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Your entire crypto experience got a whole lot easier. Ready to protect your assets? Choose the most trusted name in hardware wallets, Ledger, and take control of your digital security today at Ledger.com. All right, back to the show. Meet Kraken Institutional. Whether you're an asset allocator, a trading firm, or high net worth individual, Kraken Institutional unlocks the powerful tools you and your organization need to trade and manage crypto at scale. Reliable, easy to integrate, with white glove service and 24-7 support. Visit Kraken.com slash institutions and get in touch today. This is not investment advice. Crypto trading involves risk of loss and is offered to US customers through Payword Interactive Inc. View legal disclosures at kraken.com slash legal slash disclosures. All right, welcome back to another episode of the Roundup edition of Forward Guidance and we're back to just the trio today. We ditched the Pepe, sadly. Maybe we'll get him back again. That was a ton of fun last week. I really enjoyed having him. Yeah, he was good. We've got to get Zaheer back on, too. Yeah, we'll get him on next week, hopefully, or something like that. Try to alternate getting on some cool guests. Yeah, if you guys have any suggestions on people you'd love to see chop it up with us, feel free to send that our way, too, because it's fun to pull in some fresh thoughts and hopefully some contra thoughts, because sometimes we all get onto the same side of the trade, even though we try not to. We try to show the other view. It can happen. Let's get Mike Guyatt on here. Just tell us how everything's fucked. I'm like, Felix, your hair looks great today. Look at that. What are you using? Pert Plus? Literally just a bit of water. I just threw it in there. Because I'm actually, I'm not at home right now. I'm in Alberta. I'm in oil country right now. So I don't have my classic routine ready to go before the pod. So I just threw some water in just to calm it all down. But yeah, no real secret. Beautiful, beautiful. And by the way, have you seen that? willie bob thornton landman yet no on oil oh it's supposedly pretty good it's like a texas oil no it's on uh amazon prime it's supposed to be like a you know pretty solid show taylor sheridan did it so yeah it's uh it's interesting to be in the texas of canada over here you know gas is like 40 cheaper than where i live even though it's pretty close in the same country it's crazy my family lives in california comes to texas and they're like oh my god your your oil is like two bucks cheaper than where we live like yeah everything's cheaper let's get into this you know obviously like anytime i see a survey chart or like a sentiment chart you got to take it in with the with the consideration that it's it's always going to be highly political driven but with that aside still this was a crazy print on the business optimism index we like just absolutely soared to like 2021 levels um this week. And I feel like it's started to represent in the data, this sentiment shift that we've seen post election. And obviously, like, you know, market assets will price this in before the actual data points start to come in. So there's been this interesting moment where obviously, we've seen that the Trump trade evolved over the last three weeks. And now we're starting to see the economic data that the market was forward looking upon, start to show up in the sentiment surveys. And, you know, maybe we can get into this in a bit about how that actually starts to get represented in like the hard data is that like, you know, business is very optimistic. they're going to be more optimistic to start hiring more. We can get more into that. But I'm curious how you guys are thinking about this in terms of what we've seen over the last month or so since the election, especially in relation to this just unabashed business optimism that we're seeing. Quinn, what are you thinking? Who do you think the people that voted in this survey voted for? Yeah, exactly. Who did small business owners vote for, I wonder? uh no it's it's an interesting i i view it as this weird push-pull because so obviously the the move up on the back of the election results were the cyclicals value in small caps and regional banks and the Trump trades. And that reflects that survey, essentially. But since then, we've had quite the pullback in that, you know, like, let's just call it, there's different parameters, growth to value ratios, or you can look at, you know, NASDAQ to small caps. Some of these are not really apples to apples. They're just the indices or ETFs you can use to look at relative value. But there's probably a big short squeeze component almost to that rally in November. Maybe not too dissimilar from the July move where we got that cold CPI and there's that huge rotation from large cap tech into small caps. And then it's... pretty much reversed. I mean, on the ratio, we're back to, I think, below where Trump was elected on like small caps to big tech. I think you have cyclical slowing pressures from the labor market, which have been in the works for many months now. We've obviously seen inflation and growth kind of generally drifting lower on a cyclical basis. But then here's this wrench of, you know, probably the most pro-business, pro-growth. deregulatory president we've seen and who's emboldened from his first term, which was very much in that direction to begin with. So on the one hand, I think the Fed, the big question is how accommodative are central banks? Because we have no policy yet from the new administration. They don't come to office till January. The Fed can't really act on that. So they're going to remain supportive as the labor market is showing weakening. Um, and I, I don't know, it's like the seasonal flow has been really strong. Like every day this week that, you know, it's been just a huge divergence in the NASDAQ and the Russell. And to me, it feels like I have a hard time seeing how the market's going to sell off in a huge way. Knock on wood, watch after they say this, everything's going to crash. But things feel decently supported. And maybe that's like just going into monthly op op X next week. But it's been this very rotationary market. rotational market where the indices jim carson talks about this have been pinned and it feels to me like there should be some mean reversion to the small cap trade from the nasdaq trade and whether that means like everything has to go up um is to be seen but um yeah it's it's it's a weird market like we had that momentum thing i'm sure tyler's quant corner is going to get into all that but but uh you get such heavy seasonal flows and low liquidity going in the holidays that maybe it's hard to read too much into the day-to-day, week-to-week moves here. Yeah. On that point, I guess, well, can I hit you with slide 30? This is something that Quinn and I were talking about this week on the side. Are we watching the MAG7 blow off top here? Because a lot of it is very interesting. So this is a percentage of stocks outperforming the S&P over the calendar year. And it basically shows that there's not that many outperforming S&P, which shows high concentration. And then, you know, to take it one step further, to give Quinn credit, if you go to slide 29, this is the MAG-7 index. Like he cued me onto this, but look at the volume spike or the MAG-7 ETF, the volume spike with the new highs here, everything is basically piled back in, you know, I think what happened. was you had an unwind of like high beta momentum stocks. And now all these hedge funds delevered their books, but they're hiding out in the giant large cap stocks into year end just to lower their vol. And so I can show you what happened with momentum if you go to slide 22. I think super quickly, what you said there is really interesting about how quants hide in mag seven. In this era where bonds are so cooked, it feels like that's like the new. the new like risk-free asset for a lot of people it's like okay i'm gonna go hide out in mac 7 until like and you know like they just they just have so much cash on their books too right like they're just spinning off that at 4.5 or whatever it's it feels like that's the new like yeah safe haven asset and that's that's where all the buybacks are too so you know stultifies the volatility of your book just all out in there but you know now you have this crowding effect because i think Going into this last week, H1s were having a great year. You know, they were... up on high beta stuff and outperforming the index. And now you saw the de-levering. And this is the Goldman Sachs momentum basket, which I highlighted in, was it Tuesday? Just absolutely. It was like some quant thing just went off, probably from some weird part of the market, whether it was China or not, caused this unwind in the momentum factor. Basically, anything that was massively outperforming just got smashed. And we saw it touch the 250-day and the weekly chart, which is on the right. And it got defended there. So there's still support there, which is a great sign. But it was just very aggressive. And that's why we saw this massive drawdown. And crypto equities got kind of roped into that, too, because they've been massively outperforming. But the other thing that could have ticked it off is... the next chart is chart 23 is the twos to tens curve was steepening and like duration. If you look at the 30 year yield to duration was selling off as well. So there's lots of macro stuff going on here that normally in a, in seasonality, like you have low, low volume trading, you have lots of buybacks and not much is happening. There's actually a lot happening macro wise. That's making me a little more concerned than I usually would be this time of year. Volatility is overly low. CDS on high yield is overly low. And there's something funky really going on in China. Let's go to slide 24. This is the China 10-year yield. So this is kind of nuts. If you look at this is the all-time lows in the Chinese 10-year yield. China's kind of imploding here. They're in a massive balance sheet recession. And this is like globally China's slowing, which I think should theoretically put a lid on a lot of, I guess, commodity inflation. And so this is the one thing where I'm not really super bullish on commodities until they pull out like they're saying we are going to stew demand. We're going to basically counteract. this balance sheet recession as an administration, but the 10 year yield hasn't told us that. And like looking at it, it's an eight on the RSI. I wouldn't even be surprised if they did some massive kind of like over the weekend fiscal plan to balance. Yeah. We got a few headlines this week where they're like, okay, you know, we're going to be easing for the first time since like 2008 or whatever. Right. Like, I mean, this is the problem is that they keep coming in with these they're, they're trying to talk it instead of actually execute it. Cause you know, we can get into this, but if they actually execute it on the same time that the Fed is like, going to potentially pause in January, that's going to cause some currency strains. I don't know, there's it seems like there's always emotional reactions with China. But to me, it's as simple as they aren't going to unleash the big kahuna stimulus and wreck their currency while the dollar is so we might be in another like three to six months of the stop start, right? Because if they unleash stimulus and wreck their currency, you know, that just has other implications. The bond market is saying like, this isn't enough. So I think it kind of emboldens them to do more. And that might actually ultimately be good for their currency if they're able to ignite things. But they, like you said, Felix, they need some clearance, I think, from global central banks. And the thing that I find interesting is, and why I'm maybe a little more constructive now with where small caps are than I was maybe a week or two ago, I was... definitely cautious. So we've seen this huge relative underperformance of small caps for the last two weeks. Since late November, small caps have underperformed the NASDAQ by like 8% or something. And normally, that's a liquidity trade, right? So in that time, we've had rising dollar, rising yields for the most part. And inflation came in hot. So maybe the market's saying, well, the Fed's not going to do enough to support growth or something. There's a couple of mixed messages. But in the back of all of this, you have trades like Bitcoin and other, quote unquote, Trump trades that have been incredibly strong to their macro correlations during this period of rising yields, stronger dollar, presumably less liquidity. Normally, Bitcoin and small caps are fairly correlated because of that characteristic. So I'm sitting here and it's like Bitcoin's kind of just continuing to vertically trend up. Meanwhile, small caps getting crushed. And there's this huge reversion to large cap tech, which is the safety trade, strong dollar trade, strong, you know, US yields trade. And that doesn't go on forever. Either liquidity, you know, to me, it seems like it's close to a breaking point. I don't know if that's like today or next week or in a month, but either liquidity tightens enough and the dollar and yields keep going up where it becomes a problem for all assets, you know, not just small caps where we're seeing NASDAQ benefit. Or something reverses it, i.e. what I think could be next week a dovish Fed, which two, three weeks ago, I was actually maybe concerned that the Fed would be hawkish. And I was concerned that they weren't going to cut. But it's clear they're communicating to the market they're cutting, despite, you know, PC and inflation coming where it's at. And if that's the case, you kind of have to play ball. Like they're implicitly saying 3% is the new 2%. And. Um, I I'm trying to understand, like, I'd love people's counters if you're listening, where the Fed is going to be, be hawkish next week, because they're the, the forward rate market's only pricing in two cuts in all of 2025. And I have, I see zero incentive for the Fed to, to not, to be more hawkish than that. I mean, only two cuts, you know, like that is very, very low already. So it's like, maybe they do a December, 2023 surprise dovish again. Because I just don't see where the hawkishness comes from. I think the big point, too, is, you know, the narrative is, why is the Fed cutting when, you know, Atlanta Fed GDP is over 3%? Why is the Fed cutting when stocks are at all-time highs every day? But it's actually quite interesting when you dig into some of, like, you got to really think about how the Fed thinks about things, right? Not just how, like, the average market participant does. And there's some, maybe I can get into a few econ points. Because I've been, you know, last week we talked about the drop support and, you know, how there was some... there's some increased weakness in what it looked like on the surface level prints, especially from the unemployment rate side of things. But we got some, let me just pull it up here. Just some interesting data on the jobless claims data today or yesterday. Sorry. That kind of spooked me a little bit because of what happened last week where, you know, the, the jobs report that came out last week, they were serving that almost like a month ago. But now that we're seeing this increase in like coincidental data, um, This is just a great chart that brings it all together. Just showing, so the dotted line is the initial claims data, which can be quite noisy. So it's always good to look at like a four week average there. And you can see that we bottomed out there. And now we're starting to revert a bit higher. And you can see this here as well, where the consensus print there was for 220,000. And we came in at 242,000. And this is data that is completely clean from any sort of like... idiosyncratic factors like hurricanes and stuff that was happening last month and then more so this was actually quite surprising to me is the continuing jobless claims data i myself like a month ago i was pretty strongly in the camp that this was just a residual of that hurricane and like strike stuff but the fact is that's been completely cleaned out of the labor market data and we're still seeing this and this is really showing how like i feel like the labor market's at a standstill right now and just sort of on like a like kind of teetering here where There's not a full-scale layoff cycle happening right now. But if you lose your job, it is a nightmare to get a new job right now. So you're seeing this continuation of continuing drop-off claims. We're seeing the duration of unemployment continue higher. And I don't know how well this will actually get shown when people watch this. But, you know, George Robertson, who was on the show, I think about a month ago or so, he actually does some really interesting analysis here because there's so much... noise and seasonal adjustments and how they quantify that. So what he does in this chart is he actually takes the non-seasonally adjusted data and to be able to keep, you know, the whole point of seasonal adjustments is to be able to compare apples to apples, right? So instead, what he does is just compares it on a year-over-year basis of every week of the year. And then he puts a heat map on it, right? So you can see, like, for those, I'm not sure if these numbers are going to be viewable, but I'll just put it out there, is that on the non-seasonal adjusted data, We saw 310,000 come out this week versus like this time last year, it's 249. The previous year, 288. Previous year before that, 284. So this is a huge phase shift higher, especially when you look at like last week, we were at 211,000 non-seasonally adjusted. So this was a significant increase. And lastly, I'll just pause here on this point that this is actually a really interesting tool that I found from the Atlanta Fed recently, where it basically... aggregates and provides like a holistic look at the labor market. There's a lot of, you know, it's not just as simple as looking at the unemployment rate. And this just provides a way to show like, where's the strength or relative weaknesses to previous years. So on this chart is just showing like the jobs report data from this month versus this time last year. And then basically have on here in the dark. the dark blue line is is basically pre-covered and you can see that like like look at private high rates right like there's just it's in the dumps and it has been for quite a while um there's some stickiness in the wage growth as well so it's it's this interesting interesting idea of pretty crappy private payrolls but still resilient wage growth um and that is really the theme of what we're trying to dig in here but Based on all of that and everything that we saw from the jobs report last week, I don't know. I see some cases to be made for continuing to cut here. That isn't just, oh, you know, the Fed just wants to pump markets or all these ideas. I think there's some fundamental validity when you look at the labor market right now. Yeah, I agree with that. I think growth in the labor market, their mandate is stable prices and full employment. I think it's pretty clear the unemployment rate is going to be trending up. And that's what makes it so interesting, right, is because in a couple months, you have the Trump administration come in, which presumably should improve the economy all else equal to some extent. When you think about that optimism chart that we showed at the beginning, like that's going to lead to more increased confidence in hiring. So this could be a bottom. But again, this is just how the Fed thinks about things. Yeah, they can't they can't say we're not cutting rates because we're not supporting the. labor market because people just got super optimistic. Exactly. Yeah. I think to step back in the near term, I think the Fed could actually make a policy mistake here by not easing because if you look at the expectations, a 96% chance of a rate cut heading into the FOMC meeting. So if they don't cut, I think that really will cause the dollar spike some real bad things will happen in Asia. Check out this Asian dollar index. That's interesting. You think the dollar would spike because you would think like, okay, they're being hawkish. So they're getting a control of inflation, not dollar down. You think dollar higher? Yeah, I think dollar higher. Like look at, this is slide 28. Whenever the Asian dollar index, and this is like Singapore dollar, you know, Yuan, I think it's a bunch of different Asian dollars. Quinn's favorite, the dong. So the Asia dollar, if it breaks below 90, there's something globally going wrong here. And I kind of think the Fed knows that they don't want a global margin call on their hands. And they don't want to cause any geopolitics. They are the world central bank. And if they know China's on the ropes, they don't want China starting a kinetic war. So maybe they ask for some concessions. There's a lot of geopolitical things here going. So if they don't ease, I think you might get a little pocket of credit stress. But if they do, you know, this bull market could really be heating up. Because I think we're in a global easing cycle. If you just step back, we're in a global easing cycle. Every time the ECB eased, China is going to do something. Otherwise, they're going to have riots. And then, you know, you step back longer term, we're going to be forced to ease too, because everyone else easing will make the dollar go skyrocketing higher. Well, actually, this is like that 1998 Asia, you know, financial crisis where once we start easing, money comes out of large caps, flows back into small caps, bam, you know, you get some, you know, animal spirits and this productivity unlock if Doge really goes to town. But not only that, if Doge goes to town and starts just firing government employees and like really making the private sector have that productivity unlock. Not only does the Fed have to react to the unemployment because they've already said, hey, we're going to pay attention to unemployment more. So then they might be easing more. And I'm going out a rabbit hole, but like. Right. You bring down. You're unlocking a lot of stuff. And, you know, the cherry on top. is Trump invited Xi to his inauguration. So you might get like global peace accord. And geez, that could be massively bullish long term. Yeah. So the whole conflict here is whether you believe the Fed cares about domestic demands or international concerns more. Because there's some people in the camp that are like the Fed doesn't give a shit about what's happening in other countries. But in other countries on how much US debt, if there's global margin calls happening. Swap lines start happening, you know? This is why I've kind of, I've become more constructive lately because the Fed is maintaining their easing stance despite what we're seeing on the inflation side. And this is... very 2020, 2021-esque, right? I had been of the belief that they would get very hawkish when inflation started to peak its head. And they're doing the same thing again. So we're seeing 3% PC and these other flattened out inflation metrics. And so it's almost as if... there's enough scar tissue from the October 2022 guilt crisis and the March 2023 banking crisis and the October 2023 real yield scare that they're kind of getting in front of this, right? Because they're not letting that flush occur that they might have in the past. And they're understanding that if they are too tight, globally, the other central banks start to run into issues. And so that's what I think asset markets are starting to probably price in here. Yeah, I think it's important to really emphasize how unique the situation is right now, where every other time where yields got to this level, equities and risk puked. But it's not this time. It seems like we're finding this new equilibrium. And even like I just saw today, I don't know if you guys saw, but like the 10-year three-month actually re-steepened today and is now positive for the first time since it went inverted. And, you know, obviously that starts to, you get the doomers come out and say, oh, you know, like when the 10-2s... goes positive, you get ready for a recession. But when the three-month tenure goes positive, the recession is here. But okay, we got to look at what's actually happening here. It's the long end that's going higher. And the three-month is quite closely tied to Fed funds. So they're cutting. So you're in this world where it's re-steepening kind of on both sides in a way, but not because of recessionary concerns. That's what they need. They need it to steepen from the front end, which is exactly- your point and you're going to have these fits and starts. If you also look at interest rate differentials, it seems like we're kind of peaking out in the US here where, you know, the Fed on the long end versus others, I think is kind of, yeah, reaching a top. Scale is shaking up the blockchain game. With a gas-free invisible experience, it's the perfect solution for developers and users alike. Forget unpredictable fees. Scale's innovative model ensures smooth, cost-free transactions, saving users over $9 billion so far. With over 46 million active wallets, Scale is proving itself as the go-to blockchain for gaming, AI, and more. Explore the Scale ecosystem at scale.space slash ecosystem and follow the journey on X at Scale Network. Hey everyone, this episode is sponsored by Ledger. For the past decade, Ledger has been the global leader in digital asset security, trusted to secure more than 20% of the world's crypto assets. Celebrating 10 years of innovation, Ledger is making digital ownership more secure and accessible with their latest products, Ledger Stacks and Ledger Flex. These wallets feature the world's first secure touchscreens, simplifying your digital transactions while ensuring uncompromising security through its Ledger Secure Chip and proprietary OS. 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Experience it for yourself. Visit Kraken.com slash institutions and get in touch today. This is not investment advice. Crypto trading involves risk of loss and is offered to U.S. customers through PayWord Interactive. View legal disclosures at Kraken.com slash legal slash disclosures. I just want to point out on the China front, Tyler, I forgot to mention that. Oh, sorry. What a narrative violation. I mean, Trump, I thought he's boys with Putin and he's going to start World War III with China. And here he is, he's playing hard, he's hardline stance with Russia and Putin to say, stop the war. And he's inviting his next World War III opponent to his inauguration. I mean. This is insane. I don't know what BuzzFeed journalists are writing about it, but that's massive. I've been saying for a while, Trump doesn't view people as enemies. He views them as opponents or people sitting across the table or competitors. I hate you. I'm competing against you. And there's tons of synergies to be had when US and China get along. And I don't think he's like by any stretch anti getting along. He just wants the best deals. And like, I think that's what like China's down on that news, which to me is is almost more important than their like talk of random stimulus that there may or may not be actually doing because you get a cooperative China and US and. That seems about as bullish as a thing for a domestic economy as you could have. The global peace dividend is what Melngren mentioned. And everyone thinks Trump is he's a hardliner on economic issues and he really uses the bully pulpit in terms of getting the best deal for America. And I think that's actually net positive. If you're battling for economic reasons and not, you know, military industrial complex reasons, I think that's a lot better. And if we stop-I mean, that could be the full answer why the dollar is too, like, going up right now, right? Because like, yeah, I want to invest in this guy. If he's my founder, right? And he's going out and negotiating every deal, like-Dude, he just said a billion, if you put a billion dollars of foreign capital, you know, we're going to expedite permits. And like, that's so dollar bullish. That's the best immigration thing you've- you've seen from this country in years. I mean, look at his cabinet, Scott Besant, one of the smartest genius macro brains, Elon Musk, the most, like, successful capitalist in the world, and RFK and everyone else. They're not going to start like a random World War Three with China. Like, that's really interesting that you said Pippa was talking about, because she was the one that like in 2018 was talking about a soft world war was happening. Like she was pretty early to the increased geopolitical risk. And if she's fading that now, that's, that's really interesting to me. Yeah, I think people are just getting tired of this globally, this war. I mean, God knows what just I mean, this should be bipartisan at this point, but we keep funneling money to Ukraine. And it's like I think even the people on the left are just like, what the hell is going on here? But regardless, there's risks out there. He could destabilize a lot of stuff, but we're going to keep watching the credit markets. What is interesting is the cascade of impacts of that, right? Is, okay, lower geopolitical risk premium. Okay, lower commodities. Okay, lower commodities, less tail risk of inflation, right? So I don't know. I mean, right now the biggest risk right now is a reacceleration of inflation. That's what's got people spooked. Maybe I'll get into a couple data. We had the CPI print coming this week. That was quite interesting. I'll get into a couple charts here. Core CPI has been... Sticky. It's been like every month has been coming in at like 0.3% month over month. At the same time that we have seen some improvement in CPI itself headline. But the main theme here has been the core stickiness. But what's really interesting is when you dig a little bit deeper into the data, there's actually been this rotation in what's actually driving that stickiness. Let me just see. Yeah, this chart here. This is something I've been talking, I think I talked about this during the last CPI print, but about how, you know, most of the disinflation has been coming from goods, core goods specifically. So things like used car prices, new car prices, etc. I've just been like leading the charge there on disinflation. But we got to extremely, I don't know, no way better to put it than like say, just we got to super oversold levels on it and it was bound to mean revert higher. And we started to see that. So then, okay. If we're seeing core goods start to increase and inflate again, you need something to offset it, right? And core services, which is just basically shelter inflation, has been super lagged in its decrease in disinflation. So what's really interesting is that we've seen this basically pass into the baton where, you know, one of the biggest downside like disinflationary surprises we've seen this past month has actually been in shelter inflation. That's where a lot of the downside move came from. So if you look at like, this is people call the super core. This is something that during the you know height of inflation scare era uh like 2022 policy this is inflation minus everything basically yeah i mean basically like yeah it's just hilarious like you're just getting down into the most granular crap here but the point is that like okay super core is coming down and coming lower so you start to ask yourself what is actually the above two percent inflation concerns and it's literally just lagged shelter like this is just a bubble map just showing like how much contributes to inflation over a month. And like, look at that bubble, right? It's just all owner's equivalent rent, which is extremely lagged. And then you get down to this money chart that Jeremy Shorts of WisdomTree put out recently, which just swaps out BLS shelter data with real-time shelter data. And what we see here is that, yes, the peak wasn't as high as it shows when you use that. Or sorry, it did go higher because it's more high frequency. Got up to, say, something almost like 12%. But then now we've actually been, if you swap in for real-time shelter data, below 2% for quite some time now. And then you think about where we are in the business cycle. It does make sense to see a little bit of an increase. But within this realm of rethinking about it, things start to make a bit more sense to me, which is when you see some marginal weakness in the labor market at the same time that, OK, like we've been saying, the shelter inflation is what's driving all of this and the lag nature of it. And that's really accelerating to the downside. Now we're starting to see acceleration of disinflation from rent shelter. What does this all mean? I think the inflation fears are overblown, personally. I have been probably on the side of more worried about inflation. The volatility of inflation with all these different components falling is important, right? Because stability, if you're just consistently growing at 2% every year, that's like price stability in their eyes. If you're consistently growing at 2% to 3%, they did do this average inflation targeting. idea, right? Where before they were below two and now they have room to be above two. But the main thing is the volatility. The opposite of stability is volatility. Stability is not defined as a certain level. And so when I see this yield spike and this dollar spike, and then you get hot prints, but the market doesn't do anything about it. And then I look at the move index and there's no bond volatility to even be sniffed a mile away. Something in there is not, you got to connect the dots here. And to me, it's saying the market doesn't really care about the Fed's concern with inflation, that it's going to inhibit the path. And because plot yields in the dollar becoming a problem with the move index. And that's when uncertainty, volatility. and unknowns are rising. And that's just not the case. So it could be that this yield and dollar move is a pro-US, pro-growth idea rather than a... Which is why risk isn't puking. Exactly. And then you look at it, and if you take that lens, because I had the opposite lens for the last two weeks, which I didn't miss much. If I'm talking about crypto and small caps, small caps came down and crypto is flat at 100. And I'm looking at that, I'm like, wait, but things aren't falling apart. it's not this draconian scary thing no arc arc is still close to all-time highs and rocket where's carvata we just chart chart still good up yeah dude like this is the thing we're we're we're continuing to be in goldilocks like this is yeah this is a soft landing in action and okay yes there's some stickiness inflation but like i just showed so much of it is shelter okay and And if we assume a higher neutral rate, yeah, 3% is a new 2%, right? But when you consider all the other considerations at hand right now, I don't know. I don't see where the inflation reacceleration comes from. I really don't, especially with oil on the floor. I think if one thing to watch, and I've been watching it like a hawk all week, and you'll see this in the tape if you're close. Watch plot on the screen. chart of IWM small caps, a chart of S&P just for market beta, the chart of like pick some crypto equities or iBit. And you'll see this recurring sell down in small caps relative to everything else. And every time, you know, small caps go down, but crypto goes down a little less and a little less and a little less. And you're seeing that with Bitcoin just hugging the upper, you know, kind of. daily range. And what that is showing you is relative strength and the trend being more important, the catalyst behind crypto being more important than whatever negative macro factors are going on. That's my tune and I'm sticking to it. And if the Fed comes out as no surprises next week, I think it's party on into the end of the month, personally. Yes, I'm still on that page. Zaheer from Split put up a chart this week of the basis trade, which is at 15%. So you buy spot, you short futures, which is like... Yeah. If you can find it, pull it up to give him credit. But like that should just be a global sucking sound. And then, you know, meaning like if you're a trad five person to buy spot and then sell it 15% higher and just lock in a 15% gain, that should just be, that's why you're getting a massive inflow of capital. And then to boot, like our buddies at Kinto. you can borrow or you can lend your USDC for it's like, you know, high teens percentage. So it's a high, basically there's a high demand to borrow and play, you know, stuff like this, which is, should theoretically just suck money from the TradFi system. And, you know, and not only that, but like, if you can get those rates of interest at USDC, that's a sign that like, you know, money will find good rates. right that's that's part of you know and there's demand there to borrow so like that's showing you the the crypto world is actually sucking in capital you know there's a lot of other things going on i think why crypto hasn't broken out is because of this new ibit options thing and there's lots of volatility shit going on which is very annoying when you get all these vol are people playing because when the implied goes up you have a lot of retail people buy call options They short the call options and then play the Volarb. So you need a catalyst to kind of like light the spark to create the game. I'm glad you brought that up because I believe the first OpEx we've seen on iBit is happening next week on the 21st. And so, yeah, to your point, if dealers are long gamma, they're going to try to pin it into OpEx. So it's hard for us to see a breakout until that occurs. So I'm really interested to see what happens after the 21st there. Same. And there's obviously another catalyst for something that I cannot name that is also causing, you know, implied vault to be really high. And, you know, if these events happen in a positive light, you could really kick it up. You know, one thing that happened this week, too, is Eric Trump was speaking, I think, in a conference in Dubai. And he goes, I don't think, you know, Bitcoin is just going to go to 100. I think it's going to go to a million. And I'm like. God damn. Did he just tell us that they're going to use Bitcoin to deliver the fiat economy? You know what I just realized is that the Kaishi, or is it Kaishi? I forget. Odds for the strategic Bitcoin reserve are at 70% right now. I didn't know. I thought we were still in the 20s. How do they define it, though? Do they define it as just not selling, or does that require actually purchasing in the market? Good question. Maybe that's where the distinction is. Because I was like, holy shit, 70%? From the commentary, though, I think like there would be, you'd think it would get discounted a little bit more. I'd think, you know, just from what Trump said, you're seeing some transactions in ETH and like, I think even Chainlink from like Trump entities. Was it World Liberty Fives like buying these tokens? They're buying like. dino defy like lincoln that's insane so i mean god i the i feel like the risk is more being left behind granted you know there's a lot of funky macro stuff going on that they the policy mistake could derail this we're paying attention that closely we'll report back next week yeah maybe quinn and i can talk quickly about this thing that you mentioned that you can't talk about and you can i don't know look at your phone or something for a minute but um Yeah, MicroStrategy is... I have to correct the record. I said last week, I was like, I don't think it's getting included in the NASDAQ. It's not my expertise. And the Bloomberg guys and a couple other people that I would suspect have good information are saying it's going to be included. Yeah, and Quinn just likes, he has a big ego and he needs to make comments on everything. That is true. I need to stop that. It's fine. So... That's a risk of being on here. You're like a zoo animal. It's like, do the trick. Talk. What do you think about this? What do you think about that? It's like, dude, I don't. But I mean, man, I've seen a lot of TradFi folks start to opine expertly about crypto where they used to make fun of us about four months ago. So what I actually think is what I was saying earlier, why the macro is shaping up here to be very positive over the next few weeks. And then you have this event tonight. which could set things off and get animal spirits back. And it'll be funny because, you know, to a macro person, hammer is the nail and, you know, the... concoction is here. And then everyone will be like, oh, of course, that relit the fuse for crypto when micro strategies gets put in. So it kind of reminds me of the election a little bit where I think it's buy no matter what. So I'm kind of the view like I'm going to probably be buying if there's a big sell off if they don't get included today. Yeah. The main tail risk at hand is whether they could be classified as a bank or some sort of financial company, which then would disclude them from the queues. But from my understanding. what the Bloomberg lads were saying was that that would have to occur before the decision is made to be reclassified. So it's sort of just a non-starter of an argument. But that seems to be the main one or some sort of discretionary, like, I don't know, volatility implied vol is too high or something, but seems like it's going to happen, but we'll see what happens, I guess. Just smiling, Tyler. You know, I got on the volatility stuff. There was another, there's two interesting things that happened in the Bitcoin. mining sector. You had another miner this morning issued another $500 million of converts, not to buy Bitcoin, but just to take in great cash at a great price. And then the other one was, we don't own this, but Riot, Starbird activist fund took a stake in Riot blockchain, one of the largest ones, basically. I think to incentivize them to maybe provide capacity to high performance compute AI, because they have a huge, you know, they're obviously one of the biggest miners. I think they are the biggest miner out there, but, and so there's lots of stuff happening in the space that is just really, I think it should revalue higher eventually if you get these catalysts in, in spot and there's, there's lots of ways. If anyone hasn't watched the Convert Arb guy that Felix interviewed, it's really high finance, but it makes so much more sense than all these morons like Jason Kalkanis who's like, ah, it's a bubble, short it. If you really understand converts, it's worth digging into converts and understanding how this is capital structure arbitrage. They're financing themselves in this sector. at way more advantageous rates than you can by just selling a bond. They're not, they're doing this. This is like, like super rocket engineering in financial markets that it, they're the best quote from the thing is dilution is accretive. That, that quote was just brilliant. Yeah. I mean, cause it is. I'm still trying to wrap my head around it, but I am like. Because I mean, the whole bear, I don't bear. I think like regardless, being a bondholder of it is a fantastic risk reward scenario. Being an equity holder, you know, depending on where you're buying on a premium to NAV. But if you think dilution is accretive and you think, you know, that the premium to NAV expands, because like he was saying that, you know, if we get these fast P rules that change where the increase in Bitcoin price gets reflected as earnings, that'll recalibrate things. But. But I don't know. I'm still not fully convinced right now on the equity being accretive. Well, it is. It is. You're selling your stock. So this is another interesting thing that happened. There's a guy, he's an analyst over at JP Morgan, follows the Bitcoin mining sector. He changed his whole methodology of valuing these stocks because he put a 2x multiple on your hodl balance. So basically, he's now valuing Bitcoin on your balance sheet, gets a 2x multiple. Think about that. So it makes owning the stocks, you get a 2x multiple on your Bitcoin because they're basically using capital markets to finance themselves accretively. Whereas holding a just iBit or some sort of spot ETF, you get charged fees where you could. buy another vehicle that you get a 2x multiple on and maybe perhaps that multiple is expanding if you are bullish on the underlying spot bitcoin granted that's the most important thing is that you see that cycle turning is double the downside but like you know just like any leverage you know if you are bullish on spot they're they're levered ways to play and they're doing it they're doing it in a way that's really smart really smart this takes like you know me The understanding converts in the vol markets is like super high finance. And for all these guys that are easily shit on it and don't understand that the dilution is accretive. That's the part that like when it clicks and you're like, holy shit, this is borrowing money from the TradFi system. You're borrowing money from Allianz who's buying your bonds and you're putting it, you're buying something way cheaper and adding, you know, assets to your balance sheet. You're not just adding, they're like, where's the earnings? Where's the earnings? But you're adding assets to your balance sheet and equity is rising. So that's the whole trick of this whole thing. Sorry for and it's just about how it gets measured on like like we said in the interview, right? Like it just depends on what gets shown on an income statement. But, you know, net profit just ends up as retained earnings on a balance sheet. So it's just like just going straight to the balance sheet instead. Yeah. And this is this is what happens when you control interest rates. I call them, you know, vol controllers. This is the movement from if you understand that this is a movement from Warren Buffett type ideology, selling volatility to being long volatility. That is the macro cycle that once that clicks, the only thing that can derail that is a policy mistake or the Fed global liquidity cycle unwinding, which I don't think they can do because the problems, I'm so bearish, I'm bullish. I think the problems are so big that once you understand, you go click, okay, if they let the debt markets unwind, dude, everything, everything is a war. And so it's just a matter of this con game of kicking the can. You have these little brief credit problems and de-levering, and then the policymakers come in and the vault controllers come in. But it allows this cycle is just going to keep continuing because they can't let it unwind. They can't let another 2008 happen. I think a good anecdotal piece of evidence of this is the number of traditional macro people who... were in the Warren Buffett, Bitcoin is rat poison camp, now tweeting about meme coins and interested in crypto and saying they're going to enter Bitcoin at certain levels. And like, they're starting to see this end game, which tells me that one, none of them have bought. So we're not at the top yet. Yeah, they're all kind of just talking about it. But to all just writing casual threads and having opinions, but none of them like put the fucking trade on if you want to act on it, right? Well, they still don't have the conviction is really all. I think they're still warming up to it. So, I mean, these are the people who are going to buy the bag. So we got to be welcoming and nice to them, right? Because we need to get everybody on it. But I think it's a sign that what you're saying there, Tyler, around the long volatility strategy is starting to resonate with people. Because how many times can you throw your hands up in the air and say, Goodness gracious, I can't believe the Fed is doing this again and cutting while the S&P is at all-time highs. And then it's like, well, this is actually what they're trying to do is keep the pieces of the puzzle together. They don't want to see this unraveling. And they only undo it when they're absolutely kicking and screaming force to because inflation is like smacking everybody across the head. Yeah. So as long as you can control the inflation, that's what really, you know, if you have a super spike in. inflation and supply chain disruptions, all that stuff is really important. And geopolitics is important to pay attention to. But you have a copacetic geopolitical situation and inflation's not really that bad. It's kind of global central bank easing. Think of this. Okay. Okay. Put your shoes in November 2021 to June of 2022. And... Things are going ballistic on the liquidity front. And then here comes the first quarter and you have a Russia-Ukraine war. You have oil and commodity price spike, geopolitical conflict. Economy's kind of running hot and they have to get restrictive. What is the polar opposite of that? Well, the cancellation of the Russia-Ukraine war. A deal with Saudi Arabia that says, hey guys, take off that production lid and... Let's drill and get that oil in the market and a balanced US budget with lower nominal interest rates because there's less of a commodity spike and concern and inflation volatility issue. That is an incredible thing about. Obviously, the execution risk here is pretty high. We're talking about threading needles with no hiccups. And I think maybe we're even coming from a little bit. to the U.S. domestic position when these global counterparts have incentives they want to negotiate with. So, yeah, but that's the definition of Goldilocks is, you know, not having great, tremendous bear cases yet. And so important to keep your eyes peeled. On the back of that, I got two charts that I think are really good. And I wanted to show number 31, Felix. So to keep that in mind, I still think there's sort of a calf bubble. It's probably demographic. because we own a lot of assets and they're putting them in money markets. But check out this is from Scott Rubner at Goldman. Mutual fund and ETF inflows since the start of the year. So we've obviously seen strong inflows to equity, seen strong inflows to bonds. But check out money markets. Current assets under management money markets are $9 trillion. Money markets saw $992 billion worth of inflows year to date, best on the board. Does any cash of that move at all? If a mere 1% moves out of money market, that's $90 billion worth of rotational flow. So if Trump is able to unlock some of that productive capacity in the market and you control these inflationary pressures, there's a lot of money just incrementally that can move into equities here and really, really push them up. Obviously, that's tough. On this point, Tyler, I know I faded you at the beginning of this idea, but maybe it's because I just interviewed Warren Mosler and now I'm all MMT build and stuff. But his whole point is that with higher interest rates, higher interest payments on these money market funds, if they're all kicking back 4.5% or whatever we're at right now, that's a lot of cash that is building there that could end up being risk seeking. And that is money printing. Yeah, that is money printing. And if you lower that rate, where does that money go? You know? Yeah. Yeah, exactly. That's why we've actually seen a strong high yield market. This is kind of interesting. Hit me with slide 26. This looks like we're, you know, I keep saying this, but we've started a new credit cycle in some senses. So this is the last 12 months upgrade to downgrade ratio in high yield. And it just shows that like, you know, you wouldn't, if you're heading in a recession, it looks more like, you know, that 2022 pullback. And I just, I just don't see it. And this is from JP Morgan's high yield note. The 2024 high yield bond upgrade to downgrade ratio issuer is 1.2 to 1. As well, there are 25 rising stars year to date impacting 44. $3 billion and only nine fallen angels impacting $8.6 billion. What that means is rising stars moves from high yield bond market to the corporate bond market. So $44 billion moved out of high yield, which means less supply in high yield and only $8.6 billion fell from corporate to high yield. So relatively, that's what is that a $36 billion shrinkage of the high yield market. In a recession, you'd- don't you don't see that you don't see upgrades going up and you know balance sheets getting better for high yield companies and it's why we see the high yield cds which is slide 25 this is at like record lows so until this starts yeah this could perk up next week if we get a policy like if the fed doesn't ease this is slide 25 yes i the high yield cds oh you I think you're delayed. Yeah. I had to jump on a hot spot for the last bit here. We didn't implode it, but. Oh, good. It just looked so, but the, the, the point is, is that, you know, we're just largely, I think we're in a good credit cycle. Here's the one last chart I'm going to show is, is chart 32. This, I think this is the giant demographic gorilla in the room. which is the income needed to buy a house for the last 125 years. This is why millennials and Gen Zers are so pissed off, is because it's increasingly becoming more and more expensive to buy a house. And you're going to need a generational pass through. I said one of three things need to happen. It's really like one of four. But I said... Either you have to raise wages and manipulate mortgage rates to get this down. You have to have tax credits for millennials and Gen Zs to buy a house. Or you back the dollar with an asset which has finite supply and you create a boom in that creates a wealth distribution where you can deliver the housing market. And this is something that like RFK specifically talked about. You know, the last one of my buddies busted my balls and he goes, how about number four, build more houses? And I was just like, yeah, that's a good point. But like, you know, we'll see. But anyway, the point is, I think this is why everyone we know is so bullish on Bitcoin is like, we can't afford a house. If you didn't get in when interest rates were really low, a lot of millennials and Gen Zs are there to buy that housing supply off the boomers. And so you have to. This is just like the Bitcoin chart. It's total. This is the generation difference right here. Yeah. It's the dilution. You need to dilute the fiat so that. Exactly. That's all this is. It's the actual monetary inflation of the US dollar base. Yeah. Same chart as the M2 supply or the Fed balance sheet, basically. It's just crazy. You're sounding like Rob Paul now. Even if you have all these hiccups in between and things look a little more sketchy right now and holiday times, low volume trading. you know, funky stuff's happening. The end, just zoom out and you see really the game we're in. We've, we've come full circle and do a banana zone. Banana zone. Did I, did I, yeah. This episode. Oh, we like when you, you never do. No, we appreciate you, Tyler. Well, let's, let's wrap it there while my internet hobbles to the end here, but, um, appreciate the episode guys. 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This is not investment advice. Crypto trading involves risk of loss and is offered to US customers through Payword Interactive Inc. View legal disclosures at kraken.com slash legal slash disclosures. All right, welcome back to another episode of the Roundup edition of Forward Guidance and we're back to just the trio today. We ditched the Pepe, sadly.

Maybe we'll get him back again. That was a ton of fun last week. I really enjoyed having him.

Yeah, he was good. We've got to get Zaheer back on, too. Yeah, we'll get him on next week, hopefully, or something like that. Try to alternate getting on some cool guests. Yeah, if you guys have any suggestions on people you'd love to see chop it up with us, feel free to send that our way, too, because it's fun to pull in some fresh thoughts and hopefully some contra thoughts, because sometimes we all get onto the same side of the trade, even though we try not to.

We try to show the other view. It can happen. Let's get Mike Guyatt on here.

Just tell us how everything's fucked. I'm like, Felix, your hair looks great today. Look at that.

What are you using? Pert Plus? Literally just a bit of water.

I just threw it in there. Because I'm actually, I'm not at home right now. I'm in Alberta. I'm in oil country right now. So I don't have my classic routine ready to go before the pod.

So I just threw some water in just to calm it all down. But yeah, no real secret. Beautiful, beautiful.

And by the way, have you seen that? willie bob thornton landman yet no on oil oh it's supposedly pretty good it's like a texas oil no it's on uh amazon prime it's supposed to be like a you know pretty solid show taylor sheridan did it so yeah it's uh it's interesting to be in the texas of canada over here you know gas is like 40 cheaper than where i live even though it's pretty close in the same country it's crazy my family lives in california comes to texas and they're like oh my god your your oil is like two bucks cheaper than where we live like yeah everything's cheaper let's get into this you know obviously like anytime i see a survey chart or like a sentiment chart you got to take it in with the with the consideration that it's it's always going to be highly political driven but with that aside still this was a crazy print on the business optimism index we like just absolutely soared to like 2021 levels um this week. And I feel like it's started to represent in the data, this sentiment shift that we've seen post election. And obviously, like, you know, market assets will price this in before the actual data points start to come in.

So there's been this interesting moment where obviously, we've seen that the Trump trade evolved over the last three weeks. And now we're starting to see the economic data that the market was forward looking upon, start to show up in the sentiment surveys. And, you know, maybe we can get into this in a bit about how that actually starts to get represented in like the hard data is that like, you know, business is very optimistic.

they're going to be more optimistic to start hiring more. We can get more into that. But I'm curious how you guys are thinking about this in terms of what we've seen over the last month or so since the election, especially in relation to this just unabashed business optimism that we're seeing. Quinn, what are you thinking?

Who do you think the people that voted in this survey voted for? Yeah, exactly. Who did small business owners vote for, I wonder?

uh no it's it's an interesting i i view it as this weird push-pull because so obviously the the move up on the back of the election results were the cyclicals value in small caps and regional banks and the Trump trades. And that reflects that survey, essentially. But since then, we've had quite the pullback in that, you know, like, let's just call it, there's different parameters, growth to value ratios, or you can look at, you know, NASDAQ to small caps.

Some of these are not really apples to apples. They're just the indices or ETFs you can use to look at relative value. But there's probably a big short squeeze component almost to that rally in November.

Maybe not too dissimilar from the July move where we got that cold CPI and there's that huge rotation from large cap tech into small caps. And then it's... pretty much reversed. I mean, on the ratio, we're back to, I think, below where Trump was elected on like small caps to big tech. I think you have cyclical slowing pressures from the labor market, which have been in the works for many months now.

We've obviously seen inflation and growth kind of generally drifting lower on a cyclical basis. But then here's this wrench of, you know, probably the most pro-business, pro-growth. deregulatory president we've seen and who's emboldened from his first term, which was very much in that direction to begin with.

So on the one hand, I think the Fed, the big question is how accommodative are central banks? Because we have no policy yet from the new administration. They don't come to office till January. The Fed can't really act on that. So they're going to remain supportive as the labor market is showing weakening.

Um, and I, I don't know, it's like the seasonal flow has been really strong. Like every day this week that, you know, it's been just a huge divergence in the NASDAQ and the Russell. And to me, it feels like I have a hard time seeing how the market's going to sell off in a huge way. Knock on wood, watch after they say this, everything's going to crash.

But things feel decently supported. And maybe that's like just going into monthly op op X next week. But it's been this very rotationary market. rotational market where the indices jim carson talks about this have been pinned and it feels to me like there should be some mean reversion to the small cap trade from the nasdaq trade and whether that means like everything has to go up um is to be seen but um yeah it's it's it's a weird market like we had that momentum thing i'm sure tyler's quant corner is going to get into all that but but uh you get such heavy seasonal flows and low liquidity going in the holidays that maybe it's hard to read too much into the day-to-day, week-to-week moves here. Yeah.

On that point, I guess, well, can I hit you with slide 30? This is something that Quinn and I were talking about this week on the side. Are we watching the MAG7 blow off top here? Because a lot of it is very interesting.

So this is a percentage of stocks outperforming the S&P over the calendar year. And it basically shows that there's not that many outperforming S&P, which shows high concentration. And then, you know, to take it one step further, to give Quinn credit, if you go to slide 29, this is the MAG-7 index.

Like he cued me onto this, but look at the volume spike or the MAG-7 ETF, the volume spike with the new highs here, everything is basically piled back in, you know, I think what happened. was you had an unwind of like high beta momentum stocks. And now all these hedge funds delevered their books, but they're hiding out in the giant large cap stocks into year end just to lower their vol. And so I can show you what happened with momentum if you go to slide 22. I think super quickly, what you said there is really interesting about how quants hide in mag seven.

In this era where bonds are so cooked, it feels like that's like the new. the new like risk-free asset for a lot of people it's like okay i'm gonna go hide out in mac 7 until like and you know like they just they just have so much cash on their books too right like they're just spinning off that at 4.5 or whatever it's it feels like that's the new like yeah safe haven asset and that's that's where all the buybacks are too so you know stultifies the volatility of your book just all out in there but you know now you have this crowding effect because i think Going into this last week, H1s were having a great year. You know, they were... up on high beta stuff and outperforming the index. And now you saw the de-levering.

And this is the Goldman Sachs momentum basket, which I highlighted in, was it Tuesday? Just absolutely. It was like some quant thing just went off, probably from some weird part of the market, whether it was China or not, caused this unwind in the momentum factor.

Basically, anything that was massively outperforming just got smashed. And we saw it touch the 250-day and the weekly chart, which is on the right. And it got defended there.

So there's still support there, which is a great sign. But it was just very aggressive. And that's why we saw this massive drawdown.

And crypto equities got kind of roped into that, too, because they've been massively outperforming. But the other thing that could have ticked it off is... the next chart is chart 23 is the twos to tens curve was steepening and like duration.

If you look at the 30 year yield to duration was selling off as well. So there's lots of macro stuff going on here that normally in a, in seasonality, like you have low, low volume trading, you have lots of buybacks and not much is happening. There's actually a lot happening macro wise. That's making me a little more concerned than I usually would be this time of year. Volatility is overly low.

CDS on high yield is overly low. And there's something funky really going on in China. Let's go to slide 24. This is the China 10-year yield.

So this is kind of nuts. If you look at this is the all-time lows in the Chinese 10-year yield. China's kind of imploding here. They're in a massive balance sheet recession. And this is like globally China's slowing, which I think should theoretically put a lid on a lot of, I guess, commodity inflation.

And so this is the one thing where I'm not really super bullish on commodities until they pull out like they're saying we are going to stew demand. We're going to basically counteract. this balance sheet recession as an administration, but the 10 year yield hasn't told us that.

And like looking at it, it's an eight on the RSI. I wouldn't even be surprised if they did some massive kind of like over the weekend fiscal plan to balance. Yeah. We got a few headlines this week where they're like, okay, you know, we're going to be easing for the first time since like 2008 or whatever. Right.

Like, I mean, this is the problem is that they keep coming in with these they're, they're trying to talk it instead of actually execute it. Cause you know, we can get into this, but if they actually execute it on the same time that the Fed is like, going to potentially pause in January, that's going to cause some currency strains. I don't know, there's it seems like there's always emotional reactions with China.

But to me, it's as simple as they aren't going to unleash the big kahuna stimulus and wreck their currency while the dollar is so we might be in another like three to six months of the stop start, right? Because if they unleash stimulus and wreck their currency, you know, that just has other implications. The bond market is saying like, this isn't enough. So I think it kind of emboldens them to do more.

And that might actually ultimately be good for their currency if they're able to ignite things. But they, like you said, Felix, they need some clearance, I think, from global central banks. And the thing that I find interesting is, and why I'm maybe a little more constructive now with where small caps are than I was maybe a week or two ago, I was... definitely cautious. So we've seen this huge relative underperformance of small caps for the last two weeks.

Since late November, small caps have underperformed the NASDAQ by like 8% or something. And normally, that's a liquidity trade, right? So in that time, we've had rising dollar, rising yields for the most part. And inflation came in hot. So maybe the market's saying, well, the Fed's not going to do enough to support growth or something.

There's a couple of mixed messages. But in the back of all of this, you have trades like Bitcoin and other, quote unquote, Trump trades that have been incredibly strong to their macro correlations during this period of rising yields, stronger dollar, presumably less liquidity. Normally, Bitcoin and small caps are fairly correlated because of that characteristic.

So I'm sitting here and it's like Bitcoin's kind of just continuing to vertically trend up. Meanwhile, small caps getting crushed. And there's this huge reversion to large cap tech, which is the safety trade, strong dollar trade, strong, you know, US yields trade.

And that doesn't go on forever. Either liquidity, you know, to me, it seems like it's close to a breaking point. I don't know if that's like today or next week or in a month, but either liquidity tightens enough and the dollar and yields keep going up where it becomes a problem for all assets, you know, not just small caps where we're seeing NASDAQ benefit.

Or something reverses it, i.e. what I think could be next week a dovish Fed, which two, three weeks ago, I was actually maybe concerned that the Fed would be hawkish. And I was concerned that they weren't going to cut. But it's clear they're communicating to the market they're cutting, despite, you know, PC and inflation coming where it's at. And if that's the case, you kind of have to play ball.

Like they're implicitly saying 3% is the new 2%. And. Um, I I'm trying to understand, like, I'd love people's counters if you're listening, where the Fed is going to be, be hawkish next week, because they're the, the forward rate market's only pricing in two cuts in all of 2025. And I have, I see zero incentive for the Fed to, to not, to be more hawkish than that. I mean, only two cuts, you know, like that is very, very low already.

So it's like, maybe they do a December, 2023 surprise dovish again. Because I just don't see where the hawkishness comes from. I think the big point, too, is, you know, the narrative is, why is the Fed cutting when, you know, Atlanta Fed GDP is over 3%? Why is the Fed cutting when stocks are at all-time highs every day?

But it's actually quite interesting when you dig into some of, like, you got to really think about how the Fed thinks about things, right? Not just how, like, the average market participant does. And there's some, maybe I can get into a few econ points.

Because I've been, you know, last week we talked about the drop support and, you know, how there was some... there's some increased weakness in what it looked like on the surface level prints, especially from the unemployment rate side of things. But we got some, let me just pull it up here.

Just some interesting data on the jobless claims data today or yesterday. Sorry. That kind of spooked me a little bit because of what happened last week where, you know, the, the jobs report that came out last week, they were serving that almost like a month ago.

But now that we're seeing this increase in like coincidental data, um, This is just a great chart that brings it all together. Just showing, so the dotted line is the initial claims data, which can be quite noisy. So it's always good to look at like a four week average there.

And you can see that we bottomed out there. And now we're starting to revert a bit higher. And you can see this here as well, where the consensus print there was for 220,000.

And we came in at 242,000. And this is data that is completely clean from any sort of like... idiosyncratic factors like hurricanes and stuff that was happening last month and then more so this was actually quite surprising to me is the continuing jobless claims data i myself like a month ago i was pretty strongly in the camp that this was just a residual of that hurricane and like strike stuff but the fact is that's been completely cleaned out of the labor market data and we're still seeing this and this is really showing how like i feel like the labor market's at a standstill right now and just sort of on like a like kind of teetering here where There's not a full-scale layoff cycle happening right now. But if you lose your job, it is a nightmare to get a new job right now. So you're seeing this continuation of continuing drop-off claims.

We're seeing the duration of unemployment continue higher. And I don't know how well this will actually get shown when people watch this. But, you know, George Robertson, who was on the show, I think about a month ago or so, he actually does some really interesting analysis here because there's so much... noise and seasonal adjustments and how they quantify that.

So what he does in this chart is he actually takes the non-seasonally adjusted data and to be able to keep, you know, the whole point of seasonal adjustments is to be able to compare apples to apples, right? So instead, what he does is just compares it on a year-over-year basis of every week of the year. And then he puts a heat map on it, right?

So you can see, like, for those, I'm not sure if these numbers are going to be viewable, but I'll just put it out there, is that on the non-seasonal adjusted data, We saw 310,000 come out this week versus like this time last year, it's 249. The previous year, 288. Previous year before that, 284. So this is a huge phase shift higher, especially when you look at like last week, we were at 211,000 non-seasonally adjusted. So this was a significant increase. And lastly, I'll just pause here on this point that this is actually a really interesting tool that I found from the Atlanta Fed recently, where it basically...

aggregates and provides like a holistic look at the labor market. There's a lot of, you know, it's not just as simple as looking at the unemployment rate. And this just provides a way to show like, where's the strength or relative weaknesses to previous years. So on this chart is just showing like the jobs report data from this month versus this time last year.

And then basically have on here in the dark. the dark blue line is is basically pre-covered and you can see that like like look at private high rates right like there's just it's in the dumps and it has been for quite a while um there's some stickiness in the wage growth as well so it's it's this interesting interesting idea of pretty crappy private payrolls but still resilient wage growth um and that is really the theme of what we're trying to dig in here but Based on all of that and everything that we saw from the jobs report last week, I don't know. I see some cases to be made for continuing to cut here.

That isn't just, oh, you know, the Fed just wants to pump markets or all these ideas. I think there's some fundamental validity when you look at the labor market right now. Yeah, I agree with that.

I think growth in the labor market, their mandate is stable prices and full employment. I think it's pretty clear the unemployment rate is going to be trending up. And that's what makes it so interesting, right, is because in a couple months, you have the Trump administration come in, which presumably should improve the economy all else equal to some extent.

When you think about that optimism chart that we showed at the beginning, like that's going to lead to more increased confidence in hiring. So this could be a bottom. But again, this is just how the Fed thinks about things.

Yeah, they can't they can't say we're not cutting rates because we're not supporting the. labor market because people just got super optimistic. Exactly.

Yeah. I think to step back in the near term, I think the Fed could actually make a policy mistake here by not easing because if you look at the expectations, a 96% chance of a rate cut heading into the FOMC meeting. So if they don't cut, I think that really will cause the dollar spike some real bad things will happen in Asia.

Check out this Asian dollar index. That's interesting. You think the dollar would spike because you would think like, okay, they're being hawkish. So they're getting a control of inflation, not dollar down.

You think dollar higher? Yeah, I think dollar higher. Like look at, this is slide 28. Whenever the Asian dollar index, and this is like Singapore dollar, you know, Yuan, I think it's a bunch of different Asian dollars.

Quinn's favorite, the dong. So the Asia dollar, if it breaks below 90, there's something globally going wrong here. And I kind of think the Fed knows that they don't want a global margin call on their hands. And they don't want to cause any geopolitics.

They are the world central bank. And if they know China's on the ropes, they don't want China starting a kinetic war. So maybe they ask for some concessions. There's a lot of geopolitical things here going. So if they don't ease, I think you might get a little pocket of credit stress.

But if they do, you know, this bull market could really be heating up. Because I think we're in a global easing cycle. If you just step back, we're in a global easing cycle. Every time the ECB eased, China is going to do something. Otherwise, they're going to have riots.

And then, you know, you step back longer term, we're going to be forced to ease too, because everyone else easing will make the dollar go skyrocketing higher. Well, actually, this is like that 1998 Asia, you know, financial crisis where once we start easing, money comes out of large caps, flows back into small caps, bam, you know, you get some, you know, animal spirits and this productivity unlock if Doge really goes to town. But not only that, if Doge goes to town and starts just firing government employees and like really making the private sector have that productivity unlock.

Not only does the Fed have to react to the unemployment because they've already said, hey, we're going to pay attention to unemployment more. So then they might be easing more. And I'm going out a rabbit hole, but like. Right.

You bring down. You're unlocking a lot of stuff. And, you know, the cherry on top. is Trump invited Xi to his inauguration.

So you might get like global peace accord. And geez, that could be massively bullish long term. Yeah. So the whole conflict here is whether you believe the Fed cares about domestic demands or international concerns more.

Because there's some people in the camp that are like the Fed doesn't give a shit about what's happening in other countries. But in other countries on how much US debt, if there's global margin calls happening. Swap lines start happening, you know? This is why I've kind of, I've become more constructive lately because the Fed is maintaining their easing stance despite what we're seeing on the inflation side. And this is...

very 2020, 2021-esque, right? I had been of the belief that they would get very hawkish when inflation started to peak its head. And they're doing the same thing again.

So we're seeing 3% PC and these other flattened out inflation metrics. And so it's almost as if... there's enough scar tissue from the October 2022 guilt crisis and the March 2023 banking crisis and the October 2023 real yield scare that they're kind of getting in front of this, right? Because they're not letting that flush occur that they might have in the past.

And they're understanding that if they are too tight, globally, the other central banks start to run into issues. And so that's what I think asset markets are starting to probably price in here. Yeah, I think it's important to really emphasize how unique the situation is right now, where every other time where yields got to this level, equities and risk puked.

But it's not this time. It seems like we're finding this new equilibrium. And even like I just saw today, I don't know if you guys saw, but like the 10-year three-month actually re-steepened today and is now positive for the first time since it went inverted.

And, you know, obviously that starts to, you get the doomers come out and say, oh, you know, like when the 10-2s... goes positive, you get ready for a recession. But when the three-month tenure goes positive, the recession is here. But okay, we got to look at what's actually happening here.

It's the long end that's going higher. And the three-month is quite closely tied to Fed funds. So they're cutting.

So you're in this world where it's re-steepening kind of on both sides in a way, but not because of recessionary concerns. That's what they need. They need it to steepen from the front end, which is exactly- your point and you're going to have these fits and starts. If you also look at interest rate differentials, it seems like we're kind of peaking out in the US here where, you know, the Fed on the long end versus others, I think is kind of, yeah, reaching a top. Scale is shaking up the blockchain game.

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I just want to point out on the China front, Tyler, I forgot to mention that. Oh, sorry. What a narrative violation.

I mean, Trump, I thought he's boys with Putin and he's going to start World War III with China. And here he is, he's playing hard, he's hardline stance with Russia and Putin to say, stop the war. And he's inviting his next World War III opponent to his inauguration. I mean.

This is insane. I don't know what BuzzFeed journalists are writing about it, but that's massive. I've been saying for a while, Trump doesn't view people as enemies. He views them as opponents or people sitting across the table or competitors.

I hate you. I'm competing against you. And there's tons of synergies to be had when US and China get along. And I don't think he's like by any stretch anti getting along. He just wants the best deals.

And like, I think that's what like China's down on that news, which to me is is almost more important than their like talk of random stimulus that there may or may not be actually doing because you get a cooperative China and US and. That seems about as bullish as a thing for a domestic economy as you could have. The global peace dividend is what Melngren mentioned.

And everyone thinks Trump is he's a hardliner on economic issues and he really uses the bully pulpit in terms of getting the best deal for America. And I think that's actually net positive. If you're battling for economic reasons and not, you know, military industrial complex reasons, I think that's a lot better. And if we stop-I mean, that could be the full answer why the dollar is too, like, going up right now, right? Because like, yeah, I want to invest in this guy.

If he's my founder, right? And he's going out and negotiating every deal, like-Dude, he just said a billion, if you put a billion dollars of foreign capital, you know, we're going to expedite permits. And like, that's so dollar bullish. That's the best immigration thing you've- you've seen from this country in years.

I mean, look at his cabinet, Scott Besant, one of the smartest genius macro brains, Elon Musk, the most, like, successful capitalist in the world, and RFK and everyone else. They're not going to start like a random World War Three with China. Like, that's really interesting that you said Pippa was talking about, because she was the one that like in 2018 was talking about a soft world war was happening.

Like she was pretty early to the increased geopolitical risk. And if she's fading that now, that's, that's really interesting to me. Yeah, I think people are just getting tired of this globally, this war.

I mean, God knows what just I mean, this should be bipartisan at this point, but we keep funneling money to Ukraine. And it's like I think even the people on the left are just like, what the hell is going on here? But regardless, there's risks out there. He could destabilize a lot of stuff, but we're going to keep watching the credit markets.

What is interesting is the cascade of impacts of that, right? Is, okay, lower geopolitical risk premium. Okay, lower commodities.

Okay, lower commodities, less tail risk of inflation, right? So I don't know. I mean, right now the biggest risk right now is a reacceleration of inflation. That's what's got people spooked. Maybe I'll get into a couple data.

We had the CPI print coming this week. That was quite interesting. I'll get into a couple charts here. Core CPI has been... Sticky.

It's been like every month has been coming in at like 0.3% month over month. At the same time that we have seen some improvement in CPI itself headline. But the main theme here has been the core stickiness.

But what's really interesting is when you dig a little bit deeper into the data, there's actually been this rotation in what's actually driving that stickiness. Let me just see. Yeah, this chart here. This is something I've been talking, I think I talked about this during the last CPI print, but about how, you know, most of the disinflation has been coming from goods, core goods specifically.

So things like used car prices, new car prices, etc. I've just been like leading the charge there on disinflation. But we got to extremely, I don't know, no way better to put it than like say, just we got to super oversold levels on it and it was bound to mean revert higher. And we started to see that.

So then, okay. If we're seeing core goods start to increase and inflate again, you need something to offset it, right? And core services, which is just basically shelter inflation, has been super lagged in its decrease in disinflation. So what's really interesting is that we've seen this basically pass into the baton where, you know, one of the biggest downside like disinflationary surprises we've seen this past month has actually been in shelter inflation.

That's where a lot of the downside move came from. So if you look at like, this is people call the super core. This is something that during the you know height of inflation scare era uh like 2022 policy this is inflation minus everything basically yeah i mean basically like yeah it's just hilarious like you're just getting down into the most granular crap here but the point is that like okay super core is coming down and coming lower so you start to ask yourself what is actually the above two percent inflation concerns and it's literally just lagged shelter like this is just a bubble map just showing like how much contributes to inflation over a month.

And like, look at that bubble, right? It's just all owner's equivalent rent, which is extremely lagged. And then you get down to this money chart that Jeremy Shorts of WisdomTree put out recently, which just swaps out BLS shelter data with real-time shelter data. And what we see here is that, yes, the peak wasn't as high as it shows when you use that. Or sorry, it did go higher because it's more high frequency.

Got up to, say, something almost like 12%. But then now we've actually been, if you swap in for real-time shelter data, below 2% for quite some time now. And then you think about where we are in the business cycle.

It does make sense to see a little bit of an increase. But within this realm of rethinking about it, things start to make a bit more sense to me, which is when you see some marginal weakness in the labor market at the same time that, OK, like we've been saying, the shelter inflation is what's driving all of this and the lag nature of it. And that's really accelerating to the downside. Now we're starting to see acceleration of disinflation from rent shelter.

What does this all mean? I think the inflation fears are overblown, personally. I have been probably on the side of more worried about inflation.

The volatility of inflation with all these different components falling is important, right? Because stability, if you're just consistently growing at 2% every year, that's like price stability in their eyes. If you're consistently growing at 2% to 3%, they did do this average inflation targeting. idea, right?

Where before they were below two and now they have room to be above two. But the main thing is the volatility. The opposite of stability is volatility. Stability is not defined as a certain level. And so when I see this yield spike and this dollar spike, and then you get hot prints, but the market doesn't do anything about it.

And then I look at the move index and there's no bond volatility to even be sniffed a mile away. Something in there is not, you got to connect the dots here. And to me, it's saying the market doesn't really care about the Fed's concern with inflation, that it's going to inhibit the path.

And because plot yields in the dollar becoming a problem with the move index. And that's when uncertainty, volatility. and unknowns are rising.

And that's just not the case. So it could be that this yield and dollar move is a pro-US, pro-growth idea rather than a... Which is why risk isn't puking.

Exactly. And then you look at it, and if you take that lens, because I had the opposite lens for the last two weeks, which I didn't miss much. If I'm talking about crypto and small caps, small caps came down and crypto is flat at 100. And I'm looking at that, I'm like, wait, but things aren't falling apart.

it's not this draconian scary thing no arc arc is still close to all-time highs and rocket where's carvata we just chart chart still good up yeah dude like this is the thing we're we're we're continuing to be in goldilocks like this is yeah this is a soft landing in action and okay yes there's some stickiness inflation but like i just showed so much of it is shelter okay and And if we assume a higher neutral rate, yeah, 3% is a new 2%, right? But when you consider all the other considerations at hand right now, I don't know. I don't see where the inflation reacceleration comes from. I really don't, especially with oil on the floor. I think if one thing to watch, and I've been watching it like a hawk all week, and you'll see this in the tape if you're close.

Watch plot on the screen. chart of IWM small caps, a chart of S&P just for market beta, the chart of like pick some crypto equities or iBit. And you'll see this recurring sell down in small caps relative to everything else.

And every time, you know, small caps go down, but crypto goes down a little less and a little less and a little less. And you're seeing that with Bitcoin just hugging the upper, you know, kind of. daily range.

And what that is showing you is relative strength and the trend being more important, the catalyst behind crypto being more important than whatever negative macro factors are going on. That's my tune and I'm sticking to it. And if the Fed comes out as no surprises next week, I think it's party on into the end of the month, personally. Yes, I'm still on that page.

Zaheer from Split put up a chart this week of the basis trade, which is at 15%. So you buy spot, you short futures, which is like... Yeah. If you can find it, pull it up to give him credit. But like that should just be a global sucking sound.

And then, you know, meaning like if you're a trad five person to buy spot and then sell it 15% higher and just lock in a 15% gain, that should just be, that's why you're getting a massive inflow of capital. And then to boot, like our buddies at Kinto. you can borrow or you can lend your USDC for it's like, you know, high teens percentage. So it's a high, basically there's a high demand to borrow and play, you know, stuff like this, which is, should theoretically just suck money from the TradFi system.

And, you know, and not only that, but like, if you can get those rates of interest at USDC, that's a sign that like, you know, money will find good rates. right that's that's part of you know and there's demand there to borrow so like that's showing you the the crypto world is actually sucking in capital you know there's a lot of other things going on i think why crypto hasn't broken out is because of this new ibit options thing and there's lots of volatility shit going on which is very annoying when you get all these vol are people playing because when the implied goes up you have a lot of retail people buy call options They short the call options and then play the Volarb. So you need a catalyst to kind of like light the spark to create the game.

I'm glad you brought that up because I believe the first OpEx we've seen on iBit is happening next week on the 21st. And so, yeah, to your point, if dealers are long gamma, they're going to try to pin it into OpEx. So it's hard for us to see a breakout until that occurs. So I'm really interested to see what happens after the 21st there.

Same. And there's obviously another catalyst for something that I cannot name that is also causing, you know, implied vault to be really high. And, you know, if these events happen in a positive light, you could really kick it up. You know, one thing that happened this week, too, is Eric Trump was speaking, I think, in a conference in Dubai. And he goes, I don't think, you know, Bitcoin is just going to go to 100. I think it's going to go to a million.

And I'm like. God damn. Did he just tell us that they're going to use Bitcoin to deliver the fiat economy? You know what I just realized is that the Kaishi, or is it Kaishi? I forget.

Odds for the strategic Bitcoin reserve are at 70% right now. I didn't know. I thought we were still in the 20s.

How do they define it, though? Do they define it as just not selling, or does that require actually purchasing in the market? Good question. Maybe that's where the distinction is. Because I was like, holy shit, 70%?

From the commentary, though, I think like there would be, you'd think it would get discounted a little bit more. I'd think, you know, just from what Trump said, you're seeing some transactions in ETH and like, I think even Chainlink from like Trump entities. Was it World Liberty Fives like buying these tokens? They're buying like. dino defy like lincoln that's insane so i mean god i the i feel like the risk is more being left behind granted you know there's a lot of funky macro stuff going on that they the policy mistake could derail this we're paying attention that closely we'll report back next week yeah maybe quinn and i can talk quickly about this thing that you mentioned that you can't talk about and you can i don't know look at your phone or something for a minute but um Yeah, MicroStrategy is...

I have to correct the record. I said last week, I was like, I don't think it's getting included in the NASDAQ. It's not my expertise.

And the Bloomberg guys and a couple other people that I would suspect have good information are saying it's going to be included. Yeah, and Quinn just likes, he has a big ego and he needs to make comments on everything. That is true.

I need to stop that. It's fine. So...

That's a risk of being on here. You're like a zoo animal. It's like, do the trick.

Talk. What do you think about this? What do you think about that?

It's like, dude, I don't. But I mean, man, I've seen a lot of TradFi folks start to opine expertly about crypto where they used to make fun of us about four months ago. So what I actually think is what I was saying earlier, why the macro is shaping up here to be very positive over the next few weeks. And then you have this event tonight. which could set things off and get animal spirits back.

And it'll be funny because, you know, to a macro person, hammer is the nail and, you know, the... concoction is here. And then everyone will be like, oh, of course, that relit the fuse for crypto when micro strategies gets put in. So it kind of reminds me of the election a little bit where I think it's buy no matter what.

So I'm kind of the view like I'm going to probably be buying if there's a big sell off if they don't get included today. Yeah. The main tail risk at hand is whether they could be classified as a bank or some sort of financial company, which then would disclude them from the queues.

But from my understanding. what the Bloomberg lads were saying was that that would have to occur before the decision is made to be reclassified. So it's sort of just a non-starter of an argument.

But that seems to be the main one or some sort of discretionary, like, I don't know, volatility implied vol is too high or something, but seems like it's going to happen, but we'll see what happens, I guess. Just smiling, Tyler. You know, I got on the volatility stuff.

There was another, there's two interesting things that happened in the Bitcoin. mining sector. You had another miner this morning issued another $500 million of converts, not to buy Bitcoin, but just to take in great cash at a great price.

And then the other one was, we don't own this, but Riot, Starbird activist fund took a stake in Riot blockchain, one of the largest ones, basically. I think to incentivize them to maybe provide capacity to high performance compute AI, because they have a huge, you know, they're obviously one of the biggest miners. I think they are the biggest miner out there, but, and so there's lots of stuff happening in the space that is just really, I think it should revalue higher eventually if you get these catalysts in, in spot and there's, there's lots of ways.

If anyone hasn't watched the Convert Arb guy that Felix interviewed, it's really high finance, but it makes so much more sense than all these morons like Jason Kalkanis who's like, ah, it's a bubble, short it. If you really understand converts, it's worth digging into converts and understanding how this is capital structure arbitrage. They're financing themselves in this sector.

at way more advantageous rates than you can by just selling a bond. They're not, they're doing this. This is like, like super rocket engineering in financial markets that it, they're the best quote from the thing is dilution is accretive. That, that quote was just brilliant. Yeah.

I mean, cause it is. I'm still trying to wrap my head around it, but I am like. Because I mean, the whole bear, I don't bear.

I think like regardless, being a bondholder of it is a fantastic risk reward scenario. Being an equity holder, you know, depending on where you're buying on a premium to NAV. But if you think dilution is accretive and you think, you know, that the premium to NAV expands, because like he was saying that, you know, if we get these fast P rules that change where the increase in Bitcoin price gets reflected as earnings, that'll recalibrate things. But. But I don't know.

I'm still not fully convinced right now on the equity being accretive. Well, it is. It is.

You're selling your stock. So this is another interesting thing that happened. There's a guy, he's an analyst over at JP Morgan, follows the Bitcoin mining sector. He changed his whole methodology of valuing these stocks because he put a 2x multiple on your hodl balance. So basically, he's now valuing Bitcoin on your balance sheet, gets a 2x multiple.

Think about that. So it makes owning the stocks, you get a 2x multiple on your Bitcoin because they're basically using capital markets to finance themselves accretively. Whereas holding a just iBit or some sort of spot ETF, you get charged fees where you could.

buy another vehicle that you get a 2x multiple on and maybe perhaps that multiple is expanding if you are bullish on the underlying spot bitcoin granted that's the most important thing is that you see that cycle turning is double the downside but like you know just like any leverage you know if you are bullish on spot they're they're levered ways to play and they're doing it they're doing it in a way that's really smart really smart this takes like you know me The understanding converts in the vol markets is like super high finance. And for all these guys that are easily shit on it and don't understand that the dilution is accretive. That's the part that like when it clicks and you're like, holy shit, this is borrowing money from the TradFi system.

You're borrowing money from Allianz who's buying your bonds and you're putting it, you're buying something way cheaper and adding, you know, assets to your balance sheet. You're not just adding, they're like, where's the earnings? Where's the earnings? But you're adding assets to your balance sheet and equity is rising.

So that's the whole trick of this whole thing. Sorry for and it's just about how it gets measured on like like we said in the interview, right? Like it just depends on what gets shown on an income statement.

But, you know, net profit just ends up as retained earnings on a balance sheet. So it's just like just going straight to the balance sheet instead. Yeah. And this is this is what happens when you control interest rates. I call them, you know, vol controllers.

This is the movement from if you understand that this is a movement from Warren Buffett type ideology, selling volatility to being long volatility. That is the macro cycle that once that clicks, the only thing that can derail that is a policy mistake or the Fed global liquidity cycle unwinding, which I don't think they can do because the problems, I'm so bearish, I'm bullish. I think the problems are so big that once you understand, you go click, okay, if they let the debt markets unwind, dude, everything, everything is a war. And so it's just a matter of this con game of kicking the can.

You have these little brief credit problems and de-levering, and then the policymakers come in and the vault controllers come in. But it allows this cycle is just going to keep continuing because they can't let it unwind. They can't let another 2008 happen. I think a good anecdotal piece of evidence of this is the number of traditional macro people who...

were in the Warren Buffett, Bitcoin is rat poison camp, now tweeting about meme coins and interested in crypto and saying they're going to enter Bitcoin at certain levels. And like, they're starting to see this end game, which tells me that one, none of them have bought. So we're not at the top yet. Yeah, they're all kind of just talking about it.

But to all just writing casual threads and having opinions, but none of them like put the fucking trade on if you want to act on it, right? Well, they still don't have the conviction is really all. I think they're still warming up to it. So, I mean, these are the people who are going to buy the bag. So we got to be welcoming and nice to them, right?

Because we need to get everybody on it. But I think it's a sign that what you're saying there, Tyler, around the long volatility strategy is starting to resonate with people. Because how many times can you throw your hands up in the air and say, Goodness gracious, I can't believe the Fed is doing this again and cutting while the S&P is at all-time highs. And then it's like, well, this is actually what they're trying to do is keep the pieces of the puzzle together. They don't want to see this unraveling.

And they only undo it when they're absolutely kicking and screaming force to because inflation is like smacking everybody across the head. Yeah. So as long as you can control the inflation, that's what really, you know, if you have a super spike in. inflation and supply chain disruptions, all that stuff is really important. And geopolitics is important to pay attention to.

But you have a copacetic geopolitical situation and inflation's not really that bad. It's kind of global central bank easing. Think of this.

Okay. Okay. Put your shoes in November 2021 to June of 2022. And... Things are going ballistic on the liquidity front.

And then here comes the first quarter and you have a Russia-Ukraine war. You have oil and commodity price spike, geopolitical conflict. Economy's kind of running hot and they have to get restrictive. What is the polar opposite of that? Well, the cancellation of the Russia-Ukraine war.

A deal with Saudi Arabia that says, hey guys, take off that production lid and... Let's drill and get that oil in the market and a balanced US budget with lower nominal interest rates because there's less of a commodity spike and concern and inflation volatility issue. That is an incredible thing about. Obviously, the execution risk here is pretty high. We're talking about threading needles with no hiccups.

And I think maybe we're even coming from a little bit. to the U.S. domestic position when these global counterparts have incentives they want to negotiate with. So, yeah, but that's the definition of Goldilocks is, you know, not having great, tremendous bear cases yet.

And so important to keep your eyes peeled. On the back of that, I got two charts that I think are really good. And I wanted to show number 31, Felix.

So to keep that in mind, I still think there's sort of a calf bubble. It's probably demographic. because we own a lot of assets and they're putting them in money markets.

But check out this is from Scott Rubner at Goldman. Mutual fund and ETF inflows since the start of the year. So we've obviously seen strong inflows to equity, seen strong inflows to bonds. But check out money markets.

Current assets under management money markets are $9 trillion. Money markets saw $992 billion worth of inflows year to date, best on the board. Does any cash of that move at all? If a mere 1% moves out of money market, that's $90 billion worth of rotational flow. So if Trump is able to unlock some of that productive capacity in the market and you control these inflationary pressures, there's a lot of money just incrementally that can move into equities here and really, really push them up.

Obviously, that's tough. On this point, Tyler, I know I faded you at the beginning of this idea, but maybe it's because I just interviewed Warren Mosler and now I'm all MMT build and stuff. But his whole point is that with higher interest rates, higher interest payments on these money market funds, if they're all kicking back 4.5% or whatever we're at right now, that's a lot of cash that is building there that could end up being risk seeking.

And that is money printing. Yeah, that is money printing. And if you lower that rate, where does that money go?

You know? Yeah. Yeah, exactly. That's why we've actually seen a strong high yield market. This is kind of interesting.

Hit me with slide 26. This looks like we're, you know, I keep saying this, but we've started a new credit cycle in some senses. So this is the last 12 months upgrade to downgrade ratio in high yield. And it just shows that like, you know, you wouldn't, if you're heading in a recession, it looks more like, you know, that 2022 pullback.

And I just, I just don't see it. And this is from JP Morgan's high yield note. The 2024 high yield bond upgrade to downgrade ratio issuer is 1.2 to 1. As well, there are 25 rising stars year to date impacting 44. $3 billion and only nine fallen angels impacting $8.6 billion.

What that means is rising stars moves from high yield bond market to the corporate bond market. So $44 billion moved out of high yield, which means less supply in high yield and only $8.6 billion fell from corporate to high yield. So relatively, that's what is that a $36 billion shrinkage of the high yield market. In a recession, you'd- don't you don't see that you don't see upgrades going up and you know balance sheets getting better for high yield companies and it's why we see the high yield cds which is slide 25 this is at like record lows so until this starts yeah this could perk up next week if we get a policy like if the fed doesn't ease this is slide 25 yes i the high yield cds oh you I think you're delayed.

Yeah. I had to jump on a hot spot for the last bit here. We didn't implode it, but.

Oh, good. It just looked so, but the, the, the point is, is that, you know, we're just largely, I think we're in a good credit cycle. Here's the one last chart I'm going to show is, is chart 32. This, I think this is the giant demographic gorilla in the room.

which is the income needed to buy a house for the last 125 years. This is why millennials and Gen Zers are so pissed off, is because it's increasingly becoming more and more expensive to buy a house. And you're going to need a generational pass through.

I said one of three things need to happen. It's really like one of four. But I said... Either you have to raise wages and manipulate mortgage rates to get this down. You have to have tax credits for millennials and Gen Zs to buy a house.

Or you back the dollar with an asset which has finite supply and you create a boom in that creates a wealth distribution where you can deliver the housing market. And this is something that like RFK specifically talked about. You know, the last one of my buddies busted my balls and he goes, how about number four, build more houses?

And I was just like, yeah, that's a good point. But like, you know, we'll see. But anyway, the point is, I think this is why everyone we know is so bullish on Bitcoin is like, we can't afford a house. If you didn't get in when interest rates were really low, a lot of millennials and Gen Zs are there to buy that housing supply off the boomers.

And so you have to. This is just like the Bitcoin chart. It's total. This is the generation difference right here. Yeah.

It's the dilution. You need to dilute the fiat so that. Exactly.

That's all this is. It's the actual monetary inflation of the US dollar base. Yeah.

Same chart as the M2 supply or the Fed balance sheet, basically. It's just crazy. You're sounding like Rob Paul now.

Even if you have all these hiccups in between and things look a little more sketchy right now and holiday times, low volume trading. you know, funky stuff's happening. The end, just zoom out and you see really the game we're in. We've, we've come full circle and do a banana zone.

Banana zone. Did I, did I, yeah. This episode. Oh, we like when you, you never do.

No, we appreciate you, Tyler. Well, let's, let's wrap it there while my internet hobbles to the end here, but, um, appreciate the episode guys. Your hair looked way better in the beginning of the episode. now it's all fuzzy doesn't last long get some better internet yeah enjoy wherever you're yeah hey man i'm in oil country enjoy alberta alberta alberta all right boys have a good one looking for a blockchain that combines high performance with zero headaches scale is your answer with its advanced parallel processing and modular sharding Scale delivers gas-free transactions and limitless scalability, perfect for gaming, AI, and consumer-facing dApps.

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Transcript for:Insights on Blockchain and Financial Market Trends

Transcript for:
Insights on Blockchain and Financial Market Trends