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