Transcription
All right. Hey guys, what's going on? Gonna get into it.
Have a new pad down here in Miami so uh I can pay less taxes and run the little hedge fund I'm running uh which needs to be based in Florida for investor purposes. I haven't done a video in a little while. I've been having a tough time in these markets to say the least. Uh Bitcoin treasuries have been getting cranked. Uh the other the other miners that I was liking, Mara, CleanSpark, really only those two also been getting cranked. I had pretty good entries on those. So didn't take too much of a beating, but nevertheless, you know, things are tough out there.
First, I'll open up with our performance. So since inception, Straa, uh my hedge fund is down 6.3% since yesterday's close. It's going to be a little worse than that after today. Uh Bitcoin is down about 5.7% and the S&P is up 6.3%. So who would have thought a Bitcoin hedge fund was underperforming the S&P? Uh but nevertheless, we're holding around against Bitcoin.
Want to first opinion Treasury yields. You can see expectations of cuts through the end of 2026. And you can see the expectation of where rates will be short-term rates below 3.5%. You've heard Paul Tudtor Jones and others online talk about rates as in the high twos uh if if cuts will continue depending on what the Fed decides to do. Now mortgage rates are on the decline as well. We can see the uh 30-year mortgage rate is just over 6%. Down from its peak in '23. Uh not much to see there. I don't expect these to fall as much as you know some people may hope but the Fed does need to keep cutting some of the important upcoming macroeconomic factors. with a 97% probability of a 25 bips rate cut rate rate cut in October December another 91 to 94% probability of 25 basis point rate cut so you can see median Fed funds projections of three and a half% uh year end this has large implications for Bitcoin back credit as we all know even though it's trading like garbage these days as well so long-term target around 2 to 3% for the neutral fed funds rate Fed dot plot people have gone over that before unemployment expected to be 4.5% in Q4 2025 declining to 4.3% by 2027. So the expectations for employment are really no one knows. Um core PCI 3.1% returning a 2% target by 2028. I expect this to not be the case. If they want to go through cutting if they're going to continue cutting through '26 and into the beginning of '27, I see no way in which inflation's kept under control. What that means is I don't think they'll cut as far cut as low as people are anticipating and so that'll be difficult for growth. Uh we'll see or maybe just the inflation is reported as not the actual inflation. We just keep playing this little game where the debasement trade uh remains on treasury yields. Treasury yields same photo.
Now look at the ISM and the manufacturing PMIs. I think these are the ISM manufacturing services PMIs. I think these are super important and relevant to what we're doing. So there's been some work done by the insights.nav people, Marty Kendall, and this has just been a an incredible overview and analysis of how Bitcoin's been extremely correlated to the hash rate, which is a proxy for overall user growth. than the PMIs overlaid being essentially the cyclical bubbles. You know, I'm a big big believer in the power law. I think if you're a Bitcoin believer, that's the reason why you believe in it because it's a monetary network and as it's being adopted, which you can see via the power law, uh then you know more the price should go up at a square root of the hash power and at the square of the new user addresses or I forget exactly how it works. I have it right here. So price should go up with the uh price should be in the power sixth. So it should be square root of the hash rate. Hash rate it's about power time to the power 12. Working through the article you can see where we sit along the power lock trend and we are right smack dab on it. Very hard to trade if you expect bubbles to occur which I think they will. So, you know, that would be reflected in a higher PMI uh services and manufacturing going into '26 with rate cuts. We could see that bubble we've been anticipating for so long now. I don't know if that will occur necessarily, but I think the risk of not being exposed to Bitcoin is greater than being exposed to Bitcoin. I think there is considerable downside risk or potential over the next year or chop potential. I don't know how to trade it, but uh let's hang in there and see where we go.
Now, Bitcoin priced in gold. Those charts are great, but they're difficult to really parse through. I think an inflation adjusted power law index is what I like to use. Maybe, you know, power law plus 7%. Because gold's been outperforming uh real real debasement over the past few years. Now, Bitcoin versus M2. This is the final chart that they've created. Bitcoin versus actual forecast. So if you use if you inject the PMIs overlaid to so the first study is using M2 hash rate S&P and gold U gold being a very limited variable you get this sort of trajectory of BTC which you know we're following quite accurately and then if you use the PMIs in this algorithm you get this sort of price following based on these uh external components. So, it's no no wonder we haven't gone through an extreme bubble simply because the PMIs just aren't where they've been during past peaks. So, I do think the business cycle is a great proxy. You could say the AI capex spend should be reflected in Bitcoin price, but let's just wait for all that spend to flow through to the PMIs and then make a decision. US manufacturing PSI is just below PMI is just below 50. Services PMI at 50. This is the IWM which is a Russell 2000 index relative to the PMIs and you can see it's been taking off uh kind of detaching from that correlation to the PMIs. I expect rate cuts to be extremely beneficial for these smaller cap kind of riskier companies which do benefit from a lower borrowing cost as a lot of them are highly leveraged. So maybe the Russell is front running some sort of increase in PMIs which is a result of all of the infrastructure spend we've been seeing in the economy. I think things are good. Uh but I'm not I'm not leveraged to the guild shortterm on Bitcoin IW on Bitcoin correlation. This is so that's Russell 2000 Bitcoin correlation about 50%. Uh this is a little overview of the Russell 2000's sensitivity to interest rates. We can see small caps carry more leverage and larger share of floating rate uh short maturity debt. So interest expense moves faster with policy rates. See that's hugely important. One reason why the IWM could be taking off before the business cycle picks up, they rely more on bank lending, refinancing, so tighter financial conditions bite sooner. I think two good long PMI trades are along the Russell with calls or long Bitcoin with calls. I don't know exactly which one's better. You know, I'm a Bitcoin believer, so I'll stay there.
I'm going to switch over to MAG7 AI capex spend. And you pretty much got massive capex. You can see the 2026 expectations which has increased from that of 2025 for the Mag 7 companies. No news there approaching 400 billion in 2025. You can see the AI infrastructure premium on top of total MAG7 investment and this is for the first half of 2025 on S&P capex spend. You can see how impactful the AI infrastructure spend is.
Couple of things to really think about and there other people that do better work on this than I, but the inflation risks are real and especially with rising PMIs, I think inflation will become more of a story as we get farther along into next year. And you can already see the inflation pressures as a result of data center builds being elevated with that being resident non-residential building inflation and energy and labor and materials all spiking through 2025 and expected to only increase through 2030. So this will putting high w pressure on wages with the lack of immigration happening over the past year. All of this is putting upward pressure on wages which is good. I don't know why they call that inflation true inflation data. You can look at that yourself. And we have the September 2025 CPI data upcoming headline CPI expected at 3.1% core at 3.1% monthly at 4%. Just to lay the stage for when those come out on October 24th, we can see how they shape up relative to these expectations. You can see the Cleveland Fed now cast projections as of October 22nd. uh just shy of the expected inflation. US unemployment rate, unemployment still not a as the Fed continues to say that it is the threat which they're monitoring and they're willing to sacrifice the long-term trend in inflation to stabilize the labor market even though the labor market seems relatively healthy in the short term. There's AI impact on the labor market may start rearing its head.
Bitcoin gold sitting below the peak in 2022 2021. I don't think this last cycle is very indicative. I I mean it's a zerp environment so it's not hugely yeah it's a zer environment. We saw this crazy blowoff mania. We saw a bare market trough that was largely unnecessary in my opinion. We saw euphoria at these two peaks and now we're just looking forward. And so that brings me to the general trend of the Bitcoin network. And you can see the Bitcoin network, the hash rate is is growing at a power 12, a power law to time power 12. And it continues to do so. We've been hitting new highs and hash rates relatively frequently. And that all plays into the theory of the log log or power law price chart for Bitcoin, the best fit trend. And I really like the trend. A lot of people like the floor. I think we have limited data both at the floor and at the peaks. And so for those reasons, I believe I really like the trend. And when we're sitting at the trend, which we are right now, uh, power trends roughly 118. I think it's 108 by some other people's calculations. And we're sitting, you know, at 108 as we speak. So this is a really good toolkit for understanding where Bitcoin could go if you're a Bitcoin believer and not overestimating what it'll do in the short term, but then, you know, giving it its full credence in the long term. Uh now you can see here that 2026 you can the expected uh increase in price. I really like using this trend growth rate as an expectation of price over the following year. We can see the power law um relationship between hash rate addresses and price which is the single most important relationship which sold me on the idea.
Then, so you saw my performance. Um, I still like Mara a lot. Uh, I like Clean Spark. I like those miners, but if they're going to trade like levered beta on the NASDAQ and as just pure play energy plays, you know, I don't want them. I want the IBIT or the Bitcoin embedded call option plus the energy infrastructure play. And if they're not going to behave, then, you know, I'll switch out of them. But, uh, they're still interesting to me. I'm starting to create kind of a longer term thesis now. I wanted to get through October and potentially November. And if Bitcoin doesn't start running, you can start looking out, my opinion, you can start looking out two years, one year, two years. Think, okay, I'm going to make mo the most amount of money based on the expectation of Bitcoin's price relative to the power law moving forward. And so, I really love longer, longer dated leaps. getting back to kind of my basics and what works for me and then using volatility algorithms on a weekly basis to harvest premium and cancel out some of that theta decay while holding those long call options. That's selling calls against those calls based on kind of a little volatility algorithm that I like to use.
So continue monitoring our performance on surveyor capital.com. Let me know if you want to invest. Uh, it's been successful so far and I our investors are uh happy. We have no lock up. Our performance fees are just adjusted down to one in 15. We're a small shop. I don't want to, you know, be taking aggressive fees. I think one and 15 is good. We have a high water mark. So if I lose you money in the first year or in any year, I have to make it back before I start charging fees again. So it it really is designed for investors. Uh if I'm not making money, you're not making money. or if you're not making money, I'm not making any money. So, thanks for watching as always. Uh, good to talk and talk soon.