Transcription
Another uh another crazy week. Uh, market changed uh as I talked about last week. I thought we'd get a uh a rally and a bounce uh either Monday or Tuesday, and we did get a violent bounce on Tuesday. Uh, oil prices continued higher, and I think that is a uh a clear signal that after five weeks of the market paying attention to every nuance on Iran, regardless of, you know, what you're hearing in terms of doom and gloom and oil being this catastrophic thing, the market has now seen it. It's adjusted to it, and especially on Friday, we've reached a point where, at a minimum, I think you can get rid of the narrative from people that every day oil goes higher, stocks will be down. And now the market is starting to uh break apart from the story, and I think that is going to be a reflection of what I talked about last week.
So, as a reminder, last week the entire thing was separating the mindset of a bare market and more the mindset of a regime shift. There will be plenty of bull market places to invest in because AI is durable, because the consumer is uh completely different than 2007, and I use 2007 because that was the last credit cycle. Uh, we are in a different time period where the credit cycle is weakening, and I think that'll continue. AI is a massively important theme, the most important investment theme, and compute is uh we don't have enough compute. It's insatiable, which means every time that we get one of these corrections, of which I'm sure there will be be many, because on the negative side, we are in stagflation. Um, and you don't hear me use that word too much because I think it's just a narrative. But the market cares about that narrative. And I think going forward, um, even though Iran and ships are starting to flow through, which means we're through the worst of stage one, the impact in terms of how long the delays are going to be, has not been priced in yet completely. Uh, but you need to see the impact that'll show up.
The other thing about the consumer that is just different is the insane amount of net worth that's been created, the insane amount of transfer receipts that have grown rapidly since before the great financial crisis, the demographic shift that's happened. Uh, and the fact that it's just very difficult to have a significant uh rise in unemployment when we do have a labor shortage. And this is coming from someone who believes that labor will continually be disrupted at the knowledge worker level, but not the daycare level, not the nurse level, not the teacher level, not the blah blah blah go through it. Uh, it may not be a job people want, but you have to separate the two. And we live in a world where the extreme opinions of people will guide your emotions towards making big mistakes.
So, that that said, uh, thank you to all of the financial adviserss and RAAs that have reached out, um, particularly on the back of the model portfolio. I released a spotlight uh spotlight piece on one of the names with inside the move to Blackwell and Vera Rubin uh as an investment theme that uh for subscribers, you guys saw it. The stock did very well this week uh and had a big announcement. I think you're going to see more of this going forward, and I have a lot of things happening on the edge side. This is all the bull market side that you want to invest in. Unfortunately, for most financial advisors, they are positioned in things like private credit and things like the MAG 7 and the hyperscalers, which have been underperforming. So, I think the portfolio construction changes, the model portfolio, the things I've talked about are going to be more important. I look forward to spending more time and visiting some of the financial advisors. So, if you haven't yet reached out, go sign up. I promise you uh this is a time where you need to be spending time on how AI can help, but also the themes that are going to be very difficult for people to get invested in because they're just not positioned that way.
So, upw week transports continue to send an important signal. Stagflation. I wrote a paper on playing around with Doge, private credit, the memory panic that went on. All of this stuff coming up. S&P up 3.4% for the week. The biggest uh upw week of the year, and it breaks the five-week down move in seven of the last eight. So, we were due for a bounce um, particularly coming out of the first quarter, and particularly with everyone being hedged and gross exposure shockingly remaining high. Uh, so you can see here just from the movements, uh, you know, oil traded to the highs, and yet the stock market was not only moving higher, but as we go into a new month, especially one where pension funds had to rebalance in a very big way because of the underperformance of stocks, but also because earnings continue to grow and the economy right now is fine. Um, more money went into the market, and you saw each day, you know, a low at the open. This panic morning after the Trump speech came back. The 200-day moving average. We're still below it. You can see we're still way below the 50-day moving average. I'll talk more about that. But overall, uh, it still, you know, looks like a uh a downtrend, and I think it still will be, and I would not be looking for a repeat of last year, which I'll go through.
Uh, one of my favorite ways to look at markets for mean reversion and just for scenarios, particularly in in either a violent bare market where people start to drastically worry about a recession and all earnings revisions go lower. We saw that last year. Uh, other years, it's not as bad. So, this is the percent below or above the 50-day moving average. Uh, the red line here is the bottom decile, meaning we went through a level that uh, you know, you only go through 10% of the time. Here's the upside. Uh, that level is about 4.3% on the downside. We've now bounced back up. Uh, it normally takes a while to get back to the 50-day in these types of scenarios, unless you're in a situation like last year. So, I'm going to show you two different situations. This is the one I think we're more in. Uh, and it's not to say that we will have a a year that looks like this, but I think there's going to be a lot of these es and flows during bad news. Remember, this is 2022. This is when inflation peaked. Um, it peaked around here, uh, year-over-year CPI. And I've said this is when I think the peak will come. The bottom will come in most likely, at least for this year, will be when we peak year-over-year CPI, which I think at this point is likely to happen May, June, maybe even later. We'll see. But as long as we haven't had a peak in CPI, I think that's going to be an issue. Uh, but this is the way you look. You have these falls, rally, falls, rally. You're bouncing around the 200-day moving average. 2022, we never saw earnings go negative. Yes, we saw revisions move lower. And yes, people started to panic. It was a bad year for tech. Inflation fears were running high. The Fed was raising rates. This is not the same year. But you have that kind of year where every time you rally, you start to run in trouble. And then you have last year where people started calling for a recession. Everyone bailed out of the market because if there's a recession, you don't want to be in stocks because earnings are moving lower. Quant strategies go the same way. And then he rolled back the tariffs and we got this immediate rise. And that's because the analysis was completely wrong by the street saying that we'd have high inflation and that there'd be a recession. They couldn't have been more wrong. They were using the information of a hundred years ago to make their forecast and do some analysis, which again was 100% wrong. And now this year, they're not worried. So again, pick your poison.
Um, here's the reality. Last year, this is what one-year TIPS break evens did. They peaked before the tariffs and liberation day and then they went down. This time, when your inflation expectations are up high, not a little high either. We're up at five and change percent, where last year we went down the entire year. This is the difference between this year and last year. Is even when tariffs were going in, people were worried about a recession. This year, they're not worried about a recession, and they don't think earnings are going to change. And that's where the risk is, is that the expectations haven't changed.
Here's the correlation break between oil and S&P. You had every single person, and especially every strategist who's bullish, basically saying, "Well, it's all about oil and I I'm I don't have anything to do with this and blah blah blah." When the reality was again, the S&P was breaking down way before the war. Financials had already been hit. Software had been hit. Everyone was trying to excuse the AI trade. The AI trade is what's driving everything, and strategists and economists don't know how to deal with it. And I think that's going to remain, and that is the reason why you guys watch this. That is the reason why I spend all my time on AI. So hopefully I can bring you the news and not bring you something that's not based on people using it, because the people who are telling you what to do that have a lot of experience, they have no idea what they're talking about when it comes to artificial intelligence because they don't use it.
NDX, similar type story again, below the 200-day moving average but bounces. Uh, these look like beginning of month flows. Um, but you've broken the correlation, which means I think people are going to try and buy the dip. Uh, unless we get some kind of new news, but oil prices going higher in the short term is clearly not new news at this point. So, we had a huge move of oil on Friday. Let's assume we come back on Tuesday morning and oil peaks and starts to trade even slightly lower. You know what stocks are going to do, just because they didn't react to stocks being higher. Once you break that negative feedback loop, uh, from a bad news is good news or bad news is no longer bad news, usually there are dip buyers, and I would expect that we're going to have this.
So, uh, in terms of levels for the S&P, I'm definitely looking, uh, you know, anything above 6600, which is where we are. Uh, up to 6670, I think, is going to be a very challenging area to go. The 50 days all the way up to 6750. So, use those as barometers. The Russell 2000 has traded much better than the rest of the market. It did make one daily close below the 200-day, but overall, um, the PMI trades are still working.
Now, I want to take you through a little Dow theory. Um, so, I'm not going to go through the whole Dow theory, but the Dow theory was basically to use the Dow industrials, utilities, the industrials, utilities, and the transports to get a sense as to how the economy was doing. That was obviously during a time where the industrial revolution and everything was going on. So, it doesn't matter as much. The Dow industrials now have tech names in it as well. But here's the thing. The Dow again is sitting right near the 200-day. Uh, this has been a, you know, a fall, but it has not looked as scary as the tech world. Utilities, um, despite rates moving higher, utilities have acted great. This is uh data centers. This is usage of AI. This is electricity demand is going higher. Most importantly, transports look great. As long as transports are good, nominal GDP is good. End of story. Um, transports are good. And, you know, someone highlighted to me in my trip to Boston this week to look specifically at the transports and make sure I did some work on them. And I've I've used them a lot. It's one of the sectors that I think is going to surprise.
Here is year-over-year transports with PMI. PMI to me will remain high despite the oil situation, uh, and we will still head up towards 60 over the course of the year, in my opinion, in terms of the PMI. Here's the year-over-year transports related to PMI. More importantly, uh, the flatbed market was what I was pointed out, including, you know, stocks like Landstar and things like that, uh, in terms of just the flatbed. So, big, big, big transport of materials and equipment related again to not only the data center buildout but the mining side, the energy side, anything that's going on. We still have a nominal GDP story, and I just want you to look at. So, this is uh the the blue line here is during the trans is during last year, and you could see that as inflation expectations went down, we also saw the PMIs go down until we got in towards the final quarter, and then it started to go higher. This red line here is 2026. We are way above this. This five, this is the five-year average. So, you can see that flatbed rates are incredibly strong. And then you had Craig Fuller who, over the course of the last few years, has called for, you know, a a transport recession or depression in cases. And he was on CNBC this week. Flatbreads, which are almost always industrial or raw materials, are seeing some of the strongest volumes in and rate strength in history. So, how can you be bearish for a recession when you have that going on? These are not short-term duration things. These are not based on the consumer. This is based on nominal GDP. This is the AI trade, 100% related to it. I would not get negative on every part of the market. I think we're going to have some sectors that have trouble, and this is one of them. Financials, again, you've had a bounce, but not a big bounce, and you're way below a 200-day, which is pointed downward. No need to go in and pick that up.
In terms of the S&P bounce, everyone talked about how historic it was and big, and they were. It just shows how much memory changes. So, in 2022, during a bare market, look how many times we had jumps as big as the one we had on Tuesday. I mean, these were continuous. Liberation day, obviously. Now, this was a low. This was an important low in the market. Some of these in here in '09 were lows. The only reason I want you to be wary of that is when those lows have occurred, we get big upside to downside volume days, and we did not get that on Tuesday. Upside to downside volume was shockingly low. These, this is the S&P. You can see that the low was made on this line here. Big upside down. These are thrust days. Have you guys ever hear of thrust days where you get big volume expansion? That usually means that that is a time to basically go. And you can see how it's called every major bottom. It did in 2022. So, when we make a bottom this year, I fully expect it will be an upside to downside volume blowout. You guys can look at that on your screen.
What we have in a bare market is factor rotation. It has been destruction. And I believe this is the beginning of a massive long-term deleveraging phase. I've said it before. I said my surprise risk from last year would be that we would lose a very important hedge fund this year. Because of the deleveraging, I do think we are going to be in that mode. If it does happen, you're going to see factor volatility stay high. The covariance model, turbulence model that I built was meant to show me when the P&L is high. That still remains as having these blistering days. Uh, which means you never get to take a break. It is tiring. It is exhausting, but gross leverage on every PB sheet I saw was shockingly still at the highs. Net leverage had come down rapidly. We had hedges on, which is why bounces are going to happen, but I have not seen gross leverage come down at the entire uh index level, especially for long-short hedge funds. I think that needs to come down because I think we're in a different regime.
The pressure from AI will remain. The inflationary pressures will be there the entire year, although they will peak. And we're going to be in a point where the Fed's gonna have to do something because the credit cycle is real. I will say this over and over again to you guys. You're not paying enough attention to the credit cycle. We haven't had a credit cycle, honestly, since 2007. You could say we had one in Europe. Uh, but in the US, I don't consider 2015-16 a uh a credit cycle. It's very isolated to energy high yield. This one is different, and this is 17-year buildup, and we have people trapped trying to get out. This is a credit cycle, and when a credit cycle is unwinding, it will gradually have more and more news that'll pop out. So, don't get caught uh thinking that these problems, AI's disruption, structural inflation, especially from commodities, structural nominal GDP, structural from the dollars of AI, and the credit cycle unwind, structural, that is moving forces, and it's going to put the Fed in a very challenging position uh as the year goes on.
Oh, I didn't didn't describe this chart, but just so you see it, even with the moves last week, S&P 60-day V is still incredibly low until we get this moving higher. This is why the upside to downside volume is not high because it's a rotation. Here's the factor volatility. This is value. This is momentum. And this is growth as as an equal weight. You're sitting up here. You have a head not to move. This is about screwing long, short, and market neutral. Uh, and it's going to continue because of the rotation that is fueling this. This is just highlighting something that I think means we're in now the back and forth. It's going to be very challenging. I don't think you can play and buy puts and just go through this. I think it is a very challenging time.
Um, this highlights that the bull bear ratio, this is the one I care the most about. Uh, this is the newsletter one. It has now gone to levels which indicate, and Ed Yardini does a great job with it. So, he's reducing his recession call because now everyone's getting bearish. I don't think there's a recession, so I'm not moving things around. But I do think with this being down here, so much pessimism usually instigates a surprising bullish government policy response and unexpected rebound in stocks. Again, I'm not saying the war stuff is that, but I do think Ed Yardini's point is valid. When that ratio gets down there, it usually gets harder to play for the downside. It doesn't mean that the S&P can't be down 20% at some point this year, but it just means that to get to that point, you're probably going to be down 12, then only down eight, then down 13, then only down seven. It's a trader market. You need to turn over your portfolio, have more cash on, and just move the portfolio around. The opposite of the way the position seems to be street with gross near highs. Uh, Goldman pointed out the long-short ratio was down here. Uh, Charlie McGillicut, you know, said that they were hedged based on skew. Either way, I think everyone buying puts and trying to play this from the downside is going to have a hard time. Uh, I think, and I've said this before, you can have V convexity on. Uh, that's the way I'm doing it for my own PA. I to, as I said last week, I took off uh a quarter to a third of my VIX uh on the Friday before. I didn't do anything this week with it except for buy more uh more stocks of the ones that I like because especially memory and the name that I referenced in the in the spotlight piece this week. These are areas where you got an a good chance uh to buy stuff. Uh, you know, the name that I talked about uh for the subscriber list was was down uh big on Monday and then finished the week up very big from there, over 15%. So, you do have opportunities to stay into things, and I think you're going to have that all year.
Now, the stagflation signal, and just so you guys see this, I did this on my phone with Claude again for those of you not using this and not building stuff. I didn't ask it to put it in this form. All I said was go back uh and give me all of the data of the ISM back to the PMIs back to uh 1970. Go through it and show me how many times we've had a prices paid component above 75 with an employment number below 50. Your classic stagflation signal. And I said exclude the COVID period uh because the signals were so messed up. And basically where we're at is uh there's been 32 matches, three errors. Okay, the oil shock, basically they were all in the 70s except for 2018 when tariffs trade war went in, and it just says as you go in in that one, the S&P fell 48%. During this one, it fell 30% more than 30%, and even in 2018, we got down 20%. So, you guys can read it, but the problem is in stagflation, you're worried about both recession and you're worried about inflation. It makes it very challenging, and you have a lot of rotation and a lot of winners and losers. Um, it's an issue, and I think it's going to be there.
Uh, Goldman cut their global growth forecast. As you're thinking about the economy in the US, and I'm showing you the transports are great and nominal GDP is great. Remember, a lot of the revenues that come in the S&P 500 come from overseas. Asia has a lot more problems from energy than we do, and they've got shortages. They're having to already conserve things. It's a mini version of COVID, and I think you're going to see revisions come down from companies that are global. 40% of the revenues in the S&P 500 come from overseas. So, even if we only see a mild reaction here in nominal GDP, we will definitely see a revenue hit from overseas. Uh, JP Morgan and PIMCO both say the bond market is misjudging the slowdown risk, saying that higher rates and the fear of uh the Fed reacting to inflation is probably going to be overcomer. This is the confusion that will go in. Australia released their manufacturing data this week. Big reversal, posted its first contraction in 5 months as demand weakened and cost pressures surged. So, another PMI side. German inflation headed for the highest in more than a year. The global earnings revision ratio finally started to turn down. Important stuff for everyone.
Um, Doge 2.0, debt, oil, growth, employment, and why Bitcoin was created. For those of you who don't care about Bitcoin, I would still read the paper. Um, and the reason is, its main point is that this is a completely unique situation for the Fed. They are going to be in a very difficult position this year, particularly if the agentic world starts to increase the job losses, which I think it will. If we're having months with negative G negative job creation, if we're seeing pressure from gas at the pump hitting consumers, which we're obviously going to see in the K-shaped economy, what are they going to do? Are they going to focus on the temporary side of inflation, or are they still going to cut rates? And then you add in that a new Fed chair is coming in, and you've got pressure from the White House.
So, here's the reality. Every one of these red periods is a recession. Here's where we are in job creation. It's going back and forth. There's been many months of negative jobs. It's a very difficult situation because this is not a recession, um, but it is pressure. And for everyone who's saying, "Well, this is immigration blah blah blah." It is not just immigration. The jobs market is weak. I am like sick to death of listening to economists look at look, it's a little bit better than it was last time. So, this is the survey of jobs plentiful versus hard to get. It's still in a downtrend. You've got temp employment, which is this line, making new cycle lows. The white line here is the quits rate. It cannot bounce. People are scared to quit their jobs for fear of not being able to get a job. The New York Fed, time it takes to get a job. I don't care what it is. This is the unemployment rate. Every pressure in the employment market is weak. But the problem is, remember, the Fed is in a unique sit. Here's stagflation. This is debt to GDP. The Fed can't raise rates this time, guys. It's just not going to be able to do it because of where we are. When they did it in 2022, we were creating four million jobs. This year, that year, we had a housing market that was running a muck. Housing was going off the rails in terms of people buying. We have completely the opposite scenario, but we still have debt to GDP at 122% right now. So, when you're comparing this period, just remember, in the 70s, when they were fighting inflation, when Paul Volcker made the decision, debt to GDP was all the way down here. 2022 does not count. They aggressively tightened, and then they started to aggressively ease the other direction. The reason they tightened, and remember, they stopped earlier than where you would have expected, is because they had the room to do it, but it was a quick thing. It's not the same situation. We still have a budget deficit sitting at the same level it was when they were doing this before. These are all issues that are very, very different than the past. And most importantly, the reason they can't raise rates, if they raise rates, they increase the risk of a recession because it's going to hit the stock market. And we learned our lesson last year when this was happening in 2025. And I was on every single week saying they cannot do what he's saying. They cannot throw this into a recession because then the debt will get worse because they can't go in with this combination of leverage. Debt to GDP 122%. The stock market, which has allowed them to do what they're doing to continue to have this economy go forward. It has been about since the great financial crisis when we were at 50%. Yes, we are now at 220% in terms of the market cap relative to GDP. The ownership of stocks, guys, here's household assets as a percentage of their owner. Like we're at 50. This is this is a dangerous level to be in. This is why I'm telling you the overall market is going to have headwinds. We are in this trap now. And this is not a new trap. I said this would be a year of a physical upgrade, and that we would have shortages. This is a bull market for commodities. And as Jeff Curry says so eloquently, you can't print molecules. So, we're in a unique situation, and the oil energy situation, regardless of your view, it has a new floor, guys. That is the reality of this. There's a new floor. We need energy independence. Regardless of how you think this will end, it is very it is impossible for the Strait of Hormuz to go back to what it was. It is impossible for every place that has been blown up, and there are still bombs going off from Iran and into Iran at the energy side. There is a delay. If we had a hurricane that came in and destroyed every single uh energy situation in Louisiana and Mississippi, we'd be talking about it. This is going on right now, and it just means we're going to have higher energy. Doesn't mean a recession, but it does mean we're going to have pressure on fertilizer and all kinds of things. Helium, as you've heard, it's going to have impacts in terms of price.
So, this one, which is the physical world, so forget the paper world, which is the futures. This is what's starting to happen. We're up to 141. In March, we were at 65. This is more than 100% increase. So, yes, the futures closed at only 111. But if you notice, the spread between Brent and WTI collapsed to zero. At the same time, this keeps going higher. This is the physical world. People are demanding and needing oil at any price. The futures market, and they need it now. So, the spot market is telling you that we're going to see inflation higher than what people think. The global wave of energy rationing, that means growth is going to suffer. South Korea weighs first driving curve, driving cutting off. These are COVID-like things. Here is diesel prices in the US, all the way back. Look at this spike. This is bigger than 2020, than the COVID situation of the shortage. And remember, a lot of this is the back of Russia. Here's gas at the pump, which made it to 408, but diesel is up much, much higher. So, again, just keep this in the back of your mind as you're thinking about things. We're going to have more inflation.
Now, I completely agree with this. So, you're not going to hear me talk about recessions because I don't believe it matters. The fact that oil is still lower than it was in before the great financial crisis in May of that year, when the S&P was much, much lower and the economy was much smaller. Oil is lower than it was then. This is not going to take down the economy. Don't listen to what you're reading on TV. And if you go out to a macro dinner and someone says, "This is just like CO." This is not just like CO. But it is inflationary, and it will lead to a slowdown. It's not a stopping, it's a slowdown.
Blue Owl, if you thought it was over, it's not over. Um, so this was the big news on Friday. They're It's hard to see here, but uh, they investors asked to pull 22% out of one fund and 40% out of another. Here are the numbers, guys. You don't need to be a math wizard to see what's happening. This all started in terms of people wanting their money back from these private credit funds. Here are the redemption notices. Now, remember, they have a 5% limit. So, the reason this became such a big story is because we've had to halt redemptions and actually they've had to step in and provide their own capital. So, that's what was going on. Blue Owl didn't put in more capital. But what they did is they sold off $1.4 billion to an insurance company they're connected to and to pension funds who already have invested in some of their funds, as the Wall Street Journal pointed out. Here are the numbers. They're not getting better, and I don't see this is a run that's happening. These numbers are staggering. It will lead to them now needing to sell bonds. So, in the same way that in the energy market, you've heard what was a what kept the futures from breaking out was we had a lot of oil on the water. We went through all of the excess capacity of stuff that was there. But now we're at the point where we're starting to go through inventories, starting to release things. That's why you're starting to see curbing. You're starting to curb the demand side. Well, in this case, they're going to have to sell some of these bonds off. When you sell the bonds off, you're taking marks on them. When those marks happen, other funds take marks. Pension funds take marks. Insurance companies take marks, or they're supposed to at least, and you start to get something that reminds me a lot of every credit cycle. So, don't minimize the credit situation. The Wall Street Journal is another financial crisis lurking in private credit. It's by Greg. You should read all of these ones that I'm pointing out. This is starting to become a bigger story. I've talked about it here. Everyone I talk to on the credit side who's smart knows about it. Many, many, many of the names that I just showed you on the private equity side completed purchases of insurance companies over the course of the last five years. They have captive insurers. Part of their distribution is through private wealth channels, and part of their distribution is to insurers who stick these on their balance sheet. Well, the IMF warned in the fall on inflated credit ratings on life insurance private credit holdings, which could result in defaults far exceeding predictions in a downturn. The Treasury started to meet with insurance regulators. You have to connect these dots and just realize that this is going on. Treasury is smart. Fed is smart. I'm sure some of the Fed people are watching this. This is a mess. Um, it's not systemic, but it is a mess, and it is a credit cycle, and it comes at a time when inflation's going higher.
Uh, the banks, we start have earnings coming out. We'll see what gets released. We'll see if they can make it through without a problem. But these are some of the chain reaction risks, as as uh DZ Bank in Germany talked about this week. European Central Bank will begin checks on banks it supervises as concerns intensify over loan quality in the private credit sector. Remember, the private credit sector has a lot of loans out to the K-shaped economy. It has a lot of loans out to SAS companies. It is ridiculous to me that people can say to my face with total conviction, this is blown out of proportion. A credit cycle is a credit cycle. They always go further than what their logic is because we live in a levered Ponzi scheme, fractional reserve banking system where we are seven to 10 times the size of the money that exists. If people are forced to sell assets in any asset class, but in particular in credit, the credit may be mispriced relative to the current fundamentals. But we just learned with the software side that that is happening more because AI is a headwind. AI is a disruptive force which will make terminal value out three years impossible to judge, including getting paid from companies. KPMG faces allegations of blown audit and private credit collapse. Exposure to alien software industry is bigger than advertised. Private credit wobbles could prove perilous for Trump. Great podcast. Um, never met Kieran Goodwin. I've read some stuff in X. This was a great podcast. Um, and it's great for two reasons. One is he gives a very clear picture of everything. But most importantly, he does not do it with any drama. He talks about it from a credit credit cycle perspective. He is part of the Boaz Weinstein team, meaning they are the ones that have made a bid down whatever it is 30 to 40% on on some of these situations. And this is important. He's talking his book, meaning what he wants to be able to do. But I think the thing that's important in a visual, and you guys, I'll move my face out of the way so you guys can take a snapshot. You can go look at it. You can I would you know upload it into uh chat GPT or whatever your favorite LLM is. But the point is when you guys look at this, he covers this very, very well. So, this is a schematic, an infographic, look at it. This is all happening, and there are so many issues. But to go from asset liability mismatch to a liquidity crunch, we're seeing that it turns to a credit crunch. It's going to have impacts on things that need money, which obviously gets somewhat into AI. I don't think there's a risk there, but I do think it pushes meta type deals with Blue Owl for 27 billion, the largest bond issuance, I think, ever, uh, or at least one of uh, for that type of product done through an SPV. It kind of restricts that from going on. So, there's going to be financing, and Meta was doing that to avoid it on their balance sheet. You put it on the balance sheet, bad for the multiples of the hyperscalers. So, just remember, credit cycle matters when people are borrowing money, regardless of who is borrowing money. It's still showing up.
Um, it's very hard to see this, but this is the triple C versus the lowest part of high yield. And again, this is using the OAS, the options adjusted spread. We continue to widen out. Uh, it's happening with the rally, the massive rally we saw. You didn't even get a bump in this stuff. That is usually the sign of a bigger problem. So, this is the BDCs. This is the private equity names relative to the S&P. So, the BDCs are down, but so are the private equity names relative to the S&P. I don't think that's going away. And here is Blue Owl making, and I didn't include Friday. Friday, it made new lows. It rallied back, and I don't know anyone was buying that, but it seemed to me a little bit like maybe there was deleveraging on Friday. That would be my gut telling me that that someone was taking down stuff. But we'll see as time goes on. Here is private equity relative to software. You cannot separate the two, guys. The white line is private equity. Software, deflation. Software hasn't bounced. IGV, remember everyone telling you step in. Remember all the things I highlighted seven, eight weeks ago of people trying to go in and go for dead assets. We could get a bounce to 90 in IGV. I doubt it, but we could. The pressure from AI is getting bigger by the day. I will go through this.
And this is the main point, the mythos signal. Again, for the subscribers, read this. If you don't know what recursive self-improvement is, computers are starting to teach themselves in mythos. If you go through the details, it's scary. Anthropic confirmed that is testing a new model called Mythos, describing it as a step change, but beyond even Opus, and calling it the most capable model. Opus is what caused the software collapse, as it was. We've had so many releases since that time along with openclaw, along with co-work, along with computer. I can't even keep up with it. You have to start listening to some of the podcasts I'm showing. This one, AI Daily Brief, should be on your regular listening. Usually, it's 15 to 30 minutes. They went through the myths side. The artificial intelligence show, the same thing. Lex Friedman with Peter Steinberger of Open Claw fame. Andre Carpathy. The reason I brought that up. Oh, one more. Dra from Uber, the CEO. AI will replace 9.4 million jobs at Uber. The reason I took I showed you all of those, I uploaded all of those transcripts because all of them are getting into the impact that we are at now. The agentic world is rising fast. The reason all of you need to spend time getting the information at this point from me is the agentic world is going fast, and people are still talking about the GPU world. They're still talking about the brain getting up to 140 IQ. They're still talking about the data center buildout. We've moved past that at the end of last year, and we've moved into the things that I've been highlighting. All of my model portfolio is geared in some way towards this next phase of the agentic world. And what I went through with those five, this continues to happen every week. All of those people mentioned there have been involved in describing what is happening with the agentic world. So, what I did is I just put them up, and I went through it. Everything is there now for adoption to replace labor because once agents are working, once agents are learning on their own, once recursive self-improvement is here, and the model mythos is a model that isn't released yet because it is too scary. We have reached a level that you have to adapt to a world where we will be hiring millions of digital employees. And even if the humans don't get fired initially, it's only a matter of time before the pressure grows. But we're at a point where an agent can learn the workflows on their own. That's where we are. I don't think people understand what this actually means. Every application on Earth can now build an agent that teaches itself how to use the application through the UI. You define what success looks like in Eval. You point Claude at your application via computer usage. Claude tries to complete the task, and it keeps going until it reaches it. Even if it takes hundreds of times, again, think about when you get a piece of software. Think about your own experience with using some of the tools in Claude code. It takes a human a long time because you have to unlearn what you already know, which is I just want to press a button. How do I just press a button? Agents don't work that way. They learn everything quickly. This is why this is why I have my open clauses to make sure that I'm ready for the agentic world. This is happening. Claude computer usage was out this week. Alex Finn, the velocity in which Anthropic ships is like any unlike anything I've ever seen. We have to assume they have access to an agile like model that nobody else in the world has. Correct? That is the whole point of mythos. That is the whole point of what's going on. Is everyone assumes that this is going this story, and this is an Anthropic person is becoming more common phase, which means you're getting more and more agentic side. People are hitting limits there. I hit my first limit usage this week as someone who pays the max. This was only for people who weren't paying the max. I hit it this week, not on Claude, on Perplexity Computer. Still a great GPU shortage. So, rental capacity is going up, and that's because now you're getting millions of new employees. So, you have to think of it as we are now hiring hundreds of thousands of digital employees a month. So, if you went back to the payroll and they would show you how many agents are there and you got released, that is not a positive GDP story from a consumption perspective. It is from a velocity of money perspective. Uh, that will continue, and this is why nominal GDP is going to be fine, guys. We need more GPUs, so the rental capacity keeps going higher. We have a shortage, a complete shortage. Mustafa Sullean from Microsoft recently moved down, even though they won't call it a demotion, but sure seems to be that way to me, formerly of Google, for the next couple years, the entire AI industry is going to be defined by this fact. Demand is going to wildly outstrip supply, which is what matters. Companies, products have to pay margin for tokens. Again, compute, power, silver, commodities, GPUs, CPUs, uh, optical fiber, all of that stuff is a necessity to try and get enough compute. This guy, Zinsner, Zinsner, who I've referenced before, continues to talk about the shortages in server CPUs. Remember the whole rack, guys. One of my thematic pieces. Just continue to stay on it. Particularly for those in uh interested in the edge, uh Anthropic, this is just again going through that they released their most powerful model. I wanted to give you guys an example of what is starting to happen because this was on that podcast, and one of the things they talked about is how the frontier labs are under extreme pressure from the ability of using some of these efficiency gains, but also using things like auto research and basically take cheap models and make them more powerful. This is the way that cursor is getting around the massive amounts of dollars. So, cursor is a coding tool, and they basically think of them as a wrapper that is using the models because they don't own the models. But if they keep raising their price and other people have models, then their business is under pressure, which I've talked about. So, these guys are trying to find ways to get cheaper models but get performance that is almost as good. So, the one thing in there is arguing the frontier labs won't be able to charge the top dollar forever in domain specific workflows because specialized post-trained models can increasingly undercut them on price, price, and performance. This is a commoditized thing, and this again is bad for the frontier model companies in terms of how are they going to monetize this. I do not know how any of them are going to monetize it. Um, the ad cost is over. The best models are becoming free. Gemma 4 was released. This has huge implications. I will do a paper on this for subscribers. But Gemma 4 was came basically to the market on Friday. Agentic skills to the edge with Gemma 4. Remember Gavin Baker holding up a phone saying the most dangerous thing for the capex buildout is when we start moving to the edge. It is getting easier every day. Turbo Quant last week, and now Gemma 4. Gemma 4, basically an open source model that you can download and use locally on your Mac Mini. Don't need to use Chinese open source models. Also leads to ability.
To get it on your phone. Uh, the data centers, so this would scare everyone. The data centers, not maybe, maybe they're not going to get built out. Well, that's not the case. Uh, even though the news is so sensationalized, almost half of the US data centers planned for this year are expected to be delayed or canceled.
Okay, so you read a story like that. I spend, I, if you guys want to call up 22V and and get the data on the data centers, you can make it, you know, strike some women. I do this type of stuff to keep track of what's going on the data centers. Um, I run it every single month through every LLM that I have to get all of the most recent data. Basically, the data center side is actually gone higher in terms of the expected numbers, and this includes everything that they reference in there. So my model puts out the terawatts at risk. Every single one of these, whether it's the grid, whether it's the processing, whether there's labor and construction, all of these things fit in with what's happening. We've got, you know, gas turbine issues that are going to be here for the next three years. All of this stuff is there.
So in the same week though, or a week ago, Meta ordered 10 gas-fired to expand its Hyperion one. So my numbers went up because they're building bigger. Oracle was able to get 16 billion financing after Blue Owl bailed out of some stuff. They were still able to get it. The question is, what was the cost? Terms of token factories? You got to spend some time with Eli Lilly. This is on my model portfolio. I've talked about Eli Lilly before. Um, you have to go see what they're going through. They, um, one of the reasons that I've been very bullish on it was the relationship with Ensilico, which is also connected to Google DeepMind, and also Eli Lilly is connected to Nvidia. You can't have a better connection. DeepMind, Nvidia, Ensilico. And if you go through the whole mapping of this, it is unbelievable that they now have their own token factory. If you want to understand what is going on, you need to go read more about the super supercomputer. It could change the future of medicine. We are in that stage right now where the token factories are going, guys. It is happening.
While everyone's seeing that they're getting worried about memory chips and now the headlines are coming out. I love X. I love all this stuff. Um, this was a good article if you want to go go through as to, you know, what caused Micron to go from 470 to 330, which again is part of a correction that should be expected, especially something that's up four times where it was. DDRam prices face a complete collapse. I got this from a few people. Here's the reality. Go read something like this. Um, pricing is soft, demand isn't. Here's what buyers should understand. Nice, calm, all turbo quant. Let's go through it. I completely agree with this. And as someone who still has a very large position in Micron, my belief has always been that sometime towards the middle of next year, and I say believe, I'm looking that the memory stuff will start to build in a peak in some sort of the demand side a year to a year and a half beforehand, and the news will still be good at that point. Well, I still believe that we're going to make it into 2027 with things still being incredibly tight. Uh, that being said, it's no longer my biggest position after this week because of the name that I highlighted. Uh, because I think the agentic side is now more important, and even though memory is a part of it, memory has already been a big part, and everyone is focused on bringing supply to memory and focused on efficiency. Here is why this move in memory should not be a surprise. Magically, here's Micron. Here's the price of DRAM. And again, it peaked. It's been declining. That's where it was. Guess what? The SMH, same thing. All you got to do, guys, is pay attention to what's happening because remember when this started to go higher? Well, guess what, Micron? That's when people finally started to bail in. It was still 100. You still could have bought this name at 175 when memory started to go higher. So, just follow the DRAM prices and you'll find out whether it should be going up as fast or not.
This is again for Gemma 4. I just want to highlight this is where my brain is moving to. It's for the edge across the hardware stack. Okay. Memory to non-memory semiconductor prices rising across the board. We are at the agentic phase. This is why all of my baskets have far more in them than memory. They are all about the packaging, the advanced packaging, the move to analog, the move to cars, the move to phones, the move to computers, the move to the agentic side. Go get the model portfolio names. They've all, they're all on the website. The model portfolio itself is not there yet, guys, but all of the names and the themes are there. There's a hundred, there's, I believe 95 in total, plus I added five in there. The five I added are all names I've referenced here on the videos. They are all part of it, including Brazil, silver, some other things. Uh, this is from SemiAnalysis, the best of the best. And again, I had to do work and someone, I remember someone asked me and said, "What do you mean memory is now on a $50 billion thing, it's 15 to 20 billion of it?" That's not right. It's people are not keeping up with how quickly things change. So 7 to 8 billion on a $50 billion thing of memory on a on a data center. That's what it was. Now for the hyperscaler spend, 30% of their spend going up to 36 is on memory. We have insatiable demand. This story is growing.
OpenAI is falling out of favor with secondary buyers. They completed their $122 billion. Say that number again. $122 billion raise, and that's before the IPO where they're going to raise a hell of a lot more money by the end of the year. Think about how much money they need to raise and just realize they need to start getting some revenues in the door quickly, or their equity multiple is going to start to take it. I'm sure once they go public, that will become clear to people. Uh, this is the story I keep talking about. I think it's a major macro story. Artificial intelligence is being misapplied by executives who treat it as a technology rollout rather than a fundamental rethink of business. I could not agree more, and this is coming from someone who's spending time with these people. Absolutely. The problem, this is why adoption is moving slow. The more people I talk to at institutions, they have no idea how to deal with this. I'm sure that 5% or 10% of the companies in the S&P 500 are doing it this way. But viewing it as a technology rollout means you will by definition miss. How many firms have ChatGPT Enterprise and Claude has taken over? I will tell you that if I talked to 10 people, I would say at least five of them at this point, if not six, are stuck in ChatGPT Enterprise.
Anthropic rushes to limit leak of code. Claude code. I want to just a few more slides here, but I want this. I'm going to keep talking about the move to the edge in the enterprise. The reason you want to focus on the move to the edge is not just the cost side, it's the security side. And we're getting more and more of these stories. Now, this was a a leak, but Claude code source code was leaked. You have to go read the stories. I choose the VentureBeat one. When you read through it, this is like if Kentucky Fried Chicken released their recipe by mistake. The rush to basically do what they did because they released their source code. This was a major news story from a competitive basis. It will accelerate the ability, I'm sure, of other places to do similar things. This is just unbelievable at this stage, but a looming cyber nightmare. So, not only is Mythos being held back because they wanted to give it to the government and cyber companies because of their fear on cyber. This is becoming bigger. So the AI and government officials tell Axios that Anthropic, OpenAI, and other tech giants will soon release the new models that are scary good at hacking systems at scale. Systems mean your bank account. It means everything, guys. So again, as someone who follows cryptography for Bitcoin, and every time a quantum thing comes out, I get just raced with people. It's a long way away from quantum to cryptography. It is days away from Claude code and the things that a kid can use on their computer. Having the ability for $200 a month to break into almost anything using AI agents. Five actions enterprise security leaders should take now based on the source code leak. First, the Claude code leak, and now this. In the same week, AI safety by way of "we'll lock it up" is just totally dead. Kaput. Pushing up daisies. I mean, again, everything was released to China. I, guys, this is Mark Andreesen saying this. Merker was hacked. I've mentioned Merker many times on here. They are a software place doing, um, specialized models. Uh, they are doing, uh, human feedback reinforcement learning through hiring people. So if you go on LinkedIn and say Merker, you will find job offers for bankers, for lawyers. They are training models based on experts to get through the nuances of particular professions. They are clients of all the major LLMs, which are trying to sell these specialized models at a very high price to get revenues in the door. They were hacked. Hackings are going to accelerate.
So to finish up the last two slides, Morgan Stanley's head of head of digital asset strategies drops a bomb. On the institutional security side, we are turning our dark pools to support tokenized equities by the end of 2026. Again, I know crypto is in the doldrums. I know it's hanging out. Read this in Substack. Read it for the 22V people. I sent it out this week. Bitcoin will be the best performing asset once we get through the point where the government has to get involved. The point may be when the Fed has to cut rates despite inflation being higher, or at least say that they're keeping a dovish bias. Whatever it is, we have a new Fed chair coming in in May. We will eventually make a bottom in here. The credit cycle will force the government to do what they always have to do, which is protect the voters. The voters are going to be angry as we go into the midterms because they're trapped inside all these assets. You can see where all this is going, but in particular, if it gets to the insurance industries and it hurts the annuities.
Thanks again for those of you who like this. Please subscribe. It helps me. It helps my business. It helps me keep getting this content out. I do need to make a little bit of money off some of this, and I'm not charging you for it. So, if you can help me out, you're part of the community, great. I will keep trying to help you guys feel empowered by making money and keep you on top of things and give you some AI names. Go subscribe at the paywall, especially if you're a financial advisor or a RIA. I'm working with them trying to build things, and I will have things coming out regularly. Uh, and overall for your kids, have them watch this. Uh, I will do a YouTube soon where I'll release some kind of video on a basic training ground. Maybe I'll release one of the videos, the five videos I put up on the paywall, just so people can see what's going on. But I'll probably make a new one. I'll put it up on YouTube. It'll be a basic thing related to how to use one of the agentic sides. Thanks, guys. Have a great long weekend, and I will see you next week. And by the way, I did this before the payroll number came out on Friday. So whatever's happened, I don't know. See you.