Transcription
The core parts of the economy have been pretty much in recession or at least very stagnant growth. But in the meantime, we just had a lot of tech earnings this week and the beats are just gang busters.
There's a big difference between what's actually happening in the economy and being bearish there versus what's happening with stock prices. The administration is aware of all this stuff. They just don't know how to solve it. They're kind of willingly letting some of the air out of the bubble. But hell or high water, the only way to win in midterms next year is to one, lift Main Street out of recession, two, fire up your base, and three, get markets cooking back to highs.
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All right, everybody. Welcome back to another edition of Forward Guidance. We are recording amidst the longest government shutdown in history. Now officially, I think as of a couple days ago, we're getting into month two. What's going on, guys?
We should protest Mike and Jason. We should shut down. We want a raise. Yeah. Yeah. I want a raise. Give me a raise. What What's What's going on in the US? Like, are are It's just so crazy to me that you guys are still having to pay taxes while the government's shut down and all the Congress people are getting paid. And what's the boomers, man?
Tyler's uh Tyler's Tyler's rants are are are deserved. I mean, this is a shutdown just grandstanding and like absolutely screwing over everyday people because these politicians. It's no wonder Madmani won. Like why would you vote for Cuomo? The guy is the same ilk that of you know that got us into all these problems. Like did you see the uh breakdown of voters by how many years they've lived in New York City? It was like all the old school New Yorkers voted for that guy Sila and then you know they've been there like 10 years plus and then Cuomo was like five years and then Big Mani was like two to three years. It was kind of interesting but regardless, I mean, I'm I'm shocked that everyone's shocked at this.
Exactly. It's it's it's so obviously K-shaped economy that the trickle down economics is not working. There there's something fundamentally broken with markets and and wages, etc. Like, so I don't know. Maybe it's a good sign that things are going to get I I don't know how to feel about it yet, but it's it's a sign.
It's very forthturning, you know? It's it's right on like yeah, if if you're a believer in that in that way to think about things like this makes a lot of sense to you know, like of of course the you know, as as wealth disparity gets worse, as inflation gets worse, as the K-shaped economy gets worse and nothing that we're doing is going to reverse these, of course these types of people are going to win and I I think it's only going to accelerate from here.
He's the tip of the spear. Trump's the tip of the spear. He's the tip of the spear. All people know is burn it down if if you're just going to keep leaving them behind.
The interesting thing is we haven't seen like an outrageous amount of like credit stress, which which is the odd thing. It's been very uh isolated to like autos or credit cards etc. It hasn't been systemic, which is maybe a sign it's so centralized that like a lot of it is being held in private equity or God know corporate balance sheets rather than, you know, retail now.
Yeah. You want to give us a market structure update because it's it's a weird situ. Go ahead, Quinn. We'll jump in that.
Well, I was going to say we could jump right into the slides because I put I know Felix, you have some economic data there and I I put some things in there, too. The thing is is these companies been in a recession for I mean go Felix go to slide nine. I have the ISM manufacturing. I mean Main Street all the high yield borrows been in a recession for year and a half now. Uh, yeah, this slide. Yeah. So this this shows ISM manufacturing index um, you know, versus historical recessions. The index has pointed to a contraction every month since March 2025. 34 of the 36 months since November 2022, the index has shown declining activity punctuated by only the briefest of upturns of January and Feb '25. Manufacturing has never been this weak for this long in eight decades since the second since the end of the Second World War. The downturn has been too shallow to be a genuine recession, but has lasted much longer than any ordinary soft patch. So like I mean all the high yield issuers, I mean not to say that credit spreads can't erupt and rupture more, but these guys have been in a recession for so long now that it's just kind of they figured it out. I mean, small and medium-sized small businesses just showed a $10,000 a 10,000 job decline this month in the ADP stuff. So, you know, the the high yield guys, you know, the corporates, the large the large cap tech, everybody, they're booming. But these guys been screwed for so long that and that's who's in HY in the in the spreads, you know. Check this one out. This is slide 32. This is total share of population and economic expansion. And just just goes to show this is part of the economy.
Absolutely getting roasted to your point. And uh, you know, to shout out to Jack Farley. He had Steven Myron on uh his his podcast breaking news Jack Farley. You got to give props to Jack.
Who started Forward Guidance too. But you know, he basically said a lot of this stuff is why he was so so dovish on on lowering rates. And I I'm only I'm wondering when that gets starts getting priced in because it's clear they're aware of it. you know, the administration is aware of all this stuff. They just don't know how to solve it. And I'm wondering when that actually clicks and stuff starts happening because it's these things can roll on themselves if they go fast enough. But.
That Yeah, that brings up something I've been thinking about a lot about, which is just this yeah, bifurcation of the tools of monetary policy are just not well suited for a highly inflationary world that we're in now. And so you just they're they're they're don't really know what to do. I mean, you could view this through the lens of stagflation, but I think it's it's it's more nuanced than that. Like it's it's the characterization of the K-shaped. I'd be curious to go back and look at the '70s whether we had this back then too, just this K-shapedness because changes in Fed funds rate like you have on one light that we just looked at, which is just so much of the core parts of the economy have been pretty much in in recession or at least very stagnant growth. But in the meantime, like we just had a lot of tech earnings this week and the beats are just like gang busters. Like earnings are doing fantastic, you know? So, you have that going on and then the complete opposite in the rest of the world.
Well, yeah. It's really odd. Like Mike Green said this on a podcast today, too. He said there's a big difference between what's actually happening in the economy and being bearish there versus what's happening with stock prices. And generally speaking, it's really bearish in the stock market. But because of the market structure and passive and all the different systematic ways people manage money, that's why you get stuff like slide 29. Check this out. This is this is wild. You see market cap weighted uh indices, tech and tech-related versus defensive industries. It's the widest dispersion there's ever been. And what you really get is when when this happens in the asset inflation in certain sectors, you get gambling. And that's I think what we're seeing right now market structure-wise, just a lot of chop because like we talked about last week, which is retail investors got all bowled up on the breakout. They buy call options. Now we're in this period of earnings come through. Implied volatility drops as the event risk drops. Your calls are burning in in delta. So you you know, retail sells their calls, then the broker sells the delta, stocks go lower, and you have this like basically it's it's V goes lower, stocks go lower type phenomenon in in all the winning sectors. So that's got to work its way through in terms of what's going on the market structure and vice versa. Look at look at how neglected because of all the flows. It's like defensive sectors have just been left for dead. It's the market's broken. It's all the flows. This is this is when you make everything. It's like a giant factory and you optimize the factory perfectly but for scale, but you end up putting slop in the sausage and then it gives you cancer. We're at the cancer stage now. Like it's it's very clear to me that we're at the cancer stage and you know, that cancer stage could melt up if the government just like pumps it, or you could have a crash. You know, it's such a polarized outcome. It's driving me crazy and probably pretty much everyone else watching this.
There's one other thing I want to just talk about real quick. Go to slide 34. These are just some of the the Goldman baskets I watch. So, and this is from one day action, five day action, one month action, year-to-date action. So, this first one is it's not Goldman, it's Morgan Stanley's momentum baskets up 101% on the year. This is getting taken to the cleaners because this is ground zero of where all the retail bought their call options. Vice, you know, similarly with Bitcoin, the Bitcoin basket kind of getting worked over. But the third one is where I want to concentrate. This is the Goldman Sachs middle income basket where like middle income consumers, it's down year-to-date 17%. And so if you go to the next chart, you can see what that looks like on a chart basis. So this is this is to your exact point Felix, nothing is getting through the middle class. They're getting not only that, but this I mean, if you just go off the chart, the middle class is getting absolutely waxed. And I think their answer is vote Bonnani, vote, you know, vote for handouts now because the system's not working for you.
Yeah. I don't even mean they want handouts. They just want to be able to put food on it, Dave. I think.
Yeah. But you you end up polarizing society, right? is is what I'm saying is like.
It works for sure. This honestly makes me a lot more sympathetic to the idea that again, shout out Jack Farley getting them getting the Mar podcast appearance, but I'm kind of sympathetic to the ways that Man and like Besson have been talking about things, which is they're more dovish on rates and more hawkish on the balance sheet. And that's been kind of confusing to me because you would it feels like a lot of people are hoping for, okay, you know, they're just going to expand the balance sheet a bunch. But if you if you listen to especially what Besson's talking about, they want to almost go towards like a a scarce reserve system. To them, QE has been one of the great poisons of the last decade or so. And it seems like they want to be more more hawkish on that side of the balance sheet, but actually ease on the Fed funds on the short rates because that's what might have a a more direct trickle through into the into the core economy. you know, the small businesses that are taking loans priced off SOFR versus, you know, if you just rip a bunch of QE, all that's good for is tech behemoths to issue bonds at a premium to fund more AI capex. Like, that's not doing anything.
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Yeah, this is there's so many dimensions of the problems of the past administrations they have they're working through right now. So the one is the inflation is because the government spending inflation is a fiscal monetary, you know, driven phenomena. So the reason inflation is starting to come down, you can directly link it, you know, services to government spending and they this is the first time in many many years that government spending growth has gone in this direction, declining year-over-year from Biden's last year. So inflation is a problem. We all know fiscal dominance is a result of the government spending. They are actively working on that and making progress. Secondarily to support that, you know, over-the-top government spending has been Fed intervention to keep the bond market in check that otherwise wouldn't be. And part of that is their unequal balance sheet policy that you just mentioned that screwed lower incomes and and helped uh the big tech and corporates. So they're reversing both of those at a time that big tech is 40% you know, Mag Seven's 40 40% of the stock market. So if you correct the things that have been floating big tech, then you just de facto correct the stock market. And they're trying to do this without causing pain that eventually reduces tax revenues and then blows out the deficit even more. But, you know, you look at these earnings, I mean, it's shows you how far the Overton window has shifted towards big tech that Open AI would even say or request, we want government backing. What the heck? Like get out of here. They want that back a little bit today. But think think of the the the confidence and arrogance and like this that's just a sign of the times like how exuberant you have to be to even say that as like a private startup like what why and so you know, the government's been funneling since 2021 and even through, you know, with Trump's admin to AI. So it's no wonder these companies are blowing out earnings. But yeah, it the thing I I I reflected on, you know, over the last couple weeks and following the Fed meeting was it's we talk about the this reflexivity. It's so reflexive either direction. You pump liquidity, you know, stocks go up, spending goes up, top 50%, top 10% earners control 50% of spending, all this, it's super reflexive to the upside. Okay, we saw that. Now, the thing is is, you know, the things aren't just okay where the Fed can step back and and not support liquidity. They have to be there and uh in a normal course, okay, the Fed pushes a rate cut back, you know, out a couple months and and removes balance sheet accommodation, okay, you know, market declines, corrects, but things float along okay. You can't do that here. So you have this downside reflexivity risk growing when the government shutdown growth scare is already tip of the tongue and the Fed pulled their Fed their rate cut support hawkishly. And what people aren't understanding is yes, they ended QT, which was $5 billion a month, but they changed the reinvestment program of MBS to only go to bills instead of match balance sheet uh composition of uh of treasuries, which is 80/20. So de facto this together, those changes actually add, you know, over $10 billion basically of duration into the market every month instead of what everyone's celebrating of ending QT. And worse yet, signals more of that to come because they want to normalize the balance sheet. So there was a huge hawkish pivot from like a rate cut and balance sheet perspective and you just like so there's no reason to step in right now until like and you already have the growth scare and Main Street's screwed. So like I mean, this is a bad setup. I mean, I guess we don't own enough gold. And then and then look at look at slide 30. This is the the other thing. This is the interest expense as a percentage of revenue for the government. They stole this from uh Zero Hedge. So 23 cents for every dollar goes to paying the interest expense on the debt. So they're like they're really caught between a rock and a hard place because you you got you got to get the interest expense lower. Like that's like number one. And maybe this is they're trying to just cut off liquidity here so they have the political capital to actually goose it again. And maybe that's what we're seeing is like maybe Bitcoin sniffing this out is the drop in liquidity and then when it reverses, we're going to get, you know, Fed easing. We're going to start discounting Moran in early of next year and then everything goes gang busters again. One thing market structure-wise is this is like this is like the big charade, right? Joe Saluzi, he he's he's a guy that he's an expert on equity market structure. He writes this note every once in a while. Um, he's from Femis Trading about market structure. And I I I hate I know people hate when I read read from stuff, but he was talking about how this person from Hudson River Trading, which is a high frequency trading shop, was on OddLots, and they were talking about basically this magic money machine, which is they buy data feeds from all the exchanges and then they can front-run everyone's orders, which is it's like a little trick, and they hide behind the fact that oh, it's liquidity and it keeps spreads collapsed. Like this is ground zero of market structure, but Joe Joe writes in his his morning note, the the HR Hunt trading podcast confirms our long-held belief that prop data feeds sold by exchanges are the most important ingredient in the magical money machine. So these these this is just like a legal way to print money. All the major stock exchanges sell prop data feeds that contain every detail about displayed orders in an order-by-order basis, including order entry. Every time a unique order ID is entered, this order ID will reveal the historical details of such an order, such as the time of cancellation or revision. Sophisticated consumers of these data feeds can decipher patterns that emerge from certain market participants' algorithms and use them to your their advantage. In other words, retail and institutional investors are the ones providing the market data that run the HFT magical money machine. We can talk about collocation. It basically says the magical money machine doesn't work if you can't read your data. So eventually, I mean, we could be getting to this point politically where the retail investors got screwed enough because we're now seeing this. You know what we're now seeing? This is the chart that we're now seeing crap like this. Go to slide 25 because it's not a fair playing field. Retail investors yolo calls and then they go out and they do sports market betting and then now they're doing all this crazy because they can't they feel so screwed on actually investing over a long time frame that they end up doing it's it's exactly the Bruce Springsteen song where it's like Atlantic City where they I I bring this up all the time, but when your last ditch effort to stay ahead of like all the inflation is to just go try to do some crazy stuff to make your money back. That's what we're seeing. Like we're seeing the market manifestation of all this stuff, which maybe is a market top. I I don't know. Am I I'm open to that, but I think the government will will front-run it and and bail it out. But the point is the time frames and Joe says this, it's like most of stock most of today's stock market volume only cares about what will happen in the next few milliseconds and could care less about fundamentals. So it's like a legal these HFTs have a legal, you know, mandate to print money because they're liquidity priorities, but they're really just front-running orders. And in in the podcast, the person from River Trading even says, "We essentially pick up pennies in front of a steamroller and like kind of admit that you front-run your orders." So it's like it's like it's so messed up when you really break it down. It's the whole thing's an extraction mechanism and it's not even there's no long-term incentives for for companies to really grow besides a few pockets in sectors. Like I think that's that's the bottom line is what we're seeing is it's bad quarter decision-making gone a muck. It's interesting to pair that too with what's been going on in the crypto markets the last two years is like sentiment has just been so terrible. And I think it's a similar thing where just the like it's just been highly negative expected value to be interested in almost any sort of altcoin over the last like two three years almost and it's because like the game is stacked against retail because of what's been going on on a regulatory front instead of, you know, back in the day in 2018-19 where there was ICOs and there wasn't VC rounds, like by the time a token gets public and publicly tradable now, valuation is is so stretched and then there's just so much offloaded emissions from either the foundations or the VCs that are just being linearly unlocked for four years that the only the only chance that retail has actually start to buy something is at the very tail end, right? Like it's just it's just not a pretty sight. So, they're just basically buying from all these emissions and it's just a losing game. Like there just is not enough capital in retail to keep these things afloat. So, I think it's it's it's good reason why you've seen like mostly only Bitcoin do well over the last couple years and people are just sick of it. Like nobody wants to bid these these tokens anymore and now they're just kind of falling by the wayside and it's frustrating a lot of people.
Yeah, you go. I I was just gonna.
I was gonna say as you know, for all of crypto's problems like and you know, we've we've been daters and gri you know, grift we're pretty moral, I think people and um to be fair like it crypto grew because it gave like young people, you know, fringe people, whatever hope and and the potential to uh, you know, 10x, 100x an opportunity just by plugging into the internet and being being present and in and clued into the next sort of wave of financial services innovation, if that's what you want to call it. And it's really the only asset class ever to be grassroots first where the average retail average Joe normmy, you know, everyday people could get in before Wall Street and and nothing ever has happened like that pretty much. and and now the internet enabled it and and now crypto's broken, basically, you know, it just got overrun with scams and grifts and extraction mechanisms. But you you're seeing this in the public equity markets, too, because AI is is just like the traditional finance and everything else, you know, controlled by small cabals, restricted access. You're you're seeing these 100,000 X's getting run up in private markets and then dumping, you know, let's say OpenAI, $1 trillion valuation.
$1 trillion IPO, exactly. Like you're not that's not positive EV to be buying that on IPO. Like you are exit liquid.
So you take away you take away the average person's ability to afford anything. You take away their because of that, you take away their ability to even be healthy themselves, uh, their food insecurity. You can't afford good groceries. The food in the US sucks. Uh, you take away their ability to raise a family because they can't even barely provide for themselves. They sure as hell can't raise kids without parents and other sorts of, you know, hell, financial assistance. And then you take away their ability to even shoot up the ladder because public markets are dead. And if you think about what like high frequency trading and and the the algorithmic uh computer-driven nature of the markets today, like theoretically the market should get to a point where every there's no drift like in the markets. It's just I mean, there'll always be the drift, but it should just be z like the the information gets to the highest frequency guys first. So there like there should become a point where there's like almost no way for you know, the average person to make money. And it's like I think I was going to say almost similar. I was going to say the whole funny part to the charade is that as long as Bitcoin and crypto keeps going up, you don't have it's almost like the release valve of anger for uh the the younger generation. It's their way to stay ahead of the inflation because their wages are not going up on an inflation-weighted basis. So they say, "No, you know what? My my salary only went up 3% this year. You know, inflation's really like 7%, but I made, you know, inflation adjusted with my capital gains 10%. I'm good." You know, like that that's what keeps them okay. But if if Bitcoin is not participating on an increasing rate or or, you know, higher than that dilution of the currency, you have major problems because it's a really it's a demographic. And I think you're going to make more and more people uh extremists and fall into political categories you don't want to. And it's it's sad to say that. It's the game they created is like you need to have a release valve for the younger generation because what are they going to do? They can't buy a building. you know, they they their wages aren't going up high enough to to pay off their student loans. So, and the hard part is like I actually feel really fortunate personally because I've traded it okay and like stayed ahead of it and I I bought a house when rates were low. Like I feel horrible for Gen Z and the generation that didn't get it. Like I see what they I'm close enough to see how it is and know that how messed up it is having been a beneficiary of it. You know what I mean?
But you're like you're like four steps down the ladder of the beneficiary. We're like my generation's at like we benefited because at least we still had job opportunities out of school. Now you have seeing announcements from the big banks saying, "Yeah, two-thirds, one-third of our head junior headcounts getting cut and the other third's moving to cheap countries, cheap labor countries." And then you're like, "Oh, by the way, you know, all the D like DI everything else like there's youth unemployment. There's no way that reverses. That trend is only on a one-way direction."
You know what's a one-way one-way direction up too? My mom my mom gets her pension and she lives in Princeton, New Jersey and her property value goes goes up every year and the pension gets cost adjusted and her Medicare is covered.
It's magic.
I mean, I hate to rag. I love I love my mom and my dad. They worked their butts off and but it's it's really like I don't know how it resets like.
Without political change and not to roast all boomers. I really respect all all you built, but like to act to act like it's working properly is just like I don't I don't I don't think it's working.
Tyler, I love how you're just going through therapy with the comments of people that say.
But I mean like, you know, my dad was a teacher, right? Like he could he was a teacher when he could actually afford that.
Exactly. Then he should be able to relate because a teacher now is like living on ramen noodles and has to rent a a studio apartment.
Yeah. Yeah.
I actually want to pull up the uh the Challenger job cuts while we're talking about this because there's a couple interesting points in here. So.
This this was quite surprising especially because we got the ADP print this week as well, which is private payrolls, which is the best we got and that was a pretty significant upside surprise. But we got the Challenger job layoff cuts here. And looking into some of the specifics is is pretty interesting on on where this came from. So in recent weeks, Target announced plans to eliminate 1,800 roles or about 8% of their corporate jobs. Amazon slashing 14,000 corporate jobs. Um, Paramount as well. And the the reasons vary. The United Parcel Service said last month that it cut operational workforce, which includes delivery drivers and package car handlers, by 34,000, about 70% more than it previously projected earlier this year. The package handler side, it increased use of automation, which has driven up productivity. So that's that's really interesting. So you have that trend of automation, AI, productivity I want to mention. And then just this other one too, which is just the, you know, the post-pandemic bloat. Like, you know, you can all think of the the day in the life product manager TikToks that were going viral over the last few years where nobody's really working or doing anything and there's just a lot of there's a lot of bloat in that world of just like the middle manager white collar world and a lot of those are kind of being taken out to the woodshed too as well. And so it's it's dicey. I I don't know. I'm curious your guys' read if you've been thinking about this, just again, it's it to me ties back to some of these key drivers of AI productivity automation, but then also just this this pretty secular erosion of some of these more introductory white collar jobs, which then gets into the the post-college grad type of of unemployment rate.
Throw throw slide 28 on there. This gives a better picture of what I think you're talking about. This is uh.
Oh, yeah. Nice. Yeah.
So, you can kind of see AI chopping chopping people up and Yeah. It's it's really scary out there. I I.
You can go through this list and see I mean, it's it's coming. Financial, that's coming. Content media, I mean, like that's coming. It's creating all these, you know, it's script writing. It's doing all this stuff. Consumer products, health care, health care for sure, it's coming. Like automotive, it government, like government might be insulated because they're so slow to ever adopt any new technology. So they'll just be using like, you know, snail mail for another 50 years, but like it we'll just all be working for the government or or we could keep our crappy little podcast.
Everyone's be working for Felix.
Yeah. Please, Lord. We're just gonna be AI generated. Anyway, so we're screwed, too. We've already we've already trained the models enough with the amount of episodes we've done.
Yeah, they'll just give me a crappier haircut.
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The the reason I mean aside from, you know, being a first principles thinker and not just uh, you know, fundamentally principally not being able to just say, oh, four-year cycle, you know, a a multi-trillion dollar asset just goes up and goes down on a predetermined course. um, you know, so aside from those reasons not believing in the four-year cycle, we've talked about it before, you know, this setup is very different from 2022 where the Fed was purposefully removing the punch bowl into a maybe okay economy um, and uh, you know, versus now, you you have midterm elections next year and I There's so many problems for the Republicans right now going into that. You have this government fias shutdown fiasco, they need to make up for, which is brutal. They're they're, you know, reducing government spending, which we all know just isn't popular in an extremely populous time. You have momentum gaining on on the Manmanis and a super like so far, you know, you look at all stock prices of middle lower middle income class Main Street companies and the inequality metrics, none of this has changed. So like and the economy is weaker than when he came in basically, or at least maybe it it was running on fumes. So, I think they were handed a steaming pile of for an economy that they tried to prop up and continue to, but it's more obvious to the public now because inflation's not going down anymore and and they're still, you know, things are weakening. But the thing is is like we all know there's only one playbook to try and run to to perform in the midterms next year.
Yeah.
Yeah. They they can take pain right now because we're a year away. And so I think that's what this is. You know, notice how they haven't really, I guess Trump called Powell an incomp, but he's not. It doesn't feel like he's railing as hard as he was investing any of these guys because I think they know they're they're kind of willingly letting some of the air out of the bubble. But hell or high water, the only way to win midterms next year is to one, lift Main Street out of recession, two, fire up your base, and three, get markets cooking back to highs. And you know, with the Fed takeover.
Yeah, I think it's going to be a really good year still. And it's it's being set up right now. And I think I think the elections this week that happened where Democrats just crashed shot across the bow. Like they're like we need to we need to get this in order. There's a headline today where Trump said like there's going to be no more terrorists for the short-term horizon. Like he I I can't remember a time where he's been that explicit about being like there will be nothing coming out over the foreseeable future. And then I don't know, it's all about timing, right? Trying to time this and and we've been we've been chopped up a couple times thinking this was the one and then, you know, you get stopped out pretty quick. But I don't know, more and more I'm still thinking that it it's going to come across with this government shutdown and when that ends. And I think it's really interesting going into the weekend right now. So if you look at the the last longest shutdown is in 2018 and what's what ended that shutdown was issues with airlines, air traffic controllers, and airports. So back then I just grabbed this from it was a it was a headline in CNN in 2019. It was seeing like yeah, on January 24th, it seemed like the partial government shutdown would go on forever, leaving more than 800,000 federal workers unpaid, but then just 10 air traffic controllers decided to stay home and not go to work and then instantly it was it was done. And then you look at what's coming up this weekend, and this just got announced yesterday, but the FAA will require airlines to begin cutting flights from these 40 airports starting as early as tomorrow. Airlines will start cutting 4% of flights per day until they reach 10% per day early next week. And I think we talked about this when there was the the Air Canada strike in Canada and how the government had to intervene because like if you stop mobility of of people to fly around and consume, if you stop the distribution of goods that's related to flights, like your economy grinds will halt. So I feel like this is going to get really close and this is the crux to look at. But I'm curious how you guys are thinking about it.
Yeah, market will force their hand just like everything else. What's crazy is you know, you know, we we've been really bullish and wrong on this last week or two, but uh, one so when you get the event of the clearance of the government shutdown, what happens to the VIX and all this? The VIX falls, all the the puts roll off of the downside market. We're in buyback season, we're in low volatility season, earnings have largely cut past. So, it's really.
We have the TGA liquidity reversed because that's just been building and building and building. We're over a trillion bucks now. As soon as that government shutdown ends, that gets reversed, too. So, that's why Yeah. It's like I can't stop being bullish, but I'm I'm getting stopped out a bunch technically, man.
Yeah. Yeah. It What's funny is it's not even when you think about it, if you're just if you're not doing leverage trading, it's kind of easy to to, you know, take the pullback. Here's here's just positioning wise. Check this out. This is a good one. Um, 27 at least in the corn. This is a short-term holder realized profit to loss ratio. It's from I I stole this from the guys at On-Ramp. Um, they they write a pretty good newsletter. Uh, short so you basically see like short-term holders capitulating. So potentially like we could see this could be the, you know, the lows. Famous last words. And then look at uh, slide 26, just to give you a sense of how far we've come, how fast where this is the Bitcoin futures curve and you look at the white line is live, but I don't I couldn't get it to go longer than this and the the orange line is what Bitcoin futures were pricing in a month ago. So a month ago, you know, if you looked out the big, it was super steep and you know, we're looking at like 1357 at the terminal futures contract was 137k Bitcoin and look how far we've dropped in just a month in terms of, you know, where where we're looking. It's kind of wild how fast sentiment changes. So, I don't know if you're just looking from purely sentiment, I think we're probably plumbing some sort of low here in in the corn. Um, just I I can't imagine unless there's credit problems and everything rolls out of bed.
But there's not really you don't really see that in in the credit market just yet. So, yeah.
It's just it's a messy process. But, like I again, when we talk about 2026 and what's coming, like it's just I can't not try to catch one of these knives.
Yeah. It's painful right now.
It's maddening, right? Yeah.
Yeah. But.
Yeah.
My base case has shifted to this just being the, you know, the obviously Yeah. We were we were way wrong in our bullishness be I mean, a lot of great macro signs were there and and a bunch of events didn't go the right way and, you know, the the tremors under the surface were probably percolating through sooner. Um, so my base case has reverted to being like the standard pullback for the cycle because if you look back since 2023 and particularly since the ETF launch in Jan '24, Bitcoin's had like, you know, five plus of these 25 to 30% drawdowns, which would put it like low to mid 90s and it hasn't ch like none of them were the end of the cycle, you know, in in crypto speak. Um, and we're not even to that level of normal Bitcoin drawdown of this quote unquote cycle. So, um, it seems reasonable to me to to to expect testing. Like there's some definitely damage to the charts and momentum that needs to be worked through. You probably still have some long-term holders dumping on on if we do get bounces here. And the DATs are absolutely annihilated like MicroStrategy and BMR, who are the only two left. They're they're.
Battered. So.
Um.
But are they below they're below MNAV now?
Uh, see today.
MicroStrategy definitely isn't.
BMR might be close.
Yeah, it's probably MicroStrategy is very close. BMR probably is. Um, the the thing is for me.
Power law distribution, the rest of them are absolutely at deep discounts.
Yeah, there's going to be some marginal selling from those. I don't think BMR and MSTR will sell. I think they have financing options. Um, like if you think about them, they can probably get 20 to 30% leverage LTV and you know that offsets 20 to 30% of a premium discount. So I'm still not gigabar there. But the thing is for me is okay, there's I'm probably a I mean, who knows, we'll see when it happens and it depends what price this happens from cuz like if we puke and the mark like absolutely puke and the market forces government shutdown, yeah, there should be a bounce from that. But whatever that bounce is, I'm kind of a seller because let's see. But where it comes from and what equity market structure looks like at the time and and and how prices are. But for me, the bigger problem here is the Fed. Like the for me, the bigger problem is uh, like pulling away the support that everybody was relying upon and then adding in this balance sheet thing that is a negative and likely to increase as a negative. So I I at least from a Bitcoin perspective, like stocks have earnings from a liquidity perspective, you know, that the shutdown ending helps, but it's it's not the full solution in my opinion given the the hawkish pivot. I I will say there's one thing you can pander to with Trump. Trump really likes is this has been a major policy of his and he does not like the polls against him going go going lower given his narcissism and I could see them pulling out some sort of policy here just to and and how much of this what I will say is like the market structure is really annoying. Like there's a this This is slide 24. This is like Wintermute. I I don't even know what got caught up in the the Binance Wintermute stuff, but this shows the breakdown of, you know, all the different uh players in the game and changes uh in supply and NAV, but the market structure is is so much different than it used to be, and the game is is so much harder than it used to be. And it just feels I think a lot of people are losing. If you don't have a catalyst or for this to be a store of value, the the confidence in this as an asset can go away. Sort of what I'm saying.
Yeah, this this was a great I I read this article this morning and it was good. And yeah, the the kind of key point there was that it traditionally most of the inflows were through stable coins in in earlier cycles and now you have the DATs and the ETFs. And yeah, the DATs, you know, just people are retail's fed up of being exit liquidity for PIPE investors like at a 20 MNAV or whatever they launch at just for it to end up at a discount. And so they they can't purchase anymore. ETFs, yeah, you know, you got some there, but there just isn't the same excitement right now. That's a really slow grind of an accumulation. And then stable coin volume like to what we talked about earlier is not that many people want to go on-chain anymore when you're just yeah, exit liquidity for for foundations and VCs and on on broken token tokenomics. So it's just a something needs to change. How classic crypto is it for every single cycle the the like the people and firms that that uh, you know, people sort of look up to and then you know, they like running they run some mass extraction playbook. Whether it's VCs dumping worthless altcoins, this time it's VCs dumping everything on retail via DAT. It's just time and time again. Like and and these are the people who are out. They're selling to institutions saying you should invest in our asset class and then.
At the same time, generomics don't look. Yeah, it's it's it's why, like, you can't have an environment where the quote unquote stewards of your industry are the ones pilfering it and robbing it blind and leaving it out to dry. Like, that'd be like if it's just ridiculous. So, I do think it's going to get, I do think we're working through the motions now, though. Like, I do want to end on a positive note, which is I do think it gets better. And like the market is refusing to pay up for DATs and for, you know, these these highly inflated low-flat, high FDB tokens anymore, like they're just done. So, as that process evolves and then you see new innovations, like, you know, Metadow has come out and that's like a really great innovation in terms of better structuring these token launches. So, I think it'll get better, but we're we're kind of chewing through the motions right now. So, you sort of have that like version of a bare market going on right now where we just need to evolve how we launch and and structure these tokens.
You know what else is, there's a lot of other ideas that are working that the incremental dollar is not going into crypto either where, I mean, look at it's probably overcooked and AI, exactly. And you know, even if you look at, weird, there's gold miners are actually really interesting because they're cash flowing like crazy now and they're really well, they're they they went through a 12, 13, 14, 15 year deleveraging and now they really are, they're they're cheap and cash flowing. So, I don't know, relatively to a lot of these altcoins that don't really have much value proposition and have huge market caps. Geez, I I these the gold miners are really, you know, screaming and they they're performing way better. So that's where I think a lot of the incremental money is going to.
Yeah, that's a great point. Like, if you want to get retail back in crypto, like you got to give them a better product. You can't just keep fleecing them. Like, they'll eventually give up. And I think that's where we're at now.
Yeah. What what's so hard is that like having seen the innovation of of Ethereum and grabbing yield and like really is a if they had the marketing pitch right about what it it's supposed to do, which is you can save money at a higher interest rate than the TradFi system. And we're going to treat our projects so that they're they're low supply and you can get yield from it and that that's the promise, but I think it's it's it's get-rich quick and and that ruins it just like you said the grift. But yeah, there's lots of things, there's actually a technological innovation there that has been unlocked, but like a needs to be like that guy. I don't know why that's not a front page story of like yield generation type thing of of saving at a higher rate, but I think that's a great project.
Well, I think it. Yeah. So, I mean, yeah, we're kind of getting in the weeds now, but I think another big issue to solve too is just around like equity rights of these things. Like a as a business is incredible, but is a the token good? I mean, yes, maybe there's there's some fee flow through, but you don't have the same equity claims that somebody that has equity in a like the company itself does. Then if you just own like this this token and you know, you see this in in other projects too. And this will be the big thing to figure out like if you want these things to have a sustainable bid, they need to, you know, have a claim on cash flows. And if we need to need to deem them as securities, then let's do that and revisit securities laws to make them work for the 21st century and actually fix this stuff because that's where we need to go. Like this current setup is just, yeah. It's not working.
Felix for president. I don't even own a either. I just think it's a good idea. It it it's one of the bad. Yeah. Yeah. Yeah. You need you need reg you need you need protection mechanisms for investors.
Can I uh I I want to end on a a funny note but also a good note. So you guys might might enjoy this one but University of Austin put out this tweet that basically none of the the kids going to University of Austin will pay tuition. And it was kind of like because of student loans, like these are the the next generation of kids can't be hampered by debt because those are the kids that are going to go pursue risk and create new things for the next 21st century economy. And this is this is where $100 million was donated by Jeff Yas to basically fund this for all these kids. Incred got to love it. I'm I I think this is what like leaders really should do. And then you you dig a little deeper. Jeff Yas like created Susu which is like, you know, they just arb everything out and they're the ones on the opposite side of the trade making money on every single trade. I got I got to say like, it's great Sesan does an incredible job they're but in terms of the bell curve, you know, they're they're making money on every derivatives trade, you know, they are like Citadel and Veru just taxing their tax on the system. So, shout out shout out to Jeff. Yes. Great great that we need more of that to keep the system going. But it's the irony. There's there I think there's a European saying it's like when you start donating money as a multi-billionaire, it's designed to cover up all your sins. But but in America, we don't think like that. It's like, oh, this will make me feel better. I'll give it back.
Yeah. Yeah. Absolutely. Do we think I mean, we see Bill Gates all these people. Everything he did was legal. He's a free market capitalist. I shouldn't knock that. Like I And at least he's giving it back. Like all these clowns. Look at I mean, Pelosi is keeping her insider trading profits.
Yeah. But there's good there's great people like Michael Dell. I mean, God love that guy. Legend. You know those there there's people out there that do all sorts of great things. So it's not all bleak. It's just, you know, we gotta we got to start rebuilding this thing on on more firmer ground because you see people falling through the cracks.
Exactly. Build the foundation. It's a first turning. Um, I think we can leave it there. That's a nice way to end it. Way to way to make us a bit more optimistic, Tyler. Thank you.
Yeah, there you go. All right. Have a good weekend, everybody. Take care, guys.