AI Capex Cuts and Retail Bubble Pops: Is this the Bear Market Beginning?

Another week. Um, all right. For everyone who complained about my banging on the desk last week, we'll try to do a better job with the mic and not have that go on. Uh, for those who reached out on 22V, I know there's been a large crowd. Uh, some of the emails have not been responded to. The goal is by the beginning of January to have a a place on the website site up where people will be able to subscribe and and get whatever they want from this in terms of the different options.

One of the things that I I ask all of you who are interested is uh if there's something I do on the video that you want to have uh like people have requested the links to the resources that I put everything together, not just the podcast but the charts and everything. I'm trying to work on that uh as a way for especially the financial advisors and people that have reached out to have some of these charts that they can start using and also have the insights that they can go to and learn on their own. So, we'll get all that done this week.

Uh I'm starting with a uh patent and Lombardi quote fatigue makes cowards out of all of us. This has to do with just all of the garbage that has gone on all year which has just worsened. Now uh the market recap retail bubble has popped. Um market rotation is happening and I believe this is a major focus on 2026. It's related to the stimulus uh from the rate cuts and the fiscal side which I'll go through the midterms as I've talked about but also the core announcement which I'll go through cutting capex. Everyone in the AI side that was looking for the first capex guidance cut well we got it. Uh if you didn't hear about it I'll take you through it. Uh next year to me is about capex losers and multiple compression for the AI winners. Be very careful in those names. Pharma will be a major story. Book this. Get ready for it. Uh 2026, in my opinion, will be the year not only of humanoids and robo taxis and things that we've talked about, but it's also now officially, in my opinion, going to be the pharma year. Uh and it's the year that all AI doubts end. We will never again hear that is no adoption, that it's useless technology. Whatever you want to say, this is the year that people realize it is electricity and tokenization plus velocity. Start to understand what tokenization plus velocity is and how it replaces leverage. For though for the macro people on these calls that don't go to the crypto side, I highly recommend you start watching my crypto portion. I expect it to be half of the recordings at some point next year just because of the transition that's going on.

So fatigue makes cowards out of all of us. General George Patton, Vince Lombardi. The reason this is important. Uh the market is just I I think everyone has waited for some obvious trade. There hasn't been one all year. And you can see that people are now again after a week where I heard more people and I'll go through one podcast. I was shocked at how negative it was from people that had finally given in and were positive and they became positive around here and since then it's just gone back. So this past week for everyone who's been bullish, everyone who's been bearish, I think fatigue just set in and the fact that everyone's giving up hope probably means we rally into the end of the year. We needed to give up hope and this is across asset classes. This is stocks, this is crypto, this is retail. Um, we've rallied from the liberation day lows in the S&P. We've stayed above the 50-day every single day since we broke out. Uh, the trend is still in place. We broke below the 50-day twice in the last couple weeks and we've still closed above it. We'll see if we actually break down. We could easily head back down towards the 6,500 to 6600 area um over the course of, you know, next week, but I think people need to focus on what's actually going on. Junk spreads, nothing is happening in the economy. So junk spreads are still at all-time types. Earnings are ticking up and this is going to spread next year as I've highlighted into the Russell 2000. You you are going to have a double-digit year next year in the S&P unless something changes and we do not have recessions the way we did in the past. Uh it cannot be bearish if JP Morgan, here's the chart of JP Morgan as of Wednesday of this week, making all-time highs. when there are problems in the market related to anything that will be a problem, the bank stocks in particular JP Morgan and Goldman Sachs, you're covering both the biggest bank in the country and you're right now covering the one that will benefit the most from the M&A, the IPOs and everything that's going on. These things are breaking out and like I said, financials are going to be a major AI beneficiary next year in the profit margins.

What has blown up and why people I think are are we've lost the traders, we've lost we lost institutional hedge funds. Uh we've lost everyone now and that's because retail has blown up. The area that was the bubble um energy, you know, nuclear, all of these things that have no revenues that are hope trades far more than humanoids, uh because they're further out and they can easily be disrupted by other things. They all blew up and now you've had a move back. So, we've reset kind of the specs names. Remember, I created this uh this index. Here are the names that are in it. You have a lot of names. You've got the quantum names, you have the Bitcoin miners, you have these. They needed to get the air out. They couldn't go up on uh all on the future. Now that they've reset, for the names out of this group that are actually going to grow earnings, you'll see them go back higher. But for the names that are not going to have earnings next year, as I talked about at the be uh uh on with Pomp yesterday, uh and I'll go through here. I think growth is a factor is about to go through a shift. We'll get through that now to show the impact that retail has. Um it isn't just the spec name. So the white chart here is that spec name. The green side here is Bitcoin. One of the major drivers if you're looking for the uh OG sellers on the sell side for Bitcoin and the buy side. The buy side comes from the velocity from retail who are trading buying call options. They've obviously been losing out over the course of the next month because they're also losing on the spec names. The other side is the institutional um increase the treasury companies and obviously any uh portfolio diversification coming from adding Bitcoin to Black Rockck portfolios, things like that. Those are steady buying, but you get stopouts and this is why the correlation is there. And Oracle was actually the peak of this. So this is the day that Oracle I was at a Robin Hood event. That day Oracle had the 30% up move. It's now given back not only the whole thing but it went down even further. Um this is where we get into what has happened and kind of the thing because I was talking about unwinds. We are definitely at an unwind situation in uh the market that has happened. So first you had the crowded hedge fund longs versus the crowded uh hedge fund shorts. So in September and this is the move I want. You had already had this give up there. This is was from beta and junk outperforming quality that led to an unwind of a trade that had been in place for a long time. Quant strategy seemed to be that part of the unwind. Then we had another part that was here. This seemed to be a combination of quant stuff and long short equity. Uh where you had crowded longs underperforming the short. This was really more about the short side going higher. That stopped in October. But this damage that was here I highlighted. That was the first part. You had a bottom in the in the dollar that occurred right after the Fed cut rates. So that went that's a liquidity drain. We obviously had the shutdown that occurred in early October. Here's the Oracle chart that it peaked here, but then also in midocctober you really got the big wave down in Oracle. Bitcoin early October went down. So the contagion of all of these winners that had been in there, gold peaked. Uh I still see people, it's funny to see macro people say the market's unwinding. you have to be long gold. Uh there's no doubt in people's minds that gold just had a temporary fall. I wouldn't be so sure about that. Um and I'll go through a lot of the reasons why. Uh and then Palanteer was kind of the clincher where they had massive numbers thing opened up and then sold or was trading open uh higher right after the announcement and then just sold off and since then it sold off again and Palanteer's obviously been a major name.

Now people look for reasons. They're talking about the Fed. This is the probability. We're down to 50% on the Fed. So these are hawkish statements. So this is an index in Bloomberg that measures kind of dovish to hawkish. So when it's going down, they're more dovish. When it goes up, they're more hawkish. You've had this move higher. Uh again, I don't think this matters because I think the job situation is going to remain on the weaker side and a dilemma for them. Uh I want to bring up France Tran. haven't brought him up uh in a long time and I think part of it is because for a while there there was a lot of stuff that was focused uh on what he has done over his career which was business cycles on the negative side leading to a recession. We clearly had a worsened cycle in terms of PMIs being below 50, but the consumption side still went and the AI side helped with profit margins which fed back into the consumption side. And I think that's the mistake that people have made since 2022 is not understanding the impact that profit margins have had on household net worth and how concentrated it is in the fact that if you get that spending plus capex, it's just really hard for the economy to roll off even if you have no manufacturing, no trade. He put this out in August called Goodbye Momentum, a massive change in leadership ahead. And I want to emphasize this because I like it when people that have been technically right on the cycle and France taught me a lot in my earlier years uh running a hedge fund on ways to use this stuff. He does a lot of leading indicator stuff. I highly recommend this is on YouTube. It's open to everyone. Uh he's just highlighting a few things everyone should pay attention to. One is the near-term stimulus from the one big beautiful bill is going to hit in the first quarter. And I think that's important for people to think about because it coincides with this chart which people have not really kind of paid attention to. This one represents more of less the capex side which is the long-term stimulus that's still going through. But the near-term one big beautiful bill. The intermediate term the two-year lag on money supply going higher with the Fed funds rate. So we should expect to see that have an impact in early of next year. And it's not just US cuts. I think it's really important to recognize what has happened. You know, we had all these cuts in 2020 as the economy picked up. Then we had all these cuts leading into 2010. The economy picked up in 09 late or mid 09 and then in 2025 there's a lag that goes through it. So, he's highlighted this, even highlighted this chart, uh and referenced Martin Barnes, uh the originator at BCA from the 1990s, saying the NFIB for small businesses is a gold mine of data. And he's just highlighting what happens to the Russell 2000 in terms of earnings per share year-over-year. So, I've talked about the fact that the Russell 2000 is expected to have significant earnings rise next year and I think that is a broadening out that'll take the PMIs up and everything else with it. Um, this is something to pay attention to. So, just remember this part. Remember PMI is going higher when I highlight this stuff.

So, one of the most important trends and what I think is going on and what references back to France and his leadership change. This is pure momentum. That's the white line. And then the orange line is pure volatility relative to pure profitability. So beta over profitability. And what you can see is that for the most part historically these are negatively correlated. So if I flip this over you'd had all of these things that basically would line up. The problem is what we've seen over the course of the last couple years and especially since the Fed cut rates and surprised with 50 basis points is we've seen beta overp profitability actually do well and become part of momentum and remember this momentum is a chameleon factor it's basically whatever has been working so you've ended up in a situation where the AI trades which have won uh think of oracle think of GE EV, Vernov, think of all of these AI trades. They are part of momentum, but they've also been part of beta. Uh, and it's had an impact, especially when you get into some of the smaller names that have worked since April and Junk. So, the fact that these are correlated becomes a worry because these normally shift at inflection points in the business cycle. So, what Francois said was we're going to have a momentum shift and the reason is because the business cycle is going to change. So, a lot of things that were dead are going to go higher. Normally, this happens when you're coming out of a recession. And to me, that is what this is going to feel like because technically we've been in a recession for a good part of the economy. The things that were not in a recession were all related to AI. But now, AIA demand is spreading. This is where Cororeweave becomes important because Cororeweave is one of those kind of idea names even though it hasn't been around that long that theoretically was benefiting dramatically from the AI trade. So I wrote a paper this week after they warned and you can go read this thread that I put on X. When AI demand meets infrastructure reality, that's the name of the piece. The AI boom of 2025 reshaped markets. But the next phase won't be about capital. It's about concrete. You have to go read what they said, but I'll give you the uh the headlines. Corewave's latest earnings call made it clear that AI demand is still surging and with requests for compute resources far exceeding current capacity. However, management also called out supply bottlenecks and specifically addressed a major delay in the delivery of PowerShells from a data center developer. Coreweave described demand as insatiable. I want you to think about far exceeding current capacity and demand as insatiable yet the stock fell 16%. The primary bottleneck discussed was a major delay from this that forced cororeweave to sharply reduce its capex expenditure guidance from 20 billion down to 12 to 14. So I I I want to emphasize this. I've talked about this actually since the summertime that I expected at some point the reality to set in that all of these RPOS and all of this future orders that had been built into the multiples of the stocks assumed that it would be a smooth movement where they would actually capture this. That is not going to be the case and this is what this did. So for every market trading at a very high PE on the AI trade, I would be very very v uh worried that they're going to have delays in orders not because of demand but because of supply. So this is a very unique situation. Overall core we've described a supply constrained industry and forecast continued robust demand but the company's immediate growth bottleneck is bottlenecked by the pace. That is a unique situation that I think people have to go through. The reason this is important, Kai Woo um only has 10,000 followers. Look at how many people viewed this post, 700,000. He did an excellent job of highlighting things. So, there's an AI investment boom, echoes of past booms. What you notice is he doesn't say AI investment bubble, echoes of past bubbles. Very important in this. This is why I read this kind of stuff. I don't start with a negative. This is a boom. May turn into a bust, but it's a boom. Rising capex firms underperform mag 7 the new utility that is something I believe in and I'm looking for reasons and points where the AI winners which are based on the capex winners the semiconductors that could have delays from the data center buildout and then all of the big suppliers which have already had their orders come in gas turbine shortages transformer shortages all of that stuff if you've already built in pees of 40 50 60. I think multiple compression is going to be your story next year. It doesn't mean they're bearish. It just means that the earnings are going to have to flow through before the stocks are going to be able to see when that supply constraint is going to go through. So he highlights just how big these numbers are. So what you have to remember is this is an acceleration. This is exponential capex. We weren't ready for this. So think of the last bottleneck shortage you saw on the supply side. That was CO. So this is a mini version of CO. What happened to the PMIs? They violently went higher. That's what I expect to have happen. They He goes through the echoes of the past and just shows on this how difficult it is. But this is the most important. These guys are rising capex. Evidence from thousands of stocks over multiple decades show that firms aggressively growing capex systematically underperform. Again, it doesn't mean that they are bubbles. It doesn't mean that the capex that they're never going to get their ROIC, but the bar is high. So, these names could just be underperformers for the next decade. And that's something I believe is going to be happening. I think you're already seeing it with Meta, the bigger of the capex names. I think they'll absolutely be some names that are going to be fine. But the more that you're spending, you're making a bet. The higher the bar, the greater the risk. High versus low asset growth stocks. We are leaving a period, guys, where these guys were able to grow their business without debt, without capex. Now, they're needing to take debt and capex. I firmly believe that it's good for the masses, the 493, or at least a lot of them. It is not good for them in my opinion and it's going to make the bar much harder when you add in the fact that everyone is focused on and this is from uh Charlie McKelikott we're really getting provocative for the bears add that blah blah blah tightening backdrop to a world where the AI theme which is stock market begins to lean on credit spreads so I disagree with what he's kind of going through but I think most importantly like $110 billion for this which is mainly Oracle and these companies I mean 20 some odd trillion dollars. Give me a break. I mean the number looks big. It's not tearing down the system, guys. So all of you that are worried on this, I think you're just I I again I think you're looking for reasons to be to be bearish. The free cash flow going down, the debt going up, the capex numbers growing. I do think that that is a negative again for them from the multiple compression standpoint because the bar is higher, but not from the ability for them to uh still post decent earnings. Uh and again, you're going to start people seeing people get more worried. I think this is legitimate in terms of just worrying about how big this stuff is going to be. So, I mentioned the Oracle stuff. They just did, you know, $ 35 billion bond issued a couple months back. they've done announced more uh their bonds are trading down and again they should the probability of them in a default uh scenario and again I don't think this is a problem but if you ask me 5 years from now could Oracle have a problem yes I do believe five years from now there could be a solution and that's why I'm both on the positive side for the next three years because the capex numbers are going to happen demand is massively over supply but once we get past three years and all those dollars are spent and the data centers are up, there's a greater risk for novel solutions from AI. And that's the whole point is you're racing a time of intelligence. And eventually, I do think it will it will cause problems, but only for those names, not for the economy.

So, this is the podcast I'm referencing. I'm not going to show which one it was because I like these guys. But I listened to it and I just downloaded the transcript. What's the tone of this podcast? Bearish or bullish? Mostly bearish. So, bearish I am looking for the wheels to fall off. There are a few conditional bright spots like gold strength. This is the thing I mention is that everyone who's a macro person, for some reason, gold's untouchable. Um, but the rest of the market's not. Gold has bubble qualities just as much as uh the other names are. It doesn't have a fundamental story other than debasement. And again, as I get through this at the end, I'm a believer in delever happening. So, and I'm a Bitcoin person, so we'll get through that towards the end. How often do they mention inflation and bubble? This is my favorite thing. Inflation expect it's mentioned roughly 20 to 25 times. It's a central argument in the thought. How many are bubble times mentioned? It's referenced around 6 to eight times. Do they ever mention earnings? Yeah, they mention it a few times. They reference retail investors yoloing into quantum computing stocks with no earnings. I just I'm just telling you the ability for people to make up stuff and create a narrative that is a bias that they have. And I want to emphasize where this bias comes from. And I want to just highlight something. Every time someone says this is like the.com bubble. What if the dobomb.com bubble never happened? We'd have no comparison to it. There'd be nothing to talk about. So you're taking one data point and you're making it sound exactly like this is the same. The same thing goes for inflation. If it wasn't for COVID, we'd have no reason to think inflation is going to go higher. I will say it here. Inflation is going down because of the most deflationary force we have ever seen. I will say it again, the do this is not the.com bubble because demand is massively over supply. We do have a bubble in infrastructure spending on the data center side. We do have some kind of risk on the accounting side from the way these guys are handling it, but that's not today's business. So this will continue for the time being and I will say it again. I am bearish on fiat assets in all public stocks as we get to 2030 and believe it's all about time which will go through. So I just want to bring that up because your job is to make money. And if you listen to these podcasts and listen to their narratives about how the world is going to end and inflation is coming and there's a bubble that's going to pop, these are all not going to happen. There are bubbles and it could end at any point, but that's not the way you make money. Let the market tell you when the risk is growing. And I just showed you at the very beginning. Earnings are growing. Credit spreads are tight. Bank stocks are going higher. And the S&P has been above the 50-day. Could there be a scenario that this breaks down? Yes. I highlighted last week that equal weight stocks were making highs, too. Global stocks around the world are making highs. It's not just the US. And we have stimulus coming. It's not the time to be bearish, guys. It's the time to be looking, especially as AI starts to have a massive impact. That being said, society as a whole is not benefiting and that's why you have a K-shaped economy. This is an important chart for next year. Again, get back to the concrete story related to coreweave. Corweave is saying they have supply problems. This is another way to see that it is happening. Mentions of power surged this earnings per year season. We've never seen anything like this except when oil was heading up to 150. This is positive for commodities. This is positive for the buildout. This is positive for hardware, not software. Morgan Stanley sees up to 20% shortage of US power for data centers through 2028. Here's what happened this month so far. Energy materials are up. The S&P is only down 1.55%. You wouldn't think that based on what you're hearing. All of the MAG 7 related names are down. Interestingly enough, on the coreweave side, we have utilities and industrials that are down right now. This is an interesting situation for the time being because the industrials, if I brought transports up, they're outperforming. Transports are more related to materials and energy. The industrials that are down, they're more on the AI buildout where bottlenecks would hurt their earnings next year and bring their multiples down because we don't know when they're going to get it. That is a beautiful rounding chart. And again, it comes at a time when we are being told there are bottlenecks. The last time we had bottlenecks was here. Go back to China and the last commodity thing we had. There were bottlenecks. We couldn't get coal. We couldn't get any of this stuff out. We're seeing signs of it as the commodities are going higher. And I want to remind you this is with oil and natural ga oil down this year 20% and natural gas not moving. Power has not been the story. It's been everything else. Power will be participating. So this is kind of like a late cycle situation. And I wanted to go back to the growth side because I talked about the fact that growth is going to be a problem to me when you have a scenario. And again, this is commodities. This is growth. Now, I put the commodities and inverted them. So, this is that BCOM index. You can see that beautiful kind of rolling situation. Basically, when growth starts to do weak, it's usually when commodities are going higher. Commodities are going higher, at least until here. And you have growth trade not being a great trade. This was back in 2009. This is what happens between the relationship between energy and technology. Technology needs energy. If energy is cheap and technology is having problems and it needs to have more energy, you eventually get that trade. That's the way this is going to go. And so here you have Oracle. They were trading up here. So you're getting multiple compression on Oracle. You've had multiple compression on other loser. Here's Salesforce.com. Salesforce.com is still growing earnings, guys. So the software names are not collapsing because their earnings are going down and they're completely being disrupted. This is why so many people want to buy into software and maybe next year they do outperform semis for a period of time. But the problem is what they're getting is their multiples were in an environment which was wrong. This is the way you have to think about the mag 7. The future of the market is where we're going to be. That's why the multiples on the S&P are actually not too expensive because of profit margins and future profit margins. So in this case, AI will disrupt their business. The way to deal with it is maybe they keep growing earnings, but they're growing earnings at 5 to 10% as opposed to 20 to 30. So you get multiple compression. Same thing goes for Chipotle. Chipotle is being disrupted by AI on the job side. So you had things where this thing was trading as recently as 24 with a 65p. It's still making money, still growing earnings. Adobe still growing earnings, multiple compression. These are important stories to keep in mind. what is traded higher over the course of chat GBT. This is what you want to find. Companies that benefit from AI that have a low multiple going into it. This is a nice smooth repricing up to the same multiples that you saw from the other companies. Nvidia has actually already had multiple compression. That's why I keep saying Nvidia to me is kind of bulletproof. I think you're going to be getting exactly what the earnings growth are. I can make the argument that it's a dirt cheap stock based on 5 years from now and the buildout that's necessary at a minimum as long as Nvidia is reasonable. This is not Cisco. It's still too cheap because it is the Cisco of this and it doesn't have 100 PE. It's had multiple compression. McKessan is another name in the healthc care side that if you invested in it, if you haven't looked at the stock and I wrote about it earlier this year for 22V, McKessan is just a beast. It's up another 50% this year. This is margins. profit margins, profit margins, profit margins in companies that have the ability of using AI. They've gone from an 11PE to 22. You're going to see more of these. If you're fundamental mutual fund, focus on looking for these names that will benefit from AI. Here's one of them. I'll get into this in a little bit. Merc 11P. Expect to see that head up to the 20s over the course of the next couple years.

Here's what pharma's done. I I highlighted that healthcare was the best performing sector. Pharma is having its third best performance relative to the S&P since 2001. As of Thursday, before we had a little mild pullback, pharma on an absolute basis was having its second best month since 1999. So, what's going on in pharma? Very important. Eli Liy, look at that chart. So, Trump takes over, the drug stocks sell off. We get kind of a, hey, we'll figure something out on the drug stocks. You get this? That's not the reason why it's going higher. The administration needs lower drug prices. There is a focus that's going on for Eli Liy that's starting to come into a crescendo which everyone needs to pay attention to. Eli Liy continues AI push inking a hundred million plus research pact with Encilico. I highlight this. You can go find I'm going to highlight some podcasts of interviews and things for various things. But if you just go look for the founder of Encilico, go listen to him and you go listen to the CEO of Lily which was on the Cheeky Pint podcast and just go listen to the impact that AI is having on drug discovery and specifically cancer and what we're about to do with trials. So this is a very important deal that happened this week that was part of the reason for the stock being higher. Two weeks ago, Lily partners with Nvidia to build the industry's most powerful AI supercomputers, supercharging medicine discovery and delivery for patients. Drug makers share data to feed voracious foundation models. This is again Eli Liy announces and goes through this whole thing. This has become a big part if you don't know. So there's Eli Liy connected to Encilico. They've been partnered with Encilico in a software deal from two years ago. Now they're expanding the relationship where they're basically implying that clinical trials are about to happen. And that is the inflection point that people need to think about for AI drug discovery. I've I've gone through this with you guys in terms of listening to the Moonshots podcast. They've highlighted this. Getting an AI drug to clinical trial is a massive thing because you're shrinking the cost dramatically both of the time that will be necessary but also the efficacy. So when you do all of that, you're changing the multiples on these companies dramatically and their ability to lower drug prices, which is why deflation is about to happen in the healthcare side for drugs. Will it take a little bit of time? Yes. But will the market start to discount all of that? Yes. Google DeepMind I chief eyes radical AI powered shift in drug discovery speed. Eli Liy Noardis are already on board. This is an earlier this year. They went out and raised 600 million again targeting cancer and immune disorders saying AI designed drugs could eventually turn many cancers into chronic conditions. I want you to read that. I'm going to highlight it many times. We are on the cusp of being able to say that cancer becomes a chronic condition. So for everyone who in there, everyone out there who has had a family member, a friend suffer die from cancer, this is unthinkable and we are now approaching it and you need to spend time thinking about what this does to the stock market, what this does to opinions on AI and everyone that said AI is a bubble and there's nothing there. The government will backs stop AI for military reasons, but they will absolutely do it if it means that drug discovery and everything is going to be there. Keep it in mind when people keep saying to you it's a bubble. It is a disgrace. I will continue to say that if you're going to sit there and spread negative news, it's one of two things. Either you have no idea what you're talking about or you're wealthy and you just want this because you're not participating it. There's no other ground around it. I don't see how people can be arguing about artificial intelligence. Google Deep Mind Boss wins the Nobel Prize. This happened last year. Again, this guy Demisabus won the Nobel Prize for Alpha Fold 3. We are now starting to see the benefits of that. AI developed drugs will be in trials by year end. This is from January. He said this publicly. We're at the end of this year, guys. If you want to go watch an interview with him where he talks more about this, there was a 60-minute one back earlier in the year in the first quarter. I think it was April. Uh he goes through the protein structures and how it did and AI did it 200 million in one year. It would have taken billions of years to accomplish what they accomplished. Billions of years. This is why we're speeding the process up. On average, it takes 10 years and billions of dollars to design just one drug. We could maybe reduce that down from years to months or even weeks, which sounds incredible today. If you don't think that's possible or it's in the far distant future, I will show you an example where it's already happened and how a company's stock went up 2,000%. From that exact thing happening, it would revel you human health and think one day maybe we can cure all disease with the help of AI. The end of disease, I think that's within reach, maybe within the next decade or so. I just want you to think about what that means. The end of all disease, extending longevity. How, as a macro person, is this not the most important thing for social security, for entitlements, for all of the expenses we have. If you're getting rid of diseases, go think about how much diseases make up the liabilities of that debt number that you see. Isomeorphic Labs prepares to launch trials for AI designed drugs. Remember what I said? This is back in July. Isomeorphic Labs, which is the Google deep mind um place, prepares to launch trials for AI designed drugs. Isomeorphic Labs sets up US presence with an eye on clinical trials. They hired a chief medical officer in June to prepare for trials this year. Then they spoke at this event back on October 16th. This is the chief medical officer speaking. Oh, what he's speaking about just so I make sure I show AI drug discovery startups partnerships with Lilian Novartis and the promise of AI pharmaceuticals. You can go into uh into perplexity and ask for the details on that conversation. Then Deisabis spoke last month, couple weeks ago, the CEO working to solve cancer. This is an update on where things are. Collaborations with Novartis expanded from three to six targets and Eli Liy are going very well. these relationships refine the platform and validate the commercial potential. Again, this is an impossible thing to think about. It's something I've been waiting for. And again, as you guys get to know me, I keep these in my back pocket. And then when we start to see the movement, like I wrote about Tesla in August, I go through and I listen to see if the leaders are giving hints on podcast about what's coming to get ahead of the event. knowing that stock prices lead narrative. So you want to go figure out the narrative that will be the thing that makes people jump in when that chatbt moment comes because if not when I mentioned Bloom Energy when it was $30 to many of you in conversations then it becomes $120 stock, $150 stock because in the exponential age when this changes it goes rapidly. There was an interview with another person from Isomorphic Lab. This is Max Latererberg I think is his name. Uh very important conversation. Again, another Bloomberg one. Uh goes through in terms of uh turning cancer into a chronic but livable disease where they get into the specifics. Isomorphic already has multiple molecules advancing through pre-clinical development with many earlier programs showing strong promise. Collaborations with Nardis and Eli Liy target previously undruggable proteins. Think about that. That's where the cancer stuff comes in. Previously undruggable proteins and they're showing early success over the next decade. AI could compress discovery from four years to months transforming medicine into a personalized. When you're trading at an 11p, you are not building in the possibility of this. I bring that up because Merc is sitting down there and you can go type in merci drug development and get very similar things just not as advanced as Eli Liy. Sequoa had an interview with Max again earlier. Now Max used to be part of the Google DeepMind team. He's part of the isometric labs. It's very interesting to go listen to what's going on and what they did. Again, internal focus on oncology and immunology partnerships with Eli Liy and Novartis tackle decade hard targets. Novartis expansion cited as validation. They're basically telling you that they're making significant advancements. There's a clinical trial that's coming up. You can go read all these on your own. The macro and market implications. Clinical trials mark capital markets inflection point. Potential reallocation of capital towards AI native drug discovery platform. Structural shift in healthcare economics from acute to chronic care. Could make AI and biotech the semiconductors of health care. Expands human capital through longer healthier lives. Could reshape fiscal and productivity models as healthcare cost dynamics change. Think about the trades that came out of OMIC. This is far bigger than Ozmpic. This is the relationship now. So I mentioned isomorphic is Google deepmind. They're the biological intelligence layer. Encilico is the drug engineering layer. And Eli Liy clinical regulatory and commercialization layer. So let's go here. The brain is isomorphic. The hands for the engineering are in silicone. And the body is Eli Liy. They're the manufacturing plant. This is the thing that takes drugs discovery from 10 to two years to two to three. developmental costs could fall by 70 to 90%. That is called profit margins. That allows drug prices to move lower, which again is what the administration wants, what all administrations wants. So this will be supported by the government and all capital and money that has been moving into other areas with inside healthcare will quickly move to help support this stuff. So you just have to realize there how important is getting to the first clinical trial as a proof of concept? It's crossing the Rubicon. You can go through it. Economic validation. And I think this is important because there will be a rerating in companies. And this is what happened with Oracle. Oracle goes from a boring company. What happens to IBM? It goes from a boring company. AI is a rer guys. When you get something and your cost can go down, you have to expand the multiple dramatically. Go look at healthcare and pharma and go do your homework. Evidence. Since we are close and Silicico's publicly announced its lead programs, is already in phase two trials. I don't need to go read all this. They've been staying very close on all of this and they hired a chief medical officer. Here's Google stock. Telling you, I already showed you Eli Liy. Google stock looks like something's going on. Noartis looks like something's going on. Merc doesn't look like that. Those companies do. Here's the comparison. Maderna versus isometric labs vaccine was designed in approximately two days after the COVID genome release entered human trials 63 days later approved for emergency use in 11 months. Now obviously cancer drugs won't go this fast but the main point is it was supposed to take 10 to 15 years to it took it from 10 to 15 years to two to four years in terms of what isometric labs will do to drug discoveries in this case remember we were hearing it's 8 to 10 typical we'll get it done in four years it came out 11 months mader cut one order of magnitude isomorph is about to get rid of another. And here's what happened to their stock. This is the 2000 price. It went from this to $200 billion at this point. All because of artificial intelligence.

I want to get back to the economy to finish this up and move into crypto. Car loan delinquencies hit record for riskiest borrowers. K-shaped economy. You can see that the lowest wage cortile is going down. Hence the problems that are happening in the cities. the uh the need for uh socialism. Uh you've got this is from Torston Sllock from Apollo. Uh you've got basically this K-shaped economy which is a reality and it's still worsening. And so what is the administration going to do? Well, they admit the GOP was blindsided by the economy fears as Democrats sweep Keys. Republicans don't talk about the word affordability. Okay. Trump is committed to $2,000 tariff. Sounds a little bit like socialism. Trump's 50-year mortgage would save you about 109. Okay, so 50-year mortgage. Uh the Trump administration is actively evaluating portable mortgages. Whether it's a handout that's coming from people voting for handouts or whether it's some way to go through the printing. This continues the transfer payment need. You have to in a K-shaped economy being disrupted by AI continue to do things to keep the economy from falling off and also to try and win votes. Republican party has the right right solutions to the affordability issue. The White House needs to act on healthcare affordability. Basically, I'm only bringing this up because when you combine that with the Fed needs to do something on QE because the liquidity situation, they've already ended QT. When you have a deficit and a debt of this magnitude, even though I believe AI will have impacts on this down the road, for the near term, they are going to continue to print money. Inflation will stay above 3%. The deflationary forces will come through over the next three years. We'll have a probably a peak at 3 point something% and a bottom at 3 point something% for the next couple years. If oil goes higher, we'll get slightly above four. I don't think that's going to happen in in a major way. The main point is we're still printing money.

This gets us to all of you crypto people. I know you're fatigued, but it makes cowards of all of us. Just stick with the program. And here's a reminder from Jordy. We do trade with retail trading. It's a big part of it. The OGs are selling for ideological reasons, which makes sense to me, and diversification. the buyers are not as big as the OG sellers and the traders which kind of drive the volatility have been frustrated in buying against this brick wall for a while. So when the spec names go down and they start losing money, well, Bitcoin's still going to go down with it. But we have the clarity now that the shutdown's over, expect to see the Clarity Act done hopefully before the end of the year, maybe even sooner. And remember the longevity piece. I'm going to remind you of Rick Edelman. The traditional 6040 stock bond allocation model is dead due to unprecedented rates of longevity brought around by remarkable advances in exponential technologies. I think the MAG 7 are not investable in the long term as a group. There may be some winners in it, but I think the competition from AI and the capex spend and the debt that they need to do it makes them vulnerable. Where are you going to find a large asset and innovation that is growing rapidly that is going to fit into Bitcoin and the crypto world? JP Morgan rolls out deposit token. JP Morgan coin and digital asset push. You're getting the banks there. Here's what you need to listen to. The state of crypto 2025. This was a podcast that came out from A16Z to go through their state of the 2025 on crypto to show everything that has happened, everything that's going on. I know you're fatigued. I know Bitcoin is basically unchanged this year now. But again,

It was after 200 plus percent years. So, it was even outperforming itself. Let's just take a little time, take a little breath, and just go through all of the details that are on there.

The only thing I want to get into, and you'll hear me talk more about this with Pomp. I talked about it with Natalie Brunell this week that'll get released. There's a lot of conversations I'm doing connecting tokenization to stable coins, also to prediction markets. This is the future. This is why macro people need to be paying attention.

Here's the belief in terms of what's going on. They bring up the developing market activity and the developed market activity. So the developed market activity, think the US, South Korea, Australia, Western Europe, participation is mostly trading and speculation. Younger retail traders, they're interested in the volatility. Emerging economies, which are another one, they're dominated by the data for mobile wallet usage. This is the ultimate most important buyer. The 7.5 billion people that are not part of the capitalist system that live in countries where they don't trust the government and they want another solution. Stable coins allow them to get wallets. Wallets allow them to make instantane instantaneous uh asset allocation. Once wallets are open, Bitcoin gets a part of it. This all fits into the state of crypto.

So, I'll go through the report. Look at this financial institutions. This is all this year. I just want to make sure you realize all of the stuff basically is going on this year in terms of the pressure for this. You never thought you'd see JP Morgan on this list. Um advancements in terms of the institutional side, the institutional capital, despite all of the weakness and all of the selling from the OG sellers.

Here's the Bitcoin and Ethereum ETFs. $178 billion. Now, there's been hundreds of billions of dollars of OG sellers. That's why we're stuck. The money keeps coming in and will continue to come in because the allocation for this group is close to zero for most people. Financial advisors and banks are now getting people in, but they do it slowly. The same thing goes for this. You have, yes, Treasury buyers are going in. Micro Strategy owns almost all of it. I keep hearing that all these other numbers. There's 73 billion of it. So, the rest of it is very tiny.

This is what's happening in stable coins. They're breaking their correlation with the broader trading volume. So, the crypto trading is still in a bare market. It's very hard. You've had you get these upswings, the price goes higher. This is when you end up getting the rally leading into the election. But then since then, crypto has been kind of in a bad place. But stable coins, which are the network effect engine, are growing rapidly. Stable coins are no longer niche. Major public companies are actively evaluating opportunities. These are the related mentions in SEC filings. So stable coins are growing, crypto is global, but onchain activity is growing fastest in developing countries. This is a major part of the positive side of it. It will be there. Just be patient. You'll get the payoff eventually. Uh stable coins now rival the world's largest payment networks in transaction volume.

This is where I'm going to start to get into some really important stuff to finish off. They are rivaling the largest payment networks. We are quickly coming into the AC and with Zel's announcement and with the roll out we will be way above it. And I want to give you one other slide from there. Real world assets are bridging traditional finance and there's already 30 billion online tokenization. Real world assets. This is really critical to where we're going.

And I'm going to bring you back to an interview from Caitlyn Long who I've shown before on this. Kaitlyn is a genius when it comes to the importance of stable coins and connecting it to banking and connecting it to the global economy and GDP. I'm not sure she knows the uh the connection and the genius that she's had on this, but everyone needs to realize velocity of money connected to the tokenization of assets. I hear a lot about dormant coins in Bitcoin. You know where there's more dormant activity? Let's just take housing equity in the US. That's dormant activity that can't be released. If it could and people could spend the money, the equity they have without having to go to the bank, without having to lock in a high interest rate, but could actually just do it from transactions. You'd have a lot more GDP because at the end of the day, the money velocity is going to drive GDP. And that's what Caitlyn talks about with the importance of velocity. She is widely quoted as discussing the implications of tokenization and stable coins on financial velocity in capital markets.

So what's happening is you can get velocity through technology. Think AI agents. It used to be that you got velocity through leverage. That's the current fiat system. Deleverage replaced with velocity. That's the world we're going into. Everyone on the macro side that is having their brain kind of uh go through a little thing of not understanding it. Go spend some time on what happens to leverage if it's replaced from just transactions. We actually get delever of a lot of the dormant things that will drive asset prices lower over the long term, not in collapsing the market because you'll replace it with velocity. I think what's going to happen is all of this is just going to delever the banking system across the board because we don't need to get velocity through leverage anymore. We'll get velocity through technology. It's a really important point.

Money is like oil in the engine of the economy. It doesn't produce output by itself, but it makes the system grow faster and move more smoothly. The faster it circulates, the more powerfully it fuels growth. This is Milton Friedman. Milton Freeman taught that money's true power lies not in its quantity, but in its motion. In the digital age, tokenization restores that motion, turning capital from a store of value into an engine of growth. Tokenization plus velocity turns dormant assets into circul circulating energy, unlocking trillions in trapped value and accelerating the digital economy through network effects.

Crypto and the digital economy will grow rapidly over the course of the next three years with this administration supporting it, but also with the advancements that are coming. We have ended a dotcom bubble of crypto. Bitcoin has gone sideways. Stable coins have continued to go higher. The clarity act when it comes in will speed up tokenization. The value of bitcoin just like the value of pharma just like the value of oracle just like the value of maderna should go higher based on the future when it's exponential and that future is getting closer.

So I leave you guys with this to go think but just don't get too bearish because we're on the cusp of some major things and I didn't even mention humanoids. Have a great week guys. I'll see you next week.