver because of
[44:20] the AI side, but I like it now because
[44:23] of the the basement side. I showed this
[44:25] last week.
[44:26] We're at the highest dollar long
[44:28] position. So, the dollar has already
[44:30] broken down, but this is just fuel for
[44:32] the fire for gold and
[44:35] and silver and platinum and Bitcoin. And
[44:37] again, just a reminder, still 44%, not
[44:39] just that, we still have more
[44:41] tightenings in.
[44:42] I I think there's I mean, I think all of
[44:44] these should be coming out, personally.
[44:46] That's just me. And the reason is
[44:49] this inflation thing is driving me nuts.
[44:51] We have one inflation data point, which
[44:53] is upward. Um
[44:55] this is the Truflation core number
[44:59] relative to the CPI core number. You
[45:01] cannot get away from the fact that it
[45:03] has led and it has gone.
[45:05] This is a violent move lower over the
[45:07] course of the last 4 weeks. So, the
[45:09] year-over-year Truflation number just
[45:11] continues to fall. This is on the same
[45:13] scale, people. So, where this was around
[45:16] the same at the beginning of the year,
[45:18] you've had a slight uptick here, and
[45:19] you've had this collapse. Go read how
[45:21] they do their work.
[45:23] If Kevin Warsh is looking for better
[45:25] data points than just taking the way
[45:27] something was calculated 50 years ago,
[45:30] at least give Truflation a chance, along
[45:33] with trim mean, along with the other
[45:34] ones that I've shown. I think the
[45:36] inflation thing is a disaster. So, let's
[45:38] go the other way.
[45:40] I'm sick of economists and the payroll
[45:42] side.
[45:43] The job situation is not good.
[45:46] Yes, there are low claims. And the
[45:49] reason there's low claims, part of this
[45:51] is the labor force is coming down, but
[45:52] they never talk about that. So, the
[45:54] supply of labor is going down because
[45:56] the labor force participation rate is
[45:58] coming down sharply, has come down
[46:00] sharply this year. Well, if there's less
[46:02] labor supply, shouldn't that mean wages
[46:03] are going higher?
[46:05] Here are the wages.
[46:06] So, this is the quits rate and the
[46:08] Atlanta Fed wage side. On both measures,
[46:12] we are back to 2019 levels. You can't
[46:16] tell me the labor market is good with
[46:18] those metrics. Let's just take the
[46:20] average hourly earnings that we just
[46:22] got, which is now down to 3.2%. It's
[46:24] also the white line is also where it was
[46:26] before 2020.
[46:28] Overlay it again with the Atlanta Fed
[46:30] median wage growth, right here.
[46:32] You can't tell me the labor market is
[46:34] good.
[46:35] Let's go a different route. Let's now
[46:37] take the aggregate payrolls.
[46:40] This is the aggregate payrolls,
[46:42] which is taking weekly hours, average
[46:45] hourly earnings, and the number of job
[46:47] creation. I've talked about the fact
[46:48] that the only jobs that have been
[46:50] created over the last 18 months are in
[46:51] healthcare. When you strip out
[46:53] healthcare, there is no job creation.
[46:54] That is not a good jobs market. AI
[46:57] agents are have or AI is having an
[46:58] impact on hiring. It's not yet had an
[47:00] impact on firing, but again, if we're
[47:02] having job creation with entrepreneurs,
[47:04] and we're gradually losing people on the
[47:06] other side, which is the way I think it
[47:07] goes,
[47:09] I I don't think we're ever going to see
[47:10] big job losses. I think the demographics
[47:12] will kick in, we'll see more people
[47:13] retire, the stock market as it goes
[47:15] higher, more people say, "I don't need
[47:16] this anymore. I've made enough money."
[47:18] So, here is the last 6 months. Just look
[47:21] at these 6 months, guys,
[47:23] and take it back over time. This is a
[47:25] very weak period, and if you want to see
[47:27] really how weak it is, and again,
[47:29] this is the weakest 6-month rate of
[47:32] change
[47:33] on the aggregate weekly payrolls
[47:37] going all the way back to 2012
[47:40] when you throw out the COVID time
[47:41] period. I don't care how you measure
[47:43] this. Maybe it'll change, but right now
[47:45] the data is a fact.
[47:48] The number of people looking for work
[47:49] and the number of people counted as
[47:51] unemployed both fell.
[47:54] We're losing people in the labor force.
[47:56] This is 10-year yields, the 20-month
[47:58] moving average,
[48:01] which is at 4.29,
[48:03] and we're currently up here.
[48:05] Here's the labor force participation
[48:07] rate.
[48:09] As more people leave the labor force,
[48:11] rates should be coming down.
[48:15] That's it. So, we'll see what happens,
[48:17] but again, we've got the rise of the
[48:19] million-dollar companies happening now,
[48:21] so I think the
[48:23] future of the job situation will remain
[48:26] weaker because AI agents are coming.
[48:28] It's not that they're going to collapse,
[48:30] but I think people are making a huge
[48:32] mistake not understanding that these
[48:34] little tiny companies that have no
[48:35] employees will be replacing bigger
[48:37] companies
[48:38] with maybe 50 employees, 100 employees.
[48:41] And when those when that company closes,
[48:43] those people have to recycle in. I just
[48:45] think the quits rate, all of that stuff
[48:47] is showing what's happening much better
[48:49] than what your economists are telling
[48:51] you. And so, at some point here, I do
[48:54] think we're going to see weakness either
[48:55] A in inflation or B inside the job
[48:59] market driven by AI, which surprises
[49:01] people.
[49:05] So, here we are. Bitcoin is still in a
[49:06] bear market until we get above there.
[49:08] Anything from my perspective is a
[49:10] trading side. So, I'm going to I I think
[49:14] this is going to hold, and I think we're
[49:16] going to break out. But as of right now,
[49:17] we haven't. But there is some good news.
[49:20] I want you to go read this because I do
[49:22] believe that this is the most important
[49:24] time because of the agent to kick in.
[49:26] But what I really like is as the agent
[49:28] and my crypto 40 name index,
[49:31] the ecosystem is doing well.
[49:34] We just saw the Clarity Act basically
[49:37] over the course of the last 2 weeks go
[49:39] from about 33 to 40 uh let's say 3 weeks
[49:44] ago, we were getting close to 50. We
[49:46] collapsed to 17%
[49:50] chance that it gets signed into law this
[49:52] year.
[49:53] We also had strategy Michael Saylor sell
[49:55] more.
[49:57] And we also had
[50:00] cold card exploit. And if you guys
[50:02] didn't see this, there was even a, you
[50:05] know, a pretty big story on cold storage
[50:08] problem with one company
[50:11] uh and people's wallets. And yet, all
[50:13] that going on mm
[50:15] Bitcoin was okay this week.
[50:18] That's it for me this week, guys. Uh
[50:20] keep enjoying your summer. Reach out to
[50:22] Mark Whaling. Reach out to me.
[50:25] Uh and we'll keep going through it. But
[50:27] uh let's make some money
[50:28] uh starting now for the rest of the
[50:30] year. See you.