Jordi Visser / VisserLabs

The End of TACO PTSD: Markets Are Finally Facing The Inflation Reality — Jordi Visser (29 marzo 2026)

🇬🇧 EN🇪🇸 ES
AIMacroMarketsTrading
47:29 min youtube 2026 Week 13 🇬🇧 EN

TL;DR

  • Regime Shift Confirmed: The economic environment since 2007 is over. Investors must adapt to a new framework of long scarcity and short abundance, driven by massive AI demands and geopolitical instability.
  • Inflation & Risk Alert: Import prices are surging, with annualized CPI projected between 4% and 6%. If inflation hits 6%, the speaker warns the S&P could fall at least 25% from recent highs.
  • Investment Thesis: The market is undergoing sector rotation away from struggling large-cap tech toward thematic areas like hardware, semiconductors, and energy infrastructure. Silver (miners and commodity) is highlighted as the top offensive add right now.

Summary

YouTube: https://www.youtube.com/watch?v=oq2ULa2FX0g  |  Duration: 47 min

â—† Regime Shift: The End of Old Economic Frameworks

The market is experiencing a significant regime shift as investors move past previous anxieties and acknowledge current economic realities. The environment that has existed since 2007 is now over, with AI serving as a major driver of this change. Previously, many banks predicted lower oil prices, but the reality of massive power demands must now be accepted. China's vulnerability to energy shortages is heightened by rare earth constraints and its reliance on energy. Due to ongoing uncertainty about when these issues will resolve, hoarding behavior is expected to continue. Investors are advised to prepare their portfolios for this new economic regime.

â–¶ Structural Forces Driving Change

The market is undergoing a regime shift driven by several critical structural forces:

  • AI software disruption is real, leading to the re-rating of software companies and hyperscalers due to uncertainty regarding future revenue streams.
  • Labor disruption is worsening, marked by a lack of job creation over the past year.
  • Commodities are experiencing a bull market despite rising interest rates.
  • Crucially, the credit cycle is confirmed to be in a downturn, causing liquidity to unwind and exposing weak positions.

Investors must accept these shifts, as they impact everything from software valuations to long duration assets.

★ S&P Sector Positioning Problem: Rotation, Not Bear Market

Major sectors like Information Technology, Consumer Discretionary, and Financials constitute over 50 percent of the index but are struggling in the current economic regime. While these large-cap weights have underperformed since 2007, smaller sectors are showing gains year to date. The speaker argues that despite the negative headlines, this market behavior is indicative of sector rotation rather than a true bear market. He notes that six out of eleven sectors are currently up YTD, supporting the rotation thesis. Furthermore, he remains unconvinced about an imminent recession this year, even if oil prices rise significantly. Instead, the focus will be on consistent multiple re-ratings across various sectors as the current pullback continues.

â–º Model Portfolio Strategy and Performance

The speaker introduced a model portfolio consisting of 98 thematic names focused on hardware, chemicals, semiconductors, optical fiber, and energy infrastructure. This equal-weighted portfolio has performed strongly, showing an increase of 75% over the past year. While the total market cap is substantial at 16 trillion, it includes many smaller companies, with a majority of stocks being sub $50 billion and 19 being mid-cap. The investment thesis suggests these sectors are in strong uptrends despite current market rotations. Looking ahead, earnings growth in the S&P 500 is expected this year due to nominal revenue increases driven by inflation.

Action Recommendation: Investors are encouraged to look for opportunities within these thematic areas during periods of market volatility.

â—† Inflation Incoming: Surging Import Prices

Import prices are surging due to rising costs for computers, peripherals, and semiconductors, signaling a significant inflationary trend. Capital goods import prices are currently at their highest level since 1988. The speaker warns that inflation is almost assuredly going to be above 4% within the next two months if markets do not adjust. Analysis of oil's six-month rate of change suggests annualized CPI could reach 6%, though a minimum of four percent is anticipated. This ongoing import-driven inflation favors technology companies that maintain strong pricing power. The speaker notes that this global disruption extends beyond just oil prices.

⚠️ CRITICAL RISK ALERT: Geopolitical risks are escalating, with an Iran invasion probability exceeding 50% by April 30th and severe disruptions expected in the Strait of Hormuz. Global supply chains are facing immense pressure due to shortages across Asia. The speaker warns that if inflation reaches 6%, the S&P could fall at least 25% from its recent highs.

â–¶ Market Technicals & Rates Outlook

Recession fears are viewed as necessary for the market to find its bottom, amid ongoing PE compression. The speaker notes that high inflation should correspond with lower stock multiples, suggesting significant downside risk if stagflation develops. Historically, S&P performance is weaker when interest rates remain above 4 percent. Technical analysis and rising inflation risks indicate continued downward pressure on valuations. A major concern is the potential for two-year yields to approach 5 percent, particularly if inflation climbs toward six percent. Market participants should also keep in mind that political events like midterms typically influence market behavior.

★ The Global 60/40 Breakdown

A credit cycle is currently unfolding, highlighted by significant moves in high yield CDX despite investor complacency. The combination of rising inflation and increasing rates presents a difficult situation for current investors. The global 60/40 portfolio is on pace for its worst month since 2022. This decline is widespread, affecting bonds, stocks, crypto, private equity, and alternative assets all at once. This simultaneous downturn sets the stage for a very challenging financial period.

â–º Growth vs. Value Regime Shift

A major regime shift is underway, with growth assets facing significant trouble while commodity and hardware companies on the value side are showing strong growth. This trend mirrors past reversals, indicating that growth underperformance versus value could persist for years. Despite inflation concerns, oil prices alone will not trigger a US recession because consumer household net worth has dramatically increased. AI represents a massive structural boom driving trillions in capital expenditure, which is expected to override other economic headwinds.

â—† Deleveraging Signals and Market Bottom Scenarios

The market is experiencing massive deleveraging, which is driving current movements rather than widespread bearish sentiment, as indicated by the turbulence model and Russell's outperformance over the Nasdaq. The put-call ratio has not spiked enough to signal a sustainable bottom, suggesting that rotation is occurring across sectors. Despite gold seeing significant declines due to crowded position unwinds, the VIX closing outside its Bollinger band suggests an imminent short-term bounce early next week. These factors lead the speaker to believe the current situation is developing into a good bottom scenario.

â–¶ Hyperscaler Sector Breakdown (Severe Downturn)

The hyperscaler sector is experiencing a severe downturn, with Microsoft down 27% YTD and its drawdown nearing 40%. Meta, Amazon, and Google are also in steep declines, while the S&P 15 software index is at a 15-year relative low. The speaker views this as a multiple re-rating that is not appreciated and expects further downside. Concerns include potential issues with earnings quality, increasing debt burdens, and slower than expected data center adoption.

🚨 WARNING: Specific company risks were highlighted, including Meta facing legal setbacks and Oracle's Credit Default Swap blowing out. The overall sentiment is that hyperscalers should not be viewed as long investments.

★ Private Credit Crisis Deepening

The private credit market is experiencing deepening stress, evidenced by monthly losses at firms like Ares and withdrawal caps imposed by Apollo. Major issues include downgrades for KKR and Future Standard, and UBS halting withdrawals from a real estate fund. The speaker emphasizes that liquidity is the primary concern, noting accelerating defaults, surging redemptions, and slow fundraising across the sector. This ongoing pressure is compounded by banks now enabling hedge funds to short private credit.

â–º AI Demand Remains Massive (Memory Strength)

AI demand remains massive despite concerns over multiple compression in financial stocks. A new paper detailing AI inference optimization showed that efficiency gains could enable better models to run directly on edge devices like phones and cars. This shift toward Edge AI is considered the most plausible bear case against continued high cloud data center CapEx, but near-term memory demand remains unchanged. For example, Micron's stock dropped significantly after beating earnings due to concerns over efficiency gains reducing future need. The speaker maintains that despite short-term volatility and potential Jevons paradox effects, memory remains a strong commodity investment for the next year or eighteen months.

â—† Positioning and Offensive Plays

Bitcoin is currently range-bound and the speaker advises waiting for recession fears to be built into the S&P before becoming aggressive with that asset. Until those recessionary conditions materialize, risk assets should be reviewed using thematic names which are still considered to be in a bull market. Due to the market starting to discount things, the focus is shifting toward offensive plays.

Key Investment Recommendations:

  • Silver is the top offensive add right now, applying to both silver miners and the commodity itself.
  • Wait for recession fears to materialize before becoming aggressive with Bitcoin.

â—† Search for the alpha

The core thesis is that the market has entered a structural regime defined by scarcity, inflation, and massive hardware capital expenditure driven by AI, necessitating a rotation away from traditional large-cap software growth into industrial, commodity, and infrastructure themes. The current downturn is viewed as a necessary deleveraging phase before a potential bottom.

  • Real Capital Rotation: Significant underperformance in hyperscalers (Microsoft, Meta, Amazon, Google) mandates that they should not be viewed as long investments due to multiple re-rating risk; capital must rotate into thematic areas like hardware, chemicals, and energy infrastructure.
  • Top Offensive Add: Silver is identified as the primary offensive investment right now, applying equally to both silver miners and the commodity itself.
  • Avoidance/Timing: Bitcoin should remain range-bound until recession fears are fully priced into the S&P 500; current market movements are driven by deleveraging, not yet widespread bearish sentiment.
  • Thematic Focus: The model portfolio performance (up 75% over the past year) confirms a strong uptrend in hardware, semiconductors, optical fiber, and energy infrastructure despite broader market rotations.
Asset Signal Reading
Silver Top Offensive Add Buying both miners and commodity
Micron Strong Commodity Play Recommended for 1-18 months due to persistent memory demand
Hyperscalers (MSFT, GOOGL) Avoid/Reduce Do not view as long investments; facing severe multiple compression risk
The twist: The guest is implicitly arguing that AI's impact will be fundamentally a hardware and commodity story (semiconductors, memory, energy infrastructure) rather than purely a software valuation story. This structural shift justifies the move out of traditional tech giants and into industrial value plays, even while inflation pressures remain high.

â–º Chapter Summaries

Regime shift: Investors finally moving past tariff PTSD; the environment since 2007 is over. Long scarcity, short abundance is the framework. (0:00)

The market is experiencing a significant regime shift as investors move past previous anxieties and acknowledge current economic realities. The environment that has existed since 2007 is now over, with AI serving as a major driver of this change. Previously, many banks predicted lower oil prices, but the reality of massive power demands must now be accepted. China's vulnerability to energy shortages is heightened by rare earth constraints and its reliance on energy. Due to ongoing uncertainty about when these issues will resolve, hoarding behavior is expected to continue. Investors are advised to prepare their portfolios for this new economic regime.

Structural forces: AI software disruption is real and spreading; labor disruption worsening with zero job creation over the past year; commodities in a bull market; credit cycle in a confirmed downturn. (2:13)

The market is undergoing a regime shift driven by several critical structural forces. AI software disruption is real, leading to the re-rating of software companies and hyperscalers due to uncertainty regarding future revenue streams. Labor disruption is worsening, marked by a lack of job creation over the past year. Simultaneously, commodities are experiencing a bull market despite rising interest rates. Crucially, the credit cycle is confirmed to be in a downturn, causing liquidity to unwind and exposing weak positions. Investors must accept these shifts, as they impact everything from software valuations to long duration assets.

S&P sector positioning problem: Tech, discretionary, and financials make up 50%+ of the index but are on the wrong side of this regime; 6 of 11 sectors are up YTD, this is rotation, not a bear market. (5:13)

Major sectors like Information Technology, Consumer Discretionary, and Financials constitute over 50 percent of the index but are struggling in the current economic regime. While these large-cap weights have underperformed since 2007, smaller sectors are showing gains year to date. The speaker argues that despite the negative headlines, this market behavior is indicative of sector rotation rather than a true bear market. He notes that six out of eleven sectors are currently up YTD, supporting the rotation thesis. Furthermore, he remains unconvinced about an imminent recession this year, even if oil prices rise significantly. Instead, the focus will be on consistent multiple re-ratings across various sectors as the current pullback continues.

Model portfolio: 98 thematic names focused on hardware, chemicals, semiconductors, optical fiber, energy infrastructure. Up 75% over the past year; equal-weighted, skewing mid and small cap. (6:57)

The speaker introduced a model portfolio consisting of 98 thematic names focused on hardware, chemicals, semiconductors, optical fiber, and energy infrastructure. This equal-weighted portfolio has performed strongly, showing an increase of 75% over the past year. While the total market cap is substantial at 16 trillion, it includes many smaller companies, with a majority of stocks being sub $50 billion and 19 being mid-cap. The investment thesis suggests these sectors are in strong uptrends despite current market rotations. Looking ahead, earnings growth in the S&P 500 is expected this year due to nominal revenue increases driven by inflation. Investors are encouraged to look for opportunities within these thematic areas during periods of market volatility.

Inflation incoming: Import prices surging on computers, peripherals, and semiconductors. Oil's 6-month rate of change implies 4–6% CPI. Capital goods import prices highest on record since 1988. (9:55)

Import prices are surging due to rising costs for computers, peripherals, and semiconductors, signaling a significant inflationary trend. Capital goods import prices are currently at their highest level since 1988. The speaker warns that inflation is almost assuredly going to be above 4% within the next two months if markets do not adjust. Analysis of oil's six-month rate of change suggests annualized CPI could reach 6%, though a minimum of four percent is anticipated. This ongoing import-driven inflation favors technology companies that maintain strong pricing power. The speaker notes that this global disruption extends beyond just oil prices.

Geopolitical risk: Iran invasion probability above 50% by April 30; Strait of Hormuz disruption risk; Asia-wide energy shortages spreading; Shell CEO warning of Europe next. If inflation hits 6%, S&P could fall 25% off highs. (12:07)

Geopolitical risks are escalating, with an Iran invasion probability exceeding 50% by April 30th and severe disruptions expected in the Strait of Hormuz. Global supply chains are facing immense pressure due to shortages across Asia, including fuel and semiconductors, leading to global reserve depletion. Inflation is projected to reach between 4% and 6%, driven by these input price increases and energy scarcity spreading from Asia into Europe. The speaker warns that if inflation reaches 6%, the S&P could fall at least 25% from its recent highs. While a recession is not expected, the market is in a problematic phase of building up inflationary pressures. A major downturn is anticipated once inflation hits the 4 to 5 percent range.

Market technicals & rates: PE compression underway; 2-year yields could approach 5%; high yield CDX blew out Friday; MOVE index approaching liberation day levels. (16:17)

Recession fears are viewed as necessary for the market to find its bottom, amid ongoing PE compression. The speaker notes that high inflation should correspond with lower stock multiples, suggesting significant downside risk if stagflation develops. Historically, S&P performance is weaker when interest rates remain above 4 percent. Technical analysis and rising inflation risks indicate continued downward pressure on valuations. A major concern is the potential for two-year yields to approach 5 percent, particularly if inflation climbs toward six percent. Market participants should also keep in mind that political events like midterms typically influence market behavior.

60/40 breakdown: Worst month since 2022 for global 60/40. Bonds, stocks, crypto, privates, and alts all declining simultaneously. (19:31)

A credit cycle is currently unfolding, highlighted by significant moves in high yield CDX despite investor complacency. The combination of rising inflation and increasing rates presents a difficult situation for current investors. The global 60/40 portfolio is on pace for its worst month since 2022. This decline is widespread, affecting bonds, stocks, crypto, private equity, and alternative assets all at once. This simultaneous downturn sets the stage for a very challenging financial period. The speaker warns that this trend could signal an economically weaker environment and increased recession fears.

Growth vs. value regime shift: S&P relative to commodities mirrors 2007 iPhone-era reversal. Growth underperformance vs. value could persist for years. Hyperscalers are software companies and face the same disruption risk. (21:14)

A major regime shift is underway, with growth assets facing significant trouble while commodity and hardware companies on the value side are showing strong growth. This trend mirrors past reversals, indicating that growth underperformance versus value could persist for years. Despite inflation concerns, oil prices alone will not trigger a US recession because consumer household net worth has dramatically increased. AI represents a massive structural boom driving trillions in capital expenditure, which is expected to override other economic headwinds. Current housing and wage trends are fundamentally different from previous inflationary periods, suggesting core inflation may be manageable by the Federal Reserve. Growth managers must accept this new structural reality rather than relying on outdated assumptions of low credit spreads and stable oil prices.

Deleveraging signals: Turbulence model flagged since Feb 3; Russell outperforming Nasdaq by 4% in a week; put-call ratio hasn't spiked enough for a sustainable bottom; VIX outside Bollinger band suggests short-term bounce early next week. (28:04)

The market is experiencing massive deleveraging, which is driving current movements rather than widespread bearish sentiment, as indicated by the turbulence model and Russell's outperformance over the S&P. The put-call ratio has not spiked enough to signal a sustainable bottom, suggesting that rotation is occurring across sectors. Despite gold seeing significant declines due to crowded position unwinds, the VIX closing outside its Bollinger band suggests an imminent short-term bounce early next week. These factors lead the speaker to believe the current situation is developing into a good bottom scenario.

Hyperscaler breakdown: Microsoft down 27% YTD with a near-40% drawdown; Meta, Amazon, Google all in steep declines. Oracle CDS blowing out. Software index at 15-year relative lows. (32:55)

The hyperscaler sector is experiencing a severe downturn, with Microsoft down 27% year-to-date and its drawdown nearing 40%. Meta, Amazon, and Google are also in steep declines, while the S&P 15 software index is at a 15-year relative low. The speaker views this as a multiple re-rating that is not appreciated and expects further downside. Concerns include potential issues with earnings quality, increasing debt burdens, and slower than expected data center adoption. Technically, the market has closed below its 200-week moving average for the first time since 2013. Specific company risks were highlighted, including Meta facing legal setbacks and Oracle's Credit Default Swap blowing out. The overall sentiment is that hyperscalers should not be viewed as long investments.

Private credit crisis deepening: Monthly losses, withdrawal caps at Apollo, UBS halted real estate fund withdrawals, Blue Owl concerns, banks now offering hedge funds ways to short private credit. (37:12)

The private credit market is experiencing deepening stress, evidenced by monthly losses at firms like Ares and withdrawal caps imposed by Apollo. Major issues include downgrades for KKR and Future Standard, and UBS halting withdrawals from a real estate fund. The speaker emphasizes that liquidity is the primary concern, noting accelerating defaults, surging redemptions, and slow fundraising across the sector. Blue Owl's situation illustrates how selling at certain levels forces markdowns within this credit cycle. This ongoing pressure is compounded by banks now enabling hedge funds to short private credit. The speaker warns that this external hedging activity increases risk, making the current environment a serious financial issue.

AI demand still massive: Rental rates spiking; TurboQuant compression paper from Google raises edge AI bear case for cloud capex, but near-term memory demand unchanged. Micron at 3.8x 2027 PE after beating earnings by 30%. (40:17)

AI demand remains massive despite concerns over multiple compression in financial stocks. A new paper detailing AI inference optimization showed that efficiency gains could enable better models to run directly on edge devices like phones and cars. This shift toward Edge AI is considered the most plausible bear case against continued high cloud data center CapEx. While this trend weakens long-term demand for cloud compute, immediate memory shortages persist. For example, Micron's stock dropped significantly after beating earnings due to concerns over efficiency gains reducing future need. The speaker maintains that despite short-term volatility and potential Jevons paradox effects, memory remains a strong commodity investment for the next year or eighteen months.

Positioning: Bitcoin range-bound, waiting for recession fears to build before getting aggressive. Silver is the top offensive add right now, both miners and the commodity. (46:10)

Bitcoin is currently range-bound and the speaker advises waiting for recession fears to be built into the S&P before becoming aggressive with that asset. Until those recessionary conditions materialize, risk assets should be reviewed using thematic names which are still considered to be in a bull market. Due to the market starting to discount things, the focus is shifting toward offensive plays. The primary investment area highlighted is silver, which the speaker is actively buying more of. This recommendation applies to both silver miners and the commodity itself. Silver is expected to perform strongly as it exits its current phase, similar to Bitcoin's future movement.

Generated with algorithm v1-chunked · model google/gemma-4-e4b · 2026-03-29T10:00:00Z

Transcript

[0:00] All right, um
[0:03] the the war continues
[0:07] and we're starting to finally see the
[0:09] market shift. I think this was a big
[0:12] week for um
[0:14] ending what I talked about last week,
[0:16] which is I think investors finally got
[0:18] rid of the uh the taco PTSD and realized
[0:23] that this is not the same situation as
[0:25] last year. And
[0:27] we started to discount
[0:29] more of a reality onto what's happening.
[0:31] So, I'm going to go through that. Um
[0:34] I'm going to highlight the fact that I
[0:37] think one thing is certain in my mind
[0:40] going through this is that we're at a
[0:41] regime shift. And what a regime shift
[0:43] means for all of you listening
[0:46] is confirmation that the environment
[0:49] that we were in
[0:50] definitely over the past couple years
[0:52] since since the launch of chat GPT, but
[0:54] honestly uh since 2007,
[0:58] we're just in a different regime now.
[1:00] And I think AI is part of it. The major
[1:03] driver of it. You can separate
[1:05] commodities and kind of geopolitics if
[1:07] you want. But I think at a minimum
[1:10] people have to accept now a reality that
[1:12] is very different than last year where
[1:13] the majority of banks and investment
[1:16] banks all throughout the second half of
[1:17] last year were calling for oil to
[1:20] get down to the 40s and 50s. Uh
[1:24] And again, I I think this is just a
[1:26] mistake that people have have done with
[1:29] AI and the fact that there's a massive
[1:31] amount of power that's needed and also
[1:33] that energy is something that's
[1:35] necessary for China.
[1:38] Uh and since there's a rare earth
[1:40] stranglehold, there now appears to be a
[1:42] reality regardless of what people want
[1:45] to say that the vulnerability for Asia,
[1:48] which I'll go through, is energy and
[1:50] especially for China.
[1:52] So, we're in this world that I think
[1:53] people have to stay here. Hoarding is
[1:55] going to be going on because we don't
[1:57] know when this is going to end and even
[1:58] when it does end, I think people don't
[2:00] want to have the risk that this
[2:02] continues again. So, just remember as
[2:04] you go through this week's video that
[2:07] I do think a regime shift is something
[2:09] that you have to prepare your portfolio
[2:11] for. I've been saying multiple
[2:12] compression in general.
[2:15] I mean, it looks
[2:17] gloomier on the right-hand side, but the
[2:19] reality is in a world of low inflation
[2:21] with strong earnings and good economic
[2:23] growth and more importantly
[2:26] just not a difficult environment for
[2:28] credit. Now, we're getting into a more
[2:30] volatile situation and I think this is
[2:33] the reality of what I was writing about.
[2:35] We have scarcity and we have abundance
[2:38] and right now you want to be short
[2:40] abundance and you want to be long
[2:41] scarcity and I think the market is
[2:43] emphasizing that more and more every
[2:45] day, but I think you have to accept the
[2:47] regime shift at this point. So, let's go
[2:50] through this. AI and these are all
[2:51] structural issues in my important in my
[2:53] opinion. The AI software disruption is
[2:56] real.
[2:57] Everyone who is trying to pick the
[2:58] bottom of it the the one thing the war
[3:00] has done is I don't hear this anymore
[3:02] from people. I think they've just
[3:04] accepted the beatdown.
[3:06] Software is being re-rated. Hyperscalers
[3:08] are being re-rated. This is because we
[3:11] don't know 3 years from now based on the
[3:13] progress which is accelerating what the
[3:14] world is going to look like and then
[3:16] when you extend this out 5 years and
[3:18] you're in humanoids, you start to get
[3:20] into even murkier conditions. So, I
[3:21] think anything that has a high multiple,
[3:23] the first question is are you guaranteed
[3:26] to still be in business 3 years from
[3:27] now? Are you guaranteed to have revenue
[3:29] similar or more to where you are today?
[3:31] And I think that's getting harder and
[3:32] harder for software in particular, but I
[3:34] think it's also spreading
[3:36] from the disruption that's happened
[3:38] through credit and other places. The
[3:40] labor disruption, this is a reality.
[3:42] It's going to worsen. So, we're not
[3:44] going to see labor pick up. You have to
[3:46] embed that into it because it's now been
[3:48] a year that we haven't had any job
[3:50] creation and now with oil prices moving
[3:52] higher, rates having moved up, Fed rate
[3:55] hikes, we have a different situation
[3:56] than we did before. Commodity is in a
[3:58] bull market. You have commodities moving
[4:00] higher while rates are moving higher
[4:02] and even though we've seen a pullback in
[4:04] gold and silver, they are still up
[4:06] sharply from 6 months ago while equities
[4:09] are down. The credit cycle
[4:12] is going to continue and I hear way too
[4:14] many people, way too many on this side.
[4:16] I was out to dinner a few times this
[4:19] week. I heard it repeatedly with people
[4:21] saying this is overblown. I heard this
[4:23] with software. The credit cycle is in a
[4:25] downturn. There is no doubt about it.
[4:28] I'm sorry for people who don't want to
[4:29] accept this, but when credit cycles
[4:31] start to unwind and you have people
[4:33] being forced to
[4:34] to take off positions,
[4:36] again, the tide of liquidity is going
[4:38] out and you get to see who's naked,
[4:40] who's been fraudulent, who's been
[4:42] carrying things over and we've seen that
[4:44] starting in September and now it's
[4:46] continuing.
[4:48] Software is just one part. There's going
[4:50] to be more, so I think people have to
[4:51] accept this and then long duration
[4:54] assets are being repriced. So don't
[4:56] minimize this stuff. Really stay on top
[4:58] of it. I think people need to be
[5:01] aware that this is going on and you can
[5:04] basically see how it's impacting and the
[5:06] reason I wanted to show this chart is
[5:08] because the problem is for the regime
[5:10] shift is the positioning.
[5:12] So if labor is not going to be created
[5:15] then consumer discretionary is not going
[5:17] to be in the same side particularly when
[5:18] you throw higher commodity prices or
[5:21] input costs, you have the affordability
[5:23] issue. So discretionary is 10% of this.
[5:28] Financials are 13%. They're getting hit
[5:30] by software. Information technology is
[5:32] 33% and then commercial services is 12.
[5:37] So when you combine this, this, and
[5:39] this, you get over 53 50%. Remember
[5:42] consumer discretionary includes Tesla
[5:44] and Amazon
[5:47] and the financials are lumped in with
[5:48] it. And then over here you have energy,
[5:50] materials. These are the current
[5:51] weightings of the things that are
[5:53] benefiting from this world. They're just
[5:55] not big enough. So,
[5:58] the reason I wanted to show that,
[5:59] believe it or not, in this quote-unquote
[6:01] bear market that we're in,
[6:03] this is all about these names down for
[6:06] the year, the big weights, the ones that
[6:08] have worked since 2007.
[6:11] All of the small ones
[6:13] are up for the year. We have 11 sectors,
[6:16] six of them are up through Friday. That
[6:18] doesn't sound like a bear market, that
[6:20] sounds like a rotation. This will
[6:21] continue to be the story. There will not
[6:24] be a recession this year, even if oil
[6:26] goes to $150 as I go through this. I'm
[6:28] not concerned at all about a recession,
[6:31] but I do think that it will be a year
[6:32] where there will consistently be
[6:34] multiple re-ratings for these sectors.
[6:36] So, this is more about an overweight,
[6:38] and I show this
[6:39] because for those people who were hoping
[6:41] for a pullback, this is the pullback. I
[6:43] talked at the beginning of the year
[6:44] about a 15 to 20% correction at some
[6:46] point. We're getting it earlier. It is
[6:48] on the back of oil, but then you're
[6:50] going to have the midterms at some point
[6:52] if this can at all at any point over the
[6:54] next four or six weeks start to slow. We
[6:56] are going to go through repricing the
[6:58] stock market, which we should. Now, for
[7:02] subscribers, there's been a lot of
[7:03] requests, and I'm going to do this. I
[7:07] will have a model portfolio, which will
[7:08] be up there.
[7:10] This is going to be all of the thematic
[7:13] pieces that I've written. As of right
[7:15] now, the total number is 95, but I
[7:17] included five other names
[7:19] that to me I've talked about and written
[7:21] about. But this model portfolio is
[7:23] hopefully going to help people
[7:25] in this world where we have the the the
[7:28] the rotation going on. Again, chemicals,
[7:31] semiconductors, optical fiber, the whole
[7:33] rack in energy infrastructure, plus the
[7:36] other names. These are all
[7:36] hardware-related names. This is where
[7:39] you want. These charts are not in a bear
[7:41] market. They are for the majority of
[7:43] them been in a very good uptrend. Some
[7:45] of them are getting are coming down now,
[7:48] but for the most point you're in
[7:49] uptrends in these things and I think
[7:51] you're going to be there. Over the
[7:52] course of the last year these names are
[7:54] up 75% but more importantly year-to-date
[7:57] and this is an equal weight portfolio of
[7:59] these names. These go this starts with
[8:01] the piece of optical fibers in November
[8:03] then it goes into December with the
[8:06] advanced packaging side and then the
[8:08] pieces that I wrote earlier on in the
[8:10] year. And the reason I want this to be
[8:12] there is because as I add names in terms
[8:15] of themes that are happening
[8:17] all of this right now benefits from the
[8:19] agendic side. So this is something
[8:21] that's going to be there for the year
[8:23] for sure. Now what I wanted to show you
[8:25] is what the market cap is of this
[8:27] because the mag seven market cap is
[8:29] still might be just below 20 trillion at
[8:31] this point. This name of 98 stocks comes
[8:36] to 16 trillion but Nvidia which is one
[8:40] of the names is 4 trillion.
[8:42] If you cap weighted it's obviously going
[8:44] to be very equal weighted it's going to
[8:46] be very different but the main point is
[8:48] these three names alone are almost half
[8:52] of it. So the bottom 95
[8:55] start to get into smaller things and you
[8:57] still have Eli Lilly ExxonMobil ASML.
[9:00] You get the point here and then we start
[9:02] to get into smaller. You can see down
[9:04] here that 19 of the stocks are mid-cap.
[9:06] A lot of the names are sub 50 billion.
[9:09] In fact the majority. So you're going to
[9:12] be in there. I also I'm going to start
[9:13] putting up a technical analysis report
[9:16] for each of these especially as we go
[9:18] through this. It'll just be a recap of
[9:20] every single name so that way the
[9:22] subscribers who are investors can start
[9:23] picking their points. During times like
[9:25] this
[9:26] I think everyone should be looking for
[9:27] opportunities. I fully expect this year
[9:29] that earnings are going to grow in the
[9:31] S&P 500. Right now what you've seen is
[9:33] actually estimates have gone higher.
[9:35] That's because energy it's very easy to
[9:37] re-rate energy higher because of how
[9:39] much crude has gone up. We're obviously
[9:41] going to see some names come down,
[9:43] particularly as I go through this, but
[9:44] the reality is at this point, remember,
[9:48] you're going to see revenues on the high
[9:49] side because inflation and or revenues
[9:52] are going to be on the uh on the nominal
[9:54] side. The difference between the 1970s
[9:56] and now are a lot, but one of the
[9:58] differences is the job situation in
[10:01] terms of our ability to cut things uh
[10:04] at this pace uh because of AI. So,
[10:07] import price, this was the big change
[10:09] that happened, and this is where I think
[10:10] the market started to realize, "Oh my
[10:11] gosh, uh we're going to be in trouble in
[10:13] 2 months." In 2 months, as I said last
[10:16] week, as I've said in every interview,
[10:18] inflation is almost assuredly going to
[10:20] be above 4%. Uh if you haven't seen that
[10:23] or haven't factored it in, it is not
[10:25] good for stocks, and I have not seen
[10:27] economists adjusting to this cuz I think
[10:29] Taco had everyone kind of not wanting to
[10:31] go through what they went through last
[10:32] year. But this week we got the import uh
[10:35] price index. This is the jump that we
[10:38] saw. This is ex-petroleum.
[10:40] And this is through the end of uh
[10:42] February when oil was closed the month
[10:44] below $70.
[10:46] So, below $70, and we already had import
[10:49] prices going higher, and the majority of
[10:51] this, again,
[10:53] was coming from computers, peripherals,
[10:56] and semiconductors. This is the
[10:57] inflation that was already happening,
[11:00] which is going to continue. This is
[11:01] again is what you want to invest in on
[11:03] the long side. The pricing power of
[11:05] these of these companies, which are
[11:07] technology related, and so you had
[11:10] capital goods import prices the most on
[11:12] record back to 1988.
[11:15] DRAM prices are finally flowing through.
[11:19] Here is oil now. So, the orange line
[11:22] here is the second-month contract of
[11:24] crude, the 6-month rate of change. This
[11:27] is overlaid with the 6-month rate of
[11:29] change of CPI.
[11:32] So, 6 months this has gone higher, this
[11:34] is saying that you're going to take the
[11:36] CPI to an annual to a monthly number of
[11:39] about 0.03 to 0.35.
[11:42] Well, that means we'll be dealing with
[11:43] 6% year-over-year inflation annualized
[11:47] if
[11:48] oil prices sit up around here based on
[11:50] history. At a minimum, you're going to
[11:52] see this stuff head up to four, but
[11:54] again, the risk for inflation now that
[11:57] oil has gone up here and sat here. And
[11:58] as I go through the problems around the
[12:00] globe, this is going to spread because
[12:03] we're spending too much time on just oil
[12:05] prices and there's far far more
[12:06] disruptions that are happening.
[12:08] Uh two bearish things for the market
[12:10] that I think you have to expect are
[12:11] going to lead to more weakness on top of
[12:14] the fact that inflation is going to go
[12:15] higher.
[12:16] I don't think this is uh consensus in
[12:19] terms of investors' minds, but forces
[12:21] entering Iran
[12:23] by April 30th, more than 50%.
[12:27] The Strait of Hormuz traffic returns to
[12:28] normal by the end of April.
[12:31] 27%.
[12:33] So, you've now starting to get the OECD
[12:36] warns that it will surge to 4.2%.
[12:40] You've got Rob Kapito warning that again
[12:43] this week, they were mispricing the Iran
[12:45] risk. I think we're getting closer.
[12:47] Uh this chart is going to start to uh
[12:50] show up more and more. This is the wave
[12:53] the first wave of inflation in the '70s
[12:56] down, and this is overlaid with what
[12:59] we've done so far. This dotted line here
[13:02] is using one year break even implied
[13:04] which have already gone above 5% to
[13:06] highlight what the market is effectively
[13:09] thinking. And like I said, I think four
[13:11] 4% to 6% should be a foregone conclusion
[13:15] in people's minds based on the
[13:17] disruption that's happening and the fact
[13:19] that the input prices for computers and
[13:21] peripherals are already driving things.
[13:24] So, when you get up there, you would
[13:25] expect that the multiple
[13:27] uh compression would continue.
[13:30] This is polyethylene.
[13:32] Going back to 2011, this is
[13:34] month-to-date. This is important for
[13:37] plastics.
[13:38] Uh and here you have plastic prices. I'm
[13:41] only bringing all this stuff up just to
[13:43] show you the extent of where oil is
[13:45] going to go. It's going to go into
[13:46] plastic. So, anything that your food's
[13:47] wrapped in, your toys are wrapped in,
[13:49] anything. Fertilizer prices.
[13:52] So, food. We've got the helium shortages
[13:55] and you're starting to see more panic
[13:56] setting in for the tech supply chains,
[13:59] uh specifically semiconductors.
[14:04] China, back only 6 days into the war,
[14:07] uh halted gasoline and diesel exports
[14:12] to basically uh deal with their own
[14:14] country. Uh and this is why the hoarding
[14:17] situation to me is going to happen. So,
[14:19] you can see Australia's got a problem. I
[14:21] mean, they've got hundreds of uh petrol
[14:25] stations that don't have diesel or gas.
[14:28] Same thing going on in South Korea and
[14:31] in Vietnam, but it's really throughout
[14:33] Asia. You've got problems everywhere.
[14:35] Cathay Pacific announced that they're
[14:36] going to increase a fuel charge on
[14:38] airlines 34%.
[14:40] You can go through this, but every
[14:42] single part of Asia is at risk uh for
[14:46] not only disruptions, but they have
[14:47] severe shortages and we are around the
[14:49] globe going through reserves at a very
[14:51] fast clip. Uh we've already gone through
[14:54] the oil on the water and now we're
[14:55] starting to go into the reserves at
[14:57] country levels. Uh this is from the
[15:00] Shell CEO. Next month, disruptions in
[15:02] the supply of energy resources from Asia
[15:04] will spread to Europe. If you remember
[15:06] COVID and the way it spread, it started
[15:08] in Asia, went to Europe, and eventually
[15:09] came here. This is to me why
[15:12] uh the market will have a sell-on-rally
[15:14] mentality until inflation gets up to 4
[15:17] to 5%. So, any bounces, which is why I I
[15:20] last week and we'll I've been saying it
[15:21] out for for a couple weeks. This is no
[15:24] longer a bull bear for the index side of
[15:26] the market. If you're watching people
[15:28] say it's oversold, it's this, it's that,
[15:31] don't listen to it. At some point like
[15:33] 2022, if you listened every time the
[15:35] market was oversold, you ended up
[15:37] getting knocked down again and again and
[15:39] again. If you're a trader, you can do
[15:41] that. You can look for opportunities to
[15:42] buy into things, but the market is going
[15:44] through a very, very problematic
[15:45] situation of building in inflation and
[15:48] one thing is certain, we don't know how
[15:50] high it's going to go. So, when I say 4
[15:52] to 6%, if it goes to 6%, I would expect
[15:55] the S&P to fall at least 25% off the
[15:58] highs.
[15:59] If it only goes up to four and it peaks
[16:01] in May, I think we'll make the bottom
[16:03] right around that time period, but I
[16:05] think the bottom will be kind of a
[16:06] rolling bottom. It won't be some spike,
[16:08] but I do think the second half of the
[16:10] year the earnings will dictate things
[16:11] and we will get back up cuz I'm not
[16:13] expecting any sort of recession, but I
[16:15] do think for the panic to reach a level
[16:17] two things need to happen. There need to
[16:19] be recession fears, so we need to get up
[16:20] to people saying 50% chance of
[16:22] recession, just like we saw last year,
[16:24] just like we saw in 2022, just like we
[16:26] saw in 2021 and 2020, even what we saw
[16:29] after SVB. Only year I can remember
[16:33] since the since COVID that we haven't
[16:35] talked about a recession in big ways was
[16:37] 2024. I think we need to get there and
[16:40] that's about the point that the bottom
[16:42] will be made.
[16:43] I thought this is a good way to
[16:45] that Mike Canterwitz did this week from
[16:48] a visual perspective of the PE the PE.
[16:51] We've got credit widening out and we've
[16:53] got PE heading down. When you're in
[16:54] inflation, you should have a lower
[16:56] multiple. We were coming from a place of
[16:58] Goldilocks at the beginning of the year
[16:59] or towards the end of last year.
[17:02] So, if we get to stagflation fears where
[17:04] recession fears are going, you could
[17:05] take this all the way down. This is
[17:07] where we got in 2022.
[17:09] This is where we got in 2023. There's no
[17:11] reason why we can't get back down here
[17:13] in terms of the multiples,
[17:15] none whatsoever. If we start seeing the
[17:18] rest of the world go into a recession,
[17:20] then 40% of the S&P
[17:22] uh, revenues come from overseas, you're
[17:24] going to have issues in terms of the
[17:25] S&P.
[17:27] Here's just a history of the world using
[17:29] Perplexity computer. I put in all the
[17:31] data and just said, "Give me the time
[17:33] period of the S&P from the day it prints
[17:36] above 4% and stays above it to all you
[17:41] end up with 11 and a quarter percent
[17:42] annualized uh, 64 of the of the whatever
[17:47] it is, 93 years.
[17:49] Uh,
[17:51] it's a it's below 4%. That's when you
[17:53] make money. When you're above 4%
[17:54] regardless of what people want to say,
[17:56] it makes it more confusing. Rates are a
[17:58] better alternative. It has people kind
[18:01] of in a mess. Here are the technical
[18:02] levels that I'd be watching. Um,
[18:05] I did close out some of my VIX about a
[18:08] third of it uh, on Friday. Now, about a
[18:10] quarter of it on Friday.
[18:12] Uh, and as we go higher, I do think it's
[18:14] very likely that we'll bottom somewhere
[18:16] in this area beginning at this point
[18:18] here at least for a bounce and then
[18:20] we'll see what happens with the
[18:21] inflation data. That's the way I'm
[18:23] viewing it as the inflation risk is
[18:25] rising, we're going to keep taking this
[18:27] down lower and I think people need to
[18:29] adjust to it and just deal with that
[18:31] that's where we are. Uh, reminder too
[18:34] that midterms typically are bad leading
[18:36] into it and then good post it. Uh, in
[18:40] fact, it's not just typically, you get a
[18:42] drawdown
[18:43] and then you This is what happens 1 year
[18:46] later after the midterm. So, I think you
[18:49] should have that in the back of your
[18:50] mind because I do think that they will
[18:52] try or the administration will try
[18:54] everything to help for there. I think
[18:56] there'll be
[18:57] assistance needed in the credit side at
[18:59] some point. So, I just bring that up to
[19:01] just keep in the back of your mind. John
[19:02] Roque this week put out his biggest
[19:05] fear, which is the fact that 2-year
[19:06] rates have started to move higher and
[19:08] the chart looks like it could move. Um,
[19:12] he highlights the relationship that's
[19:14] been there for the last two and a half
[19:16] or three years with crude oil. It's kind
[19:19] of a scary thing to think that we could
[19:20] get up to 5%. But if inflation goes to
[19:24] six, I don't think it's out of the
[19:25] equation that two-year yields won't go
[19:27] up till towards five. I don't think the
[19:30] market has discounted enough as to
[19:32] what's happened. We finally have seen a
[19:34] move in high yield CDX. We had a big
[19:36] blowout on Friday. I think the credit
[19:39] situation again, I think people
[19:41] Investors are very complacent. Not
[19:44] retail, obviously, that's trying to get
[19:45] out.
[19:47] But the banks seem to be trying to keep
[19:49] everything at bay including the the
[19:53] the ones that have people trapped in it.
[19:55] They're trying to say this is just an
[19:57] overreaction. As we learned with
[19:59] software, um
[20:00] I I don't sit there and pretend that the
[20:02] market doesn't know something. There is
[20:04] a credit cycle that is happening and I
[20:06] think people have to adjust to it.
[20:08] I think it I think credit spreads were
[20:10] too tight and I think now we're moving
[20:11] into a different world. Here's the move
[20:13] index for rates ball.
[20:15] Move higher and we're approaching the
[20:18] levels we were at liberation day which
[20:20] kind of highlights the fact that
[20:22] with inflation moving higher and rates
[20:24] moving higher,
[20:26] you're starting to get into a bad
[20:27] situation for investors sitting at home
[20:30] and what can happen to the economy.
[20:33] We're set for the worst month in 60/40
[20:37] since 2022 and we're losing money on the
[20:40] alt space.
[20:42] This just is setting up to be a very
[20:44] very difficult time where bonds are
[20:46] falling off at the same time that stocks
[20:48] are falling off. Crypto has already
[20:50] fallen. Now you've got privates and alts
[20:52] and everything's going down. Don't be
[20:54] surprised if the economy is weaker and
[20:56] if we start to get into those recession
[20:58] fears place. Here is the global 60/40
[21:01] month to date. This is through Thursday.
[21:03] It does not include Friday. I'm sure
[21:05] it'll be a little bit further down, but
[21:06] you can see where it's the worst on on
[21:09] pace for the worst month uh since 2022.
[21:12] The good side is this comes after
[21:14] massive moves higher over the last 2
[21:16] years, and again, that's one of the
[21:18] reasons why I don't think a recession is
[21:20] in the cards. Um
[21:21] I wanted to highlight another thing on
[21:23] the regime shift.
[21:25] I've talked about this
[21:27] as well. Uh I think growth assets are in
[21:30] major major trouble in this regime. Of
[21:32] all of the problems that I showed at the
[21:34] beginning, I don't think anyone
[21:37] can identify what a growth business
[21:39] looks like anymore. I think it is
[21:41] uncertain going forward. I think the
[21:43] growth that matters is coming from
[21:45] commodity companies and hardware, and
[21:48] those typically are in the value side.
[21:49] This is the overlay of the S&P white
[21:53] line divided by commodities.
[21:56] So, this is divided by the BCOM. So,
[21:58] when the S&P is going down relative to
[22:00] commodities. So, when commodities are
[22:02] outperforming the S&P, that is also when
[22:04] growth underperforms value. Well, that's
[22:07] what we're seeing right now, and I think
[22:08] this has a long way to go. And since
[22:10] most of the money in the world is in the
[22:12] US, and then most of the money from an
[22:15] asset versus from a growth versus value
[22:17] perspective has moved into growth, and
[22:19] value's effectively been dead, and we
[22:20] just made the highs since the lows made
[22:23] in here. And when was this? This was the
[22:26] launch of the iPhone.
[22:28] So, the last time we had a commodity
[22:30] bull market that was driven by China,
[22:32] this one is going to be driven by AI.
[22:34] You can see what happened. Growth
[22:36] continued to get hit versus value. I
[22:38] think the same thing is in the cards.
[22:40] So, for all you growth managers out
[22:43] there, uh I would
[22:45] accept the fact that unless you believe
[22:46] we're going back to a world where
[22:47] credit's going to be great, credit
[22:49] spreads will be tight, inflation's going
[22:50] to be low, and oil's going to be sitting
[22:52] back at $50, and AI's not going to
[22:54] disrupt anything, then great. I think
[22:56] all of that is pipe dream. Uh I think
[22:58] all of those things are structural, and
[23:00] there needs to be uh an adoption to
[23:02] this, and the problem is it happens so
[23:04] quickly that as I showed at the
[23:06] beginning, the waiting is just so
[23:08] mispriced relative to the reality of
[23:10] what we're going into. It is going to
[23:12] take a long time, and so there is going
[23:14] to be a wave of selling into any
[23:17] strength in my opinion, and God forbid,
[23:20] when we start to see the earnings tick
[23:22] down, at that point, I think it'll be a
[23:23] major, major problem for some of these
[23:25] names, and I think you're already seeing
[23:27] some of the hyper scalers with the risks
[23:29] that are rising I'll get into that.
[23:31] So, you're starting to get into these
[23:33] charts now, and this is true, and this
[23:34] is one of the reasons why oil is not
[23:36] going to create a recession in the
[23:39] United States.
[23:41] It's just not as important or as
[23:43] intensive it was. Manufacturing was
[23:46] twice as important back then.
[23:48] Not only is the oil side just not as
[23:51] important, but the US is now a net
[23:53] exporter of BTUs. So, it actually
[23:55] benefits. So, I wouldn't get caught up
[23:57] in this. I do think if oil were stay at
[24:01] 100 plus dollars for the entire year,
[24:03] we'd have a global recession for sure,
[24:05] mainly because the rest of the world
[24:06] would go into it, and the US consumer
[24:08] would fall off enough. I just don't
[24:11] think that's going to happen. The other
[24:12] part about this is just how much
[24:14] consumer household net worth has gone
[24:16] up. Household net worth has gone from 60
[24:18] trillion when oil was the same price as
[24:20] it is today in 2000 early 2008.
[24:25] So, oil today, right now with the spike
[24:27] we had, is the exact same price as
[24:29] before as early 2008, but here's how
[24:32] much consumer household net worth has
[24:34] gone up. We've gone from 60 trillion to
[24:36] 180 trillion.
[24:39] An increase of 120 trillion while oil
[24:41] hasn't changed. That is a lot of
[24:43] trillions of dollars to be spent on the
[24:44] economy. It may not be distributed
[24:47] fairly, but oil is not by itself is not
[24:49] going to take the economy down. The
[24:51] housing market during the 19
[24:54] I'm sorry, during the 1970s was an
[24:55] inflationary pressure
[24:57] or sorry, during 2022. I I wanted to
[25:00] highlight in this where we are different
[25:02] today and why I'm also not worried as
[25:05] much as I was back then. In
[25:07] we had inflation that was high not only
[25:10] on the bottleneck side, but you also had
[25:12] a bull market in housing. This is just
[25:14] showing house prices, which peaked in
[25:16] 2022 have come down. So, even though I
[25:19] think inflation is going to go higher on
[25:21] the on the headline,
[25:23] I don't think this is going to feed
[25:25] through to the core, which means the Fed
[25:26] can look through this and more
[25:28] importantly, if oil prices do come down,
[25:30] you're going to see a sharp reduction
[25:32] once we start going through
[25:35] the reality. This is different than
[25:36] 2022, guys, for sure.
[25:39] Uh
[25:39] again, you can see that buyers were
[25:42] happening in 2022 and now it's no
[25:44] buyers, all sellers. Housing and wages
[25:48] are both on the decline. For the wage
[25:50] side, here's where we were in '21, '22
[25:53] when inflation was going higher and oil
[25:55] was going higher. Okay, great. So,
[25:57] Russia is in here, we're above 100 for
[25:59] the entire time, but we also had massive
[26:01] monetary stimulus that was still in the
[26:03] system and we had the fact that jobs
[26:05] were being created relentlessly.
[26:08] Now, nothing. So, remember how much
[26:10] wages were growing during this time? You
[26:11] had to beg people to get back to work.
[26:13] Well, now we haven't created a single
[26:14] job over the last year, which is why
[26:16] wages have come down and here's where
[26:18] wages were during 2021. It's a very
[26:20] different time. So, as you freak out on
[26:22] inflation, don't freak out that much. Um
[26:25] here's the other thing.
[26:27] AI is still driving the economy.
[26:29] Um these numbers are just staggering.
[26:32] So, this is the imports of capital goods
[26:34] ex-autos
[26:36] divided by the imports of consumer
[26:38] goods.
[26:39] Uh just look at how consistent this was
[26:43] and now all of a sudden, I mean, this is
[26:45] just unbelievable. I still don't think
[26:48] people realize
[26:50] how big a trillion plus dollars in
[26:53] spending is for AI and how that will
[26:56] override anything that's happening. It
[26:58] will continue to happen. AI is a
[26:59] structural boom and even though people
[27:01] want to find and talk to me about when
[27:03] CapEx CapEx will be canceled and all
[27:05] this stuff. If we cancel from 1 trillion
[27:07] to 900 billion, it is not going to make
[27:09] a difference on anything except to get
[27:11] you more bearish at the lows. Uh here's
[27:14] Taco
[27:17] Monday, he comes out at 7:00 and says
[27:19] we're going to delay the whatever he
[27:21] said over the weekend, the obliteration,
[27:24] the water plants, and here's what
[27:26] futures did the rest of the week. So,
[27:28] the high was made the second he said it
[27:29] and went down. This is a clear sign that
[27:32] the Taco stand has no people anymore. No
[27:35] one's paying attention. S&P was down 2%
[27:38] for the week. Again, a fairly quiet
[27:40] week, but it's four weeks in a row of
[27:43] very quiet down week.
[27:45] Uh and then you also have a small down
[27:48] move. If you ask me,
[27:49] I think we'll make a low Monday or
[27:51] Tuesday this week and we'll start some
[27:53] sort of a bounce just because people at
[27:56] this point as of Friday and if we get a
[27:58] couple bit of follow-through, we'll have
[28:00] enough hedges on for a bounce. I still
[28:03] don't think, like I said, it matters. I
[28:05] think
[28:06] rallies are to be sold into during this
[28:08] time period. I think we're in a
[28:09] different market. Qs down 3.4%
[28:14] the worst week since liberation week.
[28:17] IWM
[28:18] was up for the week. I'm sure that hurt
[28:20] people.
[28:21] One thing I want to say, I've talked
[28:23] about this before, but I think one of
[28:25] the pain trades this year and what's
[28:26] going on is there is massive
[28:29] deleveraging that needs to happen.
[28:30] That's the reason why I showed you guys
[28:31] the turbulence model back on February
[28:33] 3rd. The turbulence model was meant to
[28:35] represent the P&L of multi-strategy
[28:38] funds or any kind of cross asset
[28:40] firms. It's showing the daily ball.
[28:44] I've had multiple readings as I've
[28:46] highlighted. Basically, the ball of the
[28:48] market has gone up. The message back
[28:50] then was to significantly take up cash
[28:53] because it was happening at a time when
[28:54] the market was quiet and liquidity was
[28:56] ample. Well, now liquidity and spreads
[28:57] are wider and things like this where the
[29:01] Russell's up on a week that the S&P is
[29:03] down and we all know that when you want
[29:05] a hedge over the past 17 years,
[29:08] you wanted to use the Russell. The Black
[29:10] Widow trade was trying to be short
[29:12] queues and long IWM.
[29:15] Well, last week was one of the, you
[29:17] know, it was a 4% outperformance for IWM
[29:20] over queues. Whenever this happens, it
[29:22] is not good
[29:24] for hedge fund portfolios because with
[29:26] oil going up, you would think that this
[29:28] will hurt small companies more than big
[29:30] companies. It'll hurt
[29:32] manufacturing, bank, whatever you want.
[29:34] Um all right. And this is another
[29:36] indication that this is more about
[29:37] deleveraging and rotation rather than
[29:39] people getting bearish.
[29:41] Uh put-call ratio, again, has not
[29:44] spiked. So, I've shown I showed this
[29:47] last week. I just want to highlight it
[29:48] again. Every good low we've made in the
[29:50] market has seen the 5-day moving average
[29:53] of the put-call ratio jump up. Yes, we
[29:55] got up to like the highest level since
[29:57] December, but I'm showing you guys
[29:59] I think things that matter more uh in
[30:02] terms of looking for a sustainable
[30:04] bounce. I think we're going to need
[30:05] people seriously hedged up. And I also
[30:07] think we need to see everyone in a
[30:08] recession. Recessions happen when down
[30:10] volume to up volume makes major spikes.
[30:13] Usually last for a few days. Um here's
[30:15] where we are in the 5-day average of
[30:17] down volume versus up volume. It's
[30:19] because people are rotating. You get I
[30:21] showed you at the beginning. Not every
[30:23] sector is down. Six of the 11 are up for
[30:25] the year, guys. This is not what you
[30:27] think. The S&P is weighted towards
[30:30] software and these other items. It's not
[30:32] weighted the proper way for the world
[30:34] we're going into. The VIX closed outside
[30:36] of the Bollinger band.
[30:38] Pretty much this is one of the good uh,
[30:40] buy signals out there. It's one of the
[30:41] reasons why I think we'll make some type
[30:43] of a short low,
[30:45] uh,
[30:47] early in the week, uh, and a bounce and
[30:49] maybe we'll finish up for the first week
[30:51] in five. That's what my gut would be
[30:53] even if the news is horrible and we walk
[30:54] in Monday and everything's down. I I
[30:56] still think, uh, that you're going to
[30:59] you're going to get a bounce this week.
[31:00] Uh, gold down 15%
[31:04] for the month.
[31:05] Okay, this is the worst month since the
[31:08] great financial crisis and before then
[31:10] since the early 1980s. The reason I want
[31:12] to show this again, this is obviously
[31:14] was a crowded position
[31:16] unwinds. Uh, your eye bore.
[31:19] This is, uh, something I'm sure a lot of
[31:22] the equity people don't follow this
[31:23] much. This is a six contract of your eye
[31:25] bore. Basically, they're, you know, what
[31:27] used to be euro dollar futures within
[31:29] inside Europe or sofa futures.
[31:31] Um,
[31:32] huge move down, uh, for the month. More
[31:35] importantly, the last time we saw
[31:37] anything like this was during 2022, but
[31:40] I want you to see when this happened in
[31:42] 2022, this is where valve was. So, let's
[31:45] take it from before. Valve was actually
[31:47] already up here.
[31:49] Five times the level. This was a 10 plus
[31:52] standard deviation move. Uh, this caught
[31:54] a lot of people. This is why when you
[31:56] see some macro funds that have taken
[31:57] losses that are significant, your eye
[31:59] bore was a big place. To get a reversal
[32:01] that quickly is a big deal.
[32:04] One thing that's been very quiet, um,
[32:06] and I do think if this becomes an issue,
[32:08] this is one type of talk show thing
[32:10] where they're going to have to do
[32:11] something to provide liquidity and this
[32:13] is where liquidity facilities get more
[32:15] interesting to me. Uh, this is 10 year
[32:18] rates and remember when we started
[32:20] getting into the worst of last year
[32:22] during liberation day, you had this
[32:23] violent move where the basis trade was
[32:25] unwind. Things have been very calm so
[32:27] far, but I would watch, uh, 10 year
[32:29] rates just to see if something big goes
[32:31] on. Turbulence model getting less
[32:33] signals now, uh, Uh, but that's because
[32:36] now we're starting to get a little bit
[32:37] more into uh, higher correlation moves
[32:39] and everything is kind of moving like it
[32:41] should, but
[32:43] uh, I do want to emphasize again the
[32:44] clusters that have been seen and what
[32:46] historically has happened at good
[32:48] bottoms in the market and I think this
[32:50] is becoming more of a good bottom
[32:51] situation, especially with the rollover.
[32:54] You kind of want to see a lot of these
[32:56] happening down there. So, I'll keep
[32:57] watching it, but for now
[32:59] nothing. Oh, and by the way, uh, China
[33:02] and the US tit-for-tat uh, ahead of them
[33:04] meeting. Uh,
[33:06] again, not good for the market, but
[33:08] clearly this got lost in the shuffle.
[33:10] Hyperscaler chart, horrible. Um, I've
[33:14] used this as the funding side of many
[33:15] trades. I believe this is the way you
[33:17] want to be. I think this is going to
[33:19] continue to move lower. This re-rating
[33:21] is not appreciated. I still have people
[33:23] asking me, "When do I buy Microsoft?
[33:25] When do I buy Meta? When do I buy it?" I
[33:27] don't think you do. I just think this is
[33:29] a multiple re-rating. I think they're
[33:30] going to keep making earnings. Uh, I
[33:32] think people are going to question the
[33:34] quality of the earnings. I think the
[33:35] debt situation is going to be an issue.
[33:37] People say, "What's going to happen? Are
[33:39] they going to cancel CapEx?" No. And I
[33:41] think they're going to have to issue
[33:42] debt. Remember, Meta has an off-balance
[33:44] sheet S P SPV that they set up with Blue
[33:48] Owl for the Hyperion deal.
[33:51] Uh, this is an issue. So, you got a
[33:53] sharp falloff here in the hyperscalers.
[33:56] Here's all of them.
[33:59] The best performing one is now down 13%
[34:01] year-to-date, which is Google, 14 for
[34:04] Amazon, 20% for Meta, and Microsoft at
[34:08] 27. The drawdown for Microsoft is
[34:10] getting close to 40. Here's the
[34:12] Microsoft chart, brutal. Best case
[34:15] scenario is I could see a big head and
[34:16] shoulders forming, but I think we're
[34:17] going to undercut that. I'll show you
[34:20] the reasons why. We've obviously taken
[34:21] out a trend line here, which came in
[34:23] here.
[34:24] Chart is just horrible and as I've said
[34:26] repeatedly, I can't think of a worse
[34:28] situation for Microsoft than myself
[34:32] using AI, I have multiple open claws, I
[34:35] use all LLMs all day long. I would not
[34:38] touch Microsoft Copilot with a 10-ft
[34:41] pole. So, I don't know how they're able
[34:44] to in a world where software companies
[34:45] are getting hit, and they are one of
[34:47] they are the largest one in the world,
[34:49] how are they going to be able to do this
[34:51] without finding a way to embrace it? And
[34:52] they're connected to OpenAI. I just find
[34:55] it
[34:56] to be troublesome.
[34:58] Here's the 200-week moving average. I I
[35:00] posted this on X this week. First time
[35:02] we've closed below it on a weekly basis
[35:04] since 2013. 13 years ago was the last
[35:07] time.
[35:09] Here's the software index, the S&P 15
[35:11] software index.
[35:13] We closed briefly below in 2022. We're
[35:16] way below now. This is the first time
[35:18] since 2010.
[35:21] Over 15 years.
[35:23] Here is the hyperscaler relative to the
[35:25] S&P, which is the orange line here,
[35:27] which is looking to break this support
[35:29] level. So, the hyperscalers relative to
[35:31] the S&P, and this is overlaid with
[35:34] software relative to the S&P. I will say
[35:37] it again and again, the hyperscalers are
[35:38] software companies. They get disrupted
[35:40] as well. You can call them cloud
[35:42] companies, but then you have to assume
[35:44] they get adoption, they get the build
[35:45] out of the data centers. That is all
[35:47] going slower than expected. I continue
[35:49] to believe that the hyperscalers, for a
[35:51] variety of reasons, should not be looked
[35:53] at as longs, and at its best, you can
[35:56] look at them as market performers.
[35:58] Meta chart.
[36:00] Horrible. They had more bad news come
[36:02] out this week.
[36:04] Drops almost 8% as two court defeats
[36:06] related to the dangers of social media
[36:09] for kids. They just have a lot of bad
[36:12] stories happening. Amazon.
[36:14] Chart is bad, but the main thing to me
[36:17] is I don't know if people realize this,
[36:19] but Amazon
[36:21] for almost 5 years now
[36:23] is effectively
[36:25] unchanged.
[36:27] It was here at about 180. Right now it's
[36:29] about 200. You're talking about a 10%
[36:32] performance in 5 years.
[36:37] So, it's not a new story.
[36:39] Um,
[36:40] here's Oracle CDX.
[36:43] Their CDS blew out last week. Um, I've
[36:45] mentioned Oracle before.
[36:47] They had earnings, stock traded up.
[36:49] They've not only given all that back,
[36:50] the stock has just zoomed to new lows.
[36:54] Uh, the growth factor, again, I want to
[36:57] highlight
[36:58] the regime shift. ChatGPT comes out, we
[37:02] get a growth move. Now all of the
[37:04] sudden, and this is growth factor, this
[37:05] is not the Russell versus value. This is
[37:07] the growth factor. Uh, we get Opus 4.5
[37:11] and you get a shift the other direction.
[37:15] Can't do a video on the weekend without
[37:17] more
[37:18] pain for the private credit market.
[37:21] Ares had its big posted a monthly loss.
[37:23] A lot of the other ones did, too. They
[37:25] limited withdrawals.
[37:28] Apollo capped withdrawals.
[37:31] Uh, you had a downgrade for KKR and
[37:34] Future Standard from investment grade.
[37:39] Going to be a problem.
[37:42] UBS halted withdrawals from a real
[37:44] estate fund.
[37:49] SoFi,
[37:51] you guys can go uh, listen to Steve
[37:53] Eisman talk about this on his podcast. I
[37:55] would listen to Steve Eisman every week
[37:56] at this point. This is not going away,
[37:58] guys. I've said it before, I'll say it
[37:59] again.
[38:00] I I've been associated with credit
[38:02] events since the outset of my career and
[38:05] I started trading Mexico in 20 in 1994.
[38:08] They don't end on their own. They just
[38:10] don't. They can linger and they can be
[38:13] there and it doesn't have to end up as a
[38:14] horrible thing. You can just kind of
[38:16] earn your way out over time, kind of
[38:18] like the 2000 to 2005 period uh, coming
[38:21] out of the dot-com bubble, but uh I
[38:23] think this one has got a bigger issue
[38:25] because of media, uh because of how much
[38:28] people want their money back, and I
[38:30] don't think this is going to stop, and I
[38:32] think this is eventually going to spread
[38:34] to when you have to raise cash, you
[38:36] can't just keep putting money in and
[38:38] giving people money back. I think all of
[38:40] this is a sign that they don't want to
[38:42] sell some of these these bonds or the
[38:44] loans down for the marks that are
[38:46] associated with them, and I think this
[38:48] is becoming an issue for them, but also
[38:50] for the insurance companies. Uh private
[38:52] credit default's accelerating, not a
[38:55] surprise. Uh surging redemptions, slow
[38:58] fundraising, all of this stuff, again,
[39:00] not a surprise. Cliffwater, new news.
[39:03] Blue Owl, new news. If you go read this
[39:06] story, you get to see that we were all
[39:08] wary of the $1.4 billion deal, why we
[39:10] were wary of it, how the relationship
[39:12] with the pension funds are with Blue
[39:14] Owl, how them selling at certain levels
[39:17] mean they're going to have to be marks
[39:18] put down, all of these kinds of things
[39:21] which are normal within side a credit
[39:23] cycle that is an issue. Uh
[39:26] liquidity's becoming it. I'll say it
[39:28] again and again, I think liquidity is
[39:29] the major story, and I think it's going
[39:31] to continue cuz there's no way to solve
[39:32] this problem other with time
[39:35] and people suffering slow losses as
[39:37] opposed to fast. This is not a
[39:39] deleveraging event like the Great
[39:40] Financial Crisis, which I hear people
[39:42] talking about. This is not a contagion
[39:45] of that magnitude, and the government
[39:47] has the GFC built liquidity facility
[39:49] opportunity if they want to. Uh now you
[39:52] have the banks offering hedge funds ways
[39:54] to short private credit. This just adds
[39:57] to the situation. And remember the
[39:58] mortgage situation, if you watch The Big
[40:00] Short,
[40:01] that pressure was coming from the
[40:03] outside world as well. And once it
[40:04] starts to go, and you get more people
[40:06] looking for the hedge, it becomes a
[40:07] bigger risk. So this is not something to
[40:09] just ignore. New way to hedge the AI
[40:12] debt risk. So think Oracle and think all
[40:14] of the cap ex side. Um financials, this
[40:17] is going to be one of the important
[40:18] parts of the earnings period and how the
[40:20] stocks react. Right now, this is a great
[40:22] thing to look at just in terms of how
[40:24] negative people are on
[40:26] future earnings. Financials already
[40:28] factoring deeply negative earnings
[40:30] growth and severe estimate cuts in
[40:32] contrast to solid growth and estimate
[40:33] revisions. So, this is just highlighting
[40:35] that as of right now, the revisions and
[40:37] the earnings are high relative to the
[40:39] stock price. Historically, the stock
[40:42] price leads and then the revisions and
[40:44] the EPS goes. So, we're going to start
[40:45] getting into the earnings period and the
[40:46] question is
[40:48] are these guys going to take down
[40:49] numbers? Is it are we going to start
[40:51] seeing things go? Are they going to
[40:53] start taking some reserves? Are they
[40:55] going to do anything? And if not, we'll
[40:57] see. That's where you could get a big
[41:00] short covering rally in some of these
[41:01] things in the financials. And I think as
[41:03] we're in this down move, people are
[41:04] going to look to the earnings more and
[41:06] more because this is a multiple
[41:07] compression story. This is not a
[41:09] recession story.
[41:11] There is no sign in AI guys. For anyone
[41:13] who's wondering, is this right? We still
[41:16] are in massive demand. We do not have
[41:18] enough compute. I've shown Warren Pie's
[41:21] work. Here's another thing that came out
[41:23] this week.
[41:25] The rental rates are spiking. There was
[41:27] one news item that got a lot of
[41:28] attention this week and it was Turbo
[41:30] Quant. And you should understand Turbo
[41:33] Quant. It's worth spending some time on.
[41:37] Easiest way is to go back to Silicon
[41:38] Valley and just realize it's a
[41:40] compression algorithm. Now, this one's
[41:42] for memory.
[41:46] It's important and this is one of the
[41:48] reasons why the memory stocks were hit
[41:50] this week. But another way to think
[41:51] about it is that this is and this is
[41:53] Matthew Prince who's the I believe CEO
[41:56] of Cloudflare.
[41:58] This is Google's Deep Seek.
[42:00] The optimization of AI inference for
[42:03] speed and memory usage is a big deal and
[42:06] they released this paper. There's the
[42:08] visual on it in terms of what's
[42:09] happening. It enables you to get more
[42:11] performance out of it. So, it should
[42:13] lower prices, but you can see here one
[42:15] of the things it's really good for is it
[42:18] means you can get better models on edge
[42:20] devices. So, edge devices meaning
[42:22] computer, phone, car, anything. But, it
[42:26] makes it more possible
[42:28] because of this efficiency game.
[42:31] Speeds up AI memory eight times cutting
[42:33] cost by 50% or more.
[42:37] Just remember this. Gavin Baker, by far
[42:39] the most plausible and scariest bear
[42:41] case to AI data center CapEx is edge AI
[42:44] running AI in devices. This was in
[42:46] December.
[42:47] So, this
[42:48] literally, Gavin Baker talked about
[42:50] this. You can go listen to it. But, if
[42:51] you don't want to, that's my job here.
[42:54] Uh Gavin said the clearest bear case for
[42:56] AI of structured demand is the edge AI.
[42:58] He said that within a few years people
[42:59] can run a pruned down, but still very
[43:01] capable model directly on a phone.
[43:04] It could shift away from the cloud. This
[43:05] is now going to happen. So, the question
[43:08] is how bearish is this? Well, as of
[43:11] right now, we'll see. Uh but, it does
[43:15] move a decent amount away from the
[43:17] cloud, which I think was going to happen
[43:19] anyway because we've run into the major
[43:21] issue where the memory shortage has
[43:23] gotten far worse than even uh I think
[43:25] Gavin expected back when in December.
[43:28] Edge AI is the bear case because capable
[43:30] local models could absorb a meaningful
[43:31] share of inference weakening long
[43:33] duration demand story for cloud compute.
[43:35] I also believe that open source models
[43:37] are taking this on local devices.
[43:40] You're moving away from the total cloud
[43:42] story is really the case. If the cloud
[43:45] story is not there, then you have to go
[43:46] question or if the cloud story starts to
[43:48] shrink, even though the CapEx will come
[43:50] down, you still need to come up with the
[43:51] revenues for these guys cuz they're
[43:53] still building these for the training
[43:54] models as well.
[43:56] Makes it very challenging, and I think
[43:57] that's one of the issues is the ROIC to
[43:59] me remains a big issue. Um I'm not going
[44:02] to go through this uh all these points,
[44:04] but again,
[44:06] I compared
[44:08] the Gavin Baker article in uh ChatGPT
[44:12] and I imported uh an article, the actual
[44:15] paper from the blog of Google and just
[44:17] said go through it and it lists out what
[44:20] the bear case is and why the Google
[44:22] story is true. So, what ended up
[44:24] happening,
[44:25] like with Deep Seek, everyone assumed we
[44:27] won't need as much memory and just like
[44:29] they did with Nvidia during Deep Seek,
[44:31] they puked all this stuff out. Uh
[44:34] Micron, which did blew away numbers, saw
[44:36] their shares fall from mid-400s
[44:40] to the mid-300s. So, you had a decline
[44:43] of about 20 to 25% in the stock.
[44:47] And the funny thing is
[44:49] uh a company which just beat earnings by
[44:52] from ex- expectations of $9 to $12,
[44:56] uh their PE now for 2027
[44:59] is 3.8. I think we've built in kind of
[45:02] the weakness and here's the long-term
[45:04] chart of it. And yes, you could say this
[45:06] is like software, except for one thing.
[45:08] This is hardware, guys. This is a
[45:09] commodity. If you ask me what I'd rather
[45:11] own, Salesforce at 10 12 PE
[45:15] or Micron at 3 4, give me Micron all day
[45:18] long, especially for the next year.
[45:21] Uh it could increase demand. So, you've
[45:23] got the other side by the end of the
[45:25] week saying, "Well, this is Jevons
[45:26] paradox again." Which was the right
[45:27] answer for that. Anything that reduces
[45:30] it just brings in more memory. I happen
[45:32] to think that this probably is something
[45:34] not to fade in terms of the long-term.
[45:36] If you take this out 3 years
[45:39] and you just realize that we're going to
[45:40] have more efficiency gains happening
[45:42] across the board, I do think at that
[45:44] point memory will probably be in a
[45:46] position where it won't be as necessary.
[45:48] But, we are nowhere near that at this
[45:49] point.
[45:50] Uh so, for the next year, year and a
[45:52] half, I think it's safe and then you
[45:54] just respond each day. Here are the
[45:57] price changes. This just came out this
[45:58] morning. Uh this is from TrendForce. Uh
[46:03] just look at these numbers. Like this is
[46:05] not something to be fading when this is
[46:06] still going on. Uh, one final chart for
[46:09] the week, Bitcoin trading
[46:12] in a range here. Still looks a lot like
[46:15] software. It's hanging in here.
[46:17] Uh, I don't want to get interested in
[46:19] this until we get to a place on the S&P
[46:22] where I think we've built in recession
[46:23] fears. And once we've built in recession
[46:26] fears, I think the midterm and the
[46:28] printing and all the things that should
[46:30] happen for the private credit side will
[46:31] start to become more relevant. Until
[46:34] then guys, on your risk assets, go
[46:36] through my thematic names on the
[46:38] paywall. Uh,
[46:41] go look at levels on all of them. I
[46:44] think those are still in a bull market.
[46:45] I think you should still to be looking
[46:47] at all the things that I highlighted at
[46:48] the beginning.
[46:50] Uh, and yes, I now can start to focus
[46:52] more on the offensive side because I
[46:54] think the market is starting to discount
[46:55] things. The S&P is now down 10% off the
[46:57] all-time highs. We've got
[47:00] 20 plus percent on many of the tech
[47:02] names at this point. And I think a lot
[47:04] of the bull market names on energy and
[47:06] power and materials and all of that
[47:08] stuff for there. Uh, there is one space
[47:10] I'm
[47:11] constantly right now looking and buying
[47:14] more things on silver. So silver is the
[47:18] one that I want to be owning now. It's
[47:20] the place where I think people should be
[47:21] focusing for both miners and also the
[47:23] commodity. Uh, but I think silver is
[47:25] going to come strongly out of this the
[47:26] same way Bitcoin will. That's it for
[47:27] this week. I'll see you guys next week.

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