China Tariff Pause and AI Drive Market Towards the All Time-Highs

Let's get going. Big week again. Trump keeps us busy.

Um, China deal. V-bottom. Nope. This has definitely been an I-bottom. Uh, one of the fastest recoveries in history. Sentiment still bearish though. Waiting for the hard data and the recession and whatever else. I'll go through that. Uh, lower tariffs, more deficits, the tax bills going through and obviously we'll see where it ends up. Uh, but on Friday, we get a Moody's downgrade, absolutely earned given everything that's gone on. I'll go through that and what it means. Uh, trade wars are capital wars, and that's where we're going to start to switch over now.

So I'm going to talk a lot more about the capital side of this, um, which I started last week and then important one for all hedge fund long-short people. Uh, I did this on the weekly podcast with Pomp, which you guys can go listen to as well. He's got an interesting view. It's why he and I have teamed up because of this one: how AI and the crypto market with stable coins are disrupting the public markets and how this is going to play out in terms of less equity companies going forward that are public. Uh, Bitcoin adoption continues and now the Asia money is going to be unleashed. So uh, he told us uh on Friday, "better go out and buy stocks," and we got five straight up days post that.

Uh, I thought this was the important way to look at this rather than just say there's no more tariffs. No one wants to do a generalized decoupling, but we are going to do a strategic decoupling, uh, because they're dependent on each other. So on all of these things, this is not the end of the negotiations. There will be back and forth. Uh, for now, the stock market is cheering, but as this says, the tariff damage is done. Uh, the tariff damage in terms of what goes on just means there will be some more losers. But as I go through this, uh, there is a winner that's showing up in the markets and I think everyone has forgotten about it.

Uh, by the way, I'm sporting all my uh, my Knicks clothes and hats. So for all the Knicks fans out there, congratulations. Uh, Marco Papic put this out a long time ago in terms of uh, and I mean a long time ago, way before everything started in terms of his six stages of what goes on with with Trump and what to expect based on his last time. And basically, we followed the entire thing in here: liberation day, make friends, then have another fallout. Whether or not we get that, I don't think the market's going to care.

Um, in terms of hedge fund capitulation, second biggest short covering on record during Monday's uh, March meltdown, here are the five days in a row of positive S&P. There were a lot of people this day saying it would finish, I was reading on X, uh, S&P is going to finish red on the day by people who've been bearish the entire time. It's now 16 of 19 days, and this little white line here is when Scott Besson went out with hedge funds through JP Morgan and basically the next day was, yeah, there's going to be a de-escalation in China. If you just would have followed this or when Trump basically said buy stocks before this rally happened. Um, markets are somewhat rigged, and again, I've said it before, reminds me of emerging markets.

Now here's where we are year to date. S&P finished up 1.3%. This side here, which you can't see because my face is in between, I'll just move it over a little bit. That's in currency terms. What I want you to understand is the S&P is up 1.3%. As a US investor, as a European investor, uh, in euros, it's down 6%. Remember the S&P names, US in general, are about 75%. They're less now, but let's say greater than 70% of the MSCI world. For years, this has built up. So there's a lot of unhedged positions. The reason I bring this up is this is a drag. So even though you have all these numbers now all positive, the currency has been a negative. This is going to be a major story going forward in my opinion. It's one of the reasons why I continue to say this is going to be a repatriation of capital for two reasons. One is what Trump has basically done with the tariffs and the fact that we're rebalancing the entire global economy and trade. The dollar has benefited significantly; Asia in particular is going to be in repatriation. But then the other thing that Pomp and I are talking about and that I'm going to continue to write about and I highlight in this video, AI is going to be a massive disruption to that and all long-duration assets will be infected by rising yields and by AI disruption.

Uh, S&P, I this chart for people saying retest of the lows. Like I said, this is an I. I think anyone basically saying there's a retest is either stubborn or they're hoping there's a retest to buy um before it actually retests. Uh, you can see the names, the tariff names obviously in terms of autos and comps, but look at technology semis in particular up 40% uh since April 8th for zero. So I'm going to go through why this is so important, but I just want to highlight it there. Semis are really the thing that I'm focused on. Uh, I wrote a bunch of papers over the course of the last three weeks, but in in particular this week, I wrote one on inference. We have Nvidia coming up in two weeks. And here we are on the on the socks. Um, we broke above the 20-week moving average and we've got a massive crossover happening on the weekly MACD's. And again, I think people uh, we're basically playing for a recession.

Um, semis fit into two categories. For any quant that does a back test on recessions or anything that would cause a recession, semis would fit in with a lot of other things. Uh, so it makes sense. But also generalists and everyone was crowded into AI trades across industries. Uh, and semis got caught in that unwind. So there's just been no liquidity on the way down and then on the way back up there's also no liquidity, which is why we get these fast moves.

Uh, I highlighted this at the end of the year, and I just want to make sure that we go through this because it's normalized. So, here's where we are. This is the long-term chart back to 1990. The orange line here is a year-over-year S&P. The white line here is the percentage of people in the Conference Board survey that expect stocks to be higher a year from now. So, we were up at the highest level in history. And what I said at the end of the year was this is going to need to come back down. And what'll follow is you'll get year-over-year S&P to go down; doesn't need to be a bear market, just needs to get down. We've reset everything, guys. So, now that's come all the way back down. So, the sentiment and the positioning has come down, which means we've cleared everything.

Uh, I-bottom, sixth time in history, the S&P soared at least 18% in just 25 trading days. Uh, this is in the history. Here's what we did over the course of the next 250 trading days or one year. The worst was up 11% from this period. Most of the returns are even higher. Uh, the VIX just experienced its fastest reversal from over 40 to under 20 in history. We got another uh, breadth thrust. Uh, this is a combo breadth thrust. So Jeff DeGraff, who does great work, he has a different way of measuring it, which is based on uh, 20 percentage of 20-day highs. Uh, and then you've got the Zweig one and here are the one year later. So again, whether you're using the actual move itself or the breadth of the move in terms of thrust, you're looking at something that I, you know, again, uh, earnings are good, the economy is good, everyone thinks a recession is coming. I'll go through that and I wrote about that this week, too.

Uh, battered Wall Street short brigade is refusing to admit defeat. This came out Friday at 440. So after five straight up days, after all the pullback on the tariffs and basically taking us back to some degree where we were at the beginning of the year, now we're focusing on taxes, we didn't cut as much in Doge and yet refusing to admit defeat. I've talked about Bayesian uh, thinking. Uh, you know, not to pick on anyone, but again, retest the lows, retest the lows, retest the lows, retest the lows. uh, I can't listen to podcasts right now because the majority of them, when I say majority I'll say 85%, uh, are of people basically saying it'll go down and I it's not like I want to listen to the people that were saying it would go up before, but that's why you can't really listen to anyone right now because the downside is no one really stuck their head out uh and told people when the thing sold off that at least we were getting a good opportunity to buy.

Here's where the AI is. Finally, we're down to 44. So, we finally broke below 50. We had been above 50 for uh, many weeks, but again, the historical average of bears, normally we have about 37% bulls. We're getting close on on the bulls. Uh, the average bears down to 31. We're not there yet. So, we still have a ways to go on that. Goldman sentiment has improved. Uh, shout out to Neil Sephy. I've been using a lot of his stuff on here. Uh, he does good work. I'd be following him, guys. Uh, he puts out a lot hardworking, never met him, hardworking guy. Lot of stuff, but it's usually really good stuff. He's a good filterer. Uh, equity sentiment indicator still down there on Goldman side. Long-short, uh, still low. CTA positioning, CTA model as buyers of global equities in most scenarios over the next week or month. We still have catch-up for CTAs. In terms of the V-control strategies, they're going to add length because VIX come off so much. They definitely have room for it. Our model estimates that V-control positioning is 40% below the 2-year average. Risk parity is even further below. And we did have the put-call ratio come down, which normally I would say is a contrarian bearish indicator except in this case it's down there because people are bearishly positioned and they're more worried about the upside at this point. And so even though uh, you could take it as a short-term consolidation, I I just wouldn't at this point; I I with what I'm about to show you, I I don't think it matters.

So um, here's the most important thing. So this is what I've heard in most podcasts. This is what I still say. The reason people haven't bailed out of their thoughts at this point is because they're expecting the hard data to come down in a recession to go through. So, we still have this gap between the hard data and the soft data. We got another hard data print this week. And again, no job losses. So, jobless claims which come out every week, we are still at the exact same level we've been at since the unemployment rate got down below 4%. There is no weakness in the jobs market. So for everyone calling for a recession, I've said this before, service spending, everything does not happen without job losses. No matter what you're hearing from economists, I don't care what it is. I don't care how weak the housing market is, how war commercial real estate is, the economy has changed over the course of the last 17 years, but economists are all above the age of let's say 50 minus 17 means they were 33. They already graduated college. They don't have time to learn about what AI is doing to the economy. Trust me, they don't have the time. They have kids. You can't possibly be an economist right now. Find me one at one of the major banks that's in their 30s. Age is a major negative for looking at the economy right now.

Here is CPI. Uh, came out this week. Lower than expected for both PPI and CPI at this point. I still expect this stuff to migrate higher because of the weaker dollar and because of the tariffs flowing through. I don't expect it to go crazy, but I do think at this point it is a tailwind that we're not getting inflation to go higher. Didn't really help the rate side because you get went had rates come down. Here's why, you know, the soft data is going to start picking up instead of the hard data coming down. Philly Fed outlook six-month forecast for new orders. Here's what got people freaked out. You had this big drop off, historic drop off. Guess what? You've now had a historic rise. Not surprising, but they're not talking about it. They'll tell you the Philly Fed didn't bounce much. They'll tell you it was a slight bit. And then the Michigan a million things about how you miss mesh was horrible. Survey showed sides of improve small signs of improvements. The inflation expectations through the roof in green here that I highlighted. The interviews were conducted between April 22nd and May 13th. The 90-day pause on China tariffs was reached May 12th. The report noted that many survey measures showed some signs of improvement following the temporary reduction in China tariffs. And we think sentiment at the end of May will fully reflect that. So again, the data is going to change. China to US container bookings soar 300% nearly or nearly 300% after the trade trade war truce. Everyone's rushing China's factories raised to ship goods amid trade truce. I speak with a ton of Americans that import from China. Their vendor books are completely or fully sold out. Earnings momentum. Another measurement of the soft data. Oh, just went positive after many weeks of negative. Not to pick on Neil Dutta. I like his work, but don't care one bit about what he's saying in this thing. Doesn't matter one bit to me whatsoever without job losses. Given what we know about the job market, okay, there's no job losses. What do we know about it? Wage growth still there. It's more likely that consumer spending slows than incomes rise. Doesn't take anything into account again in terms of the household net worth which is dramatic and the fact that this economy is based on the top 10% which are responsible for 50% of consumption in the country which is why Donald Trump was elected so that the bottom 90% of the or the 90% that are not there not able to spend as much could spend but a good a good portion of them are either retirees with money where they don't need to work. So, they're still spending. And then you've got the transfer payments, which do include retirees that don't have money. It's a very hard thing when consumption is so top-heavy and the stock market is responsible for them spending. You're going to see, oh, we've got delinquencies going up. We've got this. Again, guys, this is a a recession for many people. No doubt about it. Bankruptcies, I've talked about this for two, three years now in terms of my time at at Weiss as well. Bankruptcy filings are still there no matter what. So, we're continuously, it's not just this year, we had high bankruptcy, high bankruptcy. We're going to be in a position again where the economy has many, many companies that are going to go out of business. I wrote this for 22V. Reach out to 22vresearch.com if you want to go through it.

Recessions aren't what they used to be, and neither is the economy. In right of the lease and tariffs, I've been asked repeatedly whether I think a recession is coming. My answer has been consistent. The term recession as defined over the past h 100red years no longer applies in the modern economy. This is not a question. This is a fact. Every time I say this, I can see the look I get like I'm trying to be provocative. But provocation is a two-way street. What seems provocative to one person may simply be clarity in motion. Sometimes it's not the speaker creating controversy. It's the listening refusing to update an outdated frame of reference. Very simple. The economy is not the same as it was before the iPhone. End of story. Great financial crisis change. The ability for the Fed to put money in whenever they want. No question about it. SVB would have been a recession. 2008 would have been a rec. There's plenty of situations right now where we could have had recessions since the great financial crisis and they've stopped them. That's why when people predict them, it's the opposite. That's when the Fed put comes in. That's why people who trade Bitcoin make so much money and retail does because they know the Fed put is still there or the policy put. If we're gonna have a recession, it's going to have to be a policy choice. It is not going to happen the old traditional way. And what government is going to choose to get unelected? Trump was, I think, the last hope for that for a variety of reasons and it didn't happen.

Here's a Citi surprise index overlaid with 10-year rates. The thing that will be scaring the administration where the negative will come in for the second half of the year. Here's 10-year rates. Here's the Citi surprise index. Citi surprise index is about to go higher. Do not get negative on stocks when the Citi surprise index goes higher after recession fears. Here were the two last recession fears. SVB and commercial real estate's going to put us in a recession. Oh my god, everything's going to end. S&P's the white line. You don't want to fade that. Here's the other 10-year rates. Okay, they went higher. At some point here, 10-year rates mattered. In this case, it was when they got to 4%, they went down. Here we have the last recession fear. This is the SAM rule, Japanese yen recession fear. We get the selloff, Citi surprise index bottoms, S&P goes higher. 10-year rates, they start to go higher. So again, we're going to reach a point on 10-year rates where it is going to matter. I happen to think that level is up here because I think it takes time after the recession fear. So, I think it's going to be higher. We obviously had a downgrade, which I'll go through as well. But that's where we are until the positioning is back in because the earnings are good and the economy is now fine.

Tariffs do not cause inflation. They hurt demand. Larger deficits will cause inflation. I completely agree. And that's why inflation will be going higher. So, if tariffs come down and the big beautiful bill gets bigger and more beautiful, risk of recession goes down, risk of inflation goes up. Warm pies. I agree with them on this. This is the way people should be going. Uh, the tax as tax bill is starting to take shape. Likely to deliver front-loaded stimulus for consumers and firms, boost capex and therefore GDP growth starting in Q4. Front-loaded stimulus for consumers and firms. Anticipation of the bill helps keep a lid on layoffs and unemployment rates. So again, we're going to avoid a recession um based on even this part of it. Uh, and if we had anything, maybe we'll get a few hundred thousand job losses, but this is not the same economy and it's going to be really hard to kill it. And the fact is, you've seen this now for 15 years that every time people have called for a recession, it hasn't happened except when there's a policy choice like shutting down the entire economy for COVID.

Uh, I'm not going to take you through all this, but basically uh, the analysis by the committee for a responsible federal budget. This is not done yet. It obviously is being held up for exactly this reason. Add roughly three trillion dollars to debt and setting the stage for more than five trillion of additional debt if policymakers ultimately extend temporary provisions. So again, the there there's no focus on the deficit at this point. Uh, I put this in the ChatGPT to go through it. You guys can read it on your own. It's got all the different things, but basically the discontent that's in there, why are hardline conservatives, particularly budget hawks, are barking at the bill's massive three and a half to five trillion price tag. So again, um, they're having trouble with this. And so Moody's finally uh, the last one, it it was the last AAA rating. They they didn't do this in 2011, but obviously you're going to read a lot about the S&P downgrade, what that meant for stocks, what that meant for bonds. You're going to hear all this stuff. Uh, it lost its credit rating, but this I mean that should not be a surprise, but just to show the difference. Um, when it happened here, so again 2011, the unemployment rate was 8%. And here's where we were on the deficit or this is the unemployment rate and this is the deficit. So again, the difference is now we have an unemployment rate down here. This is why it's so much worse. We have a budget deficit at a time where we don't need the deficit to keep the economy going theoretically because we have full employment, but they're not even able to reduce this at this point. And now we're talking about more spending on top of it. So it shouldn't be a surprise about the the the downgrade.

Uh, another way to look at it, here's the interest expense at $1.1 trillion. Here it was back here at 400 billion. This is defense spending which again back here was not too different than where it is now. It's a difference of a hundred billion while the difference in in the there should be more fear in terms of the fact we're paying off interest with everything. Um, deregulation does not roll off tongue eventually when the bonds become an issue. Um, here's the deregulation. Fed QE run through the banks doesn't it? Blah blah blah. Uh, I happen to agree.

Uh, all right, I wanted to segue here. This is one podcast I did listen to for anyone who now that we're kind of through the tariffs. This is not the end of the tariffs. I highly recommend listening to this podcast with Russell Napier. I recommend him, but he is my favorite historian by far. Um, and the main point he makes is the idea that trade wars aren't capital wars is the problem. I completely agree. Focusing on trade and trying to go through on an 1800s to 1900s thing. It's the capital flows that are going to matter tremendously because that's been the one the offset to all of this, but it's also been where the dollars in the US are so dramatically big relative to everything else. Here are the timestamps on it in terms of what he what he goes through. Uh, there's a lot of good stuff in here. I do agree with with most of it. Um, he talks in particular about the net international investment position. The US has a deficit right now of $26 trillion. Meaning foreigners own $26 trillion of our economy net relative to we what we own externally. So that just means that if there's repatriation, US assets are going to suffer at a minimum in in relative valuation terms. Uh, if money goes back, it's the same thing goes with the currency. That means there's a tremendous amount of currency that can go the other direction, assuming it's not hedged at this point.

Um, this is what stands out in terms of the dollar. So, I do want to separate this. The white line here is the S&P. The orange line here is the the dollar index. Here's what happened on the last recession fears. So, the dollar did come down. Same thing on here. Remember, this was dollar yen that was rallying and helping to have the dollar to have a big move. But then what went on is the dollar eventually started to rally again as stocks went higher. That's what I don't think is going to happen this time. So a lot of people are going to have to start watching the dollar and I'll talk about when this will become an issue. The difference is this time to me it's this one. So dollar this is the Asian dollar index which again this dollar Asian dollar rallying against the US dollar at the same time that TLT was going up. Well, right now TLT is going down, meaning rates are going higher. This has been lock step. If we lose the repatriation, meaning if rates get more attractive and we see yields get higher and we don't see the dollar rally versus the Asian currencies, this is the break that is the most important in the world. It is not the euro currency. It is the Asian dollar verse rates. This is the thing to pay attention to. This is where China is. This is where Japan is. This is where Taiwan is. This is every single thing in my opinion that matters on the global scale. Too much focus on the dollar has been on the European currencies. I think this matters for a ton of reasons including Latin America. Uh, so for everyone focusing on things, that's the chart that's most important to me. And again, Taiwan warning sign had the big move. Korea had big moves this week. Hong Kong dollar, the futures, the forwards are...

Trading way outside the band, meaning all of a sudden you get the Hong Kong dollar going, which is not normal. Uh, gold—I want to go back; I want to just highlight that for everyone who's long gold. Not saying this is going to happen, uh, and I'll I'll go through the reasons because we, if the dollar is weakened, it's different, but this is where the debt was downgraded in the US back in August 11, and gold went into a sideways pattern for a decade. Here's where we are in gold now. So, we'll see what happens. Um, the reason I don't think that's going to happen is because this is what the dollar did at that point. So, again, the debt was downgraded in the US, and the dollar rallied continuously for the next five years. I don't think that's happening this time. This is the difference, and this is why when you get everything on what's going to happen—is it going to be rates? Is it going to be this? The dollar and rates correlation is the most important thing.

All right. The Steven Mirren framework, and the reason that I care about the bond market so much, with the dollar—addressing the dollar overvaluation. Mirren's—and this is from his paper. Okay, this is from the November paper. Uh, chat GPT, give them the three things. Okay, check mark. Implementing strategic tariffs. Okay, we did that. Check mark. Issuance of century bonds could be perceived as a form of debt restructuring, potentially undermining confidence in US creditworthiness. That's what we have left, guys. Check mark. Watch the bonds.

Um, in that podcast with Russell Napier, I asked this in this podcast, do they talk about AI or Bitcoin? No. AI and Bitcoin are not discussed in this podcast episode. So again, as he's talking about a new regime, as he's talking about this, I want to remind you—most people above their 50s have domain experience. They have tremendous experience about the system that we were in. They are not spending the time on AI or Bitcoin. I have no one to talk to. Please, I need more people to have a conversation with on this that aren't Canadian or from outside the US. Someone—do you think they should have talked about Bitcoin? Or this is who I have to talk to. I have to talk to Chad GPT. Why AI and Bitcoin should have been part of the discussion? Yes. And here's why. The fourth turning narrative is about structural transformation, and AI is arguably the biggest technological inflection point since the internet or electricity. I won't go through all these points. Bitcoin is becoming increasingly institutionalized and could be viewed as a digital gold hedge in the kind of regime Russell warns about. He doesn't mention either AI or anything on there.

Eye on the market, Michael Sembleis—must read every time it comes out. He's one of my favorite guys out there. He's an independent thinker. He says what he believes. I don't find him to be perma anything. I think he just states the facts. He's my favorite one in terms of just putting this stuff out there. Uh, it's free. It's great. Um, I I I highly recommend it. And what he talked about is a whole thing on AI. AI is dominating this rally in the US. It's dominating the US economy far more than people realize. I will say it right now: The US economy cannot go down based on the way that AI is having an impact. And no economists have any idea how to deal with it right now. Even the Fed, anyone in in uh government statistics doesn't know how to measure the benefits of it. It is having a huge impact because it is impacting profit margins. There's an arbitrage I'll highlight, and there's a tremendous amount of capex. It's what makes it really difficult. It's not great for jobs. I'll go through that thing. He highlights in here that I've circled is just a relative PE. You have to see where it is now. It's come all the way back down. It's lower than where it was. So, he's basically going through there talking about how AI right now makes so much sense. And he talks about this that if you think you're looking at just relative PE multiples, it's the wrong way to look. And this gets into the profit margins of the US and the return on equity. So if you go through his thing, he's basically saying anyone just using PEs to have a justification for why they would buy Europe or the rest of the world over the US, not a good argument. Um, he does very well in terms of going through it. And again, he at the beginning of the year was saying there should be a rotation, but now he's saying the AI stuff just continues to come through.

Uh, another good podcast to listen to, uh, Louis Gav, who I really like from Gavcol. He was on Macro Voices, uh, worth listening to. Uh, here are the highlights, but I think the most important thing that he talked about, which I agree with as well, is this whole thing about why the US is going to have trouble in the public equity markets as time goes on and why AI is not a positive for the US equity market. And I'm not going to read all of this on here, but I'm going to remind people that the US dominated and took this position in terms of the capital markets and the capital flows because we had a moat. We owned coding. Coding was the key thing. He does not specifically mention coding. He talks about the fact that we had an energy boom, which he's making an argument now—we're at a deficit side where we're trying to do the AI, but we're not—we haven't built as much of the energy necessary for it, and we're running into problems in terms of gas production. So he goes through this, but this—who wins the AI race, which is going to be global and disrupted, which is what Pomp and I went through—is the difference. We're not there yet. I'll highlight why.

Palantir on fire again. AI is leading the trade high. US corporate profitability remains unusually high. Goldman Sachs—again, we're way above history's—and the earnings period just came out. Big tech is a big reason for it. Their net income margins are at a record of the last 20 years, and I expect them to expand even more with AI. I don't, but we'll get to that. Cisco reported earnings this week, again talking about AI and how much it's benefiting their business. Coreweave IPO, which nobody wanted during the melee. Stock is up 50% since then, if not more. Um, they blew away numbers as well. Uh, Meta came out with a whole bunch of things about how it's going to benefit them and where they're going to see the profit margins going through. I wrote this—uh, one of the more important pieces I wrote. Um, we're at the inflection point for inference. I'm not going to go through this on there. You guys can reach out to 22vresearch.com. Um, I went through, and the only thing I want to make sure I highlight in this is this part—key statements highlighting the inference boom which is happening right now. Inference is a major part of driving what's going on with the semiconductors. Uh, I don't—there's just so much demand right now in terms of what's going through, but all you have to do is go back to what Sacha Nadella said—inference usage has grown five-fold year-over-year. You want to invest in things that have grown fivefold year-over-year, with over 100 trillion tokens and most importantly, including a record 50 in March alone. So think about the compounding—what's going on. This was the benefit of Deepseek. This is what he meant when he talked about uh Jevons paradox back in January when Deepseek came out and everyone said, "No, no, no, this is bad for semis. This is bad for everything." Every company that is mentioned here was directly quoted with talking about how inference is growing rapidly right now. All of these companies—I could give you another 20 that I didn't include here, some of which I included in the paper. This is the main thing, and this is before we get into the embodiment side. The AI native phones, the AI native computers, full self-driving, humanoids—everything is coming. It is massive for inference demand. AI's trillion-dollar opportunity. Sequoia did a keynote speech—worth listening to as well—to again stay on top of how AI is going through it. These are some of the the details on it. You guys can pause and go look at it on your own.

Now, Sequoia made a lot of press two years ago—it's been two years already—when they said the AI bubble is reaching a tipping point. Navigating what comes next will be essential. So the same group that said AI—600 billion question—um, is talking about the opportunities that are coming. Now that 600 billion question—I believe in—I believe that's a problem. This is the capex illusion. How spending today distorts profit margins. So I worked with chat GPT and I just asked it the simple question. So a major driver of S&P's profit margins is the massive capital spending by the MAG 7. So they are writing checks. So let's make this simple: 300 billion in capex is real cash out the door. It doesn't immediately hit their income statements as an expense because it's depreciated slowly over time. At the same time, the firms receiving that 300 billion, notably Nvidia, Broadcom, blah blah, they book the revenue immediately. In the case of Nvidia, they have lots of receivables. They haven't even produced what they bought. I don't want to say this is a scam, but I'm just saying profit margins are elevated in the S&P. That's all well and good as long as the ROI comes back. So, as long as the return on investment from AI actually materializes through the MAG7 because they're the ones doing the spending or seeing it in some other place, that's great. I don't think that's going to happen. So, their warning was that the amount of revenue, incremental revenue was massive—600 to 8 billion in annual revenue. Do I think they're going to get revenue? Yes. Do I think it's going to be as big as what's necessary in three years? I think it's going to be a problem. In the meantime, I think multiples are going to have trouble.

Um, big tech jobs—amazing, no job growth. Look at this: Year-over-year changing combined headcount. These guys are trying to make margins by not hiring people. This is the negative side for jobs. It's not that big because again, as I've said to many, many people, only the S&P 500 are able to accomplish this. Small businesses can't. They don't have the infrastructure. They don't have a tech culture. They don't even use AI. Startups will, but it's going to take a long time for them. They're the ones that will disrupt these companies. But in the meantime, they ain't hiring anyone. And so, who's seeing it? And why is the economy so bifurcated? New college grads face a tough job market. Again, it's getting harder and harder. So, I just want to highlight this because the reason I do this with Anthony Pompliano, it's not just that I believe in Bitcoin. And the reason I believe in Bitcoin is because of artificial intelligence and because the macroeconomy is going through what what Russell Napier talked about. I cannot say this loud enough to all hedge fund people: This is your world, the public markets. This number is going to continue to decline. This number is going to go up. And this was from Apollo talking about it mainly for the the corporate side. We've seen it happening in fixed income. We're going to see it in equities as well.

Stripe—I showed this last week. This is how fast now companies are growing to 5 million RR—new AI companies, 9 months old, SAS companies from the last time—more than 37, 24 for the first round of AI companies—now we're down to nine. This is the compounding side—Pomp is invested in many of these. The reason we get along and we did this video on this is because people don't ever see this—these are not things that Andreessen Horowitz get involved in; they can't. And the reason they can't, for the most part, these are small businesses; they don't need the capital with AI. This is completely changing the capital of the future. Hence, MicroStrategy. Good thing Jim Chanos has decided he knows so much about Bitcoin and so much about the future of the capital structure and what it's going to look like over some guy who's been spending every day for the last 5 years on it. Please, people, go read about it. Go learn about what's going on and spend the time. You can't sit here and cover these stupid businesses anymore where 90% of them are already going out of business. Amazon destroyed them. Now it's going to be private markets that are going to destroy them. You can doubt it as much as you want. AI is going to bring that. This is the reason why—faster adoption, no friction. I say it all the time: The number one friction for a company to use AI—human beings. Human beings are the friction. They refuse to use it. I saw it at my hedge fund. I've seen it all over the place. They either don't believe it, they believe it's hype, they won't go through it. This number tells you the facts. This is just BS. It's like hedge fund or economists telling you there's going to be a recession. Do the homework. Start listening to things that matter and don't listen to old people telling you the world's going to fall apart because of tariffs. It just doesn't work that way.

Sam Altman's predictions in AI. You can go read them for yourself. But again, there's a ton of stuff going on right now and it's accelerating and compounding at—compounding at a fast pace. Elon Musk was interviewed. Every time Elon Musk gets interviewed, you want to listen, even if it's just to hear the Delta change in terms of what they've seen. That's why I listen to Eric Schmidt. It's why I listen to Mo Gawdat. That's why I listen to every single AI person and occasionally to historians and occasionally to market people because I care about the sentiment and I care about where people are. Right now, they're worried about the hard data showing a recession. So, if the data is stubbornly not going to go down and the soft data goes back up, then the market should have a bid to it. And then once everyone believes that the economy is fine, the rates and the dollars will matter. Go listen to Elon Musk. He's going to give you some details on humanoids. Big big uh breakthrough in math. For all the quants out there who are running a quant portfolio, Alpha Evolve is now competition. Uh, just the math side of this is going so rapidly, and again it's getting cheaper and cheaper. If you haven't seen this video with Optimus, you have to go watch it. You can go see it on anything, but just go watch the video to see how far the humanoids are.

Uh, at this point, Walgreens says using robots to fill prescriptions helped save $500 million. France wants to roll out a robot army by 2040. Again, that's 15 years from now. 15 years ago is later than the great financial crisis. Uh, Bitcoin—we're consolidating right near the all-time highs, the way it seems to always. There's a lot of short options out here that expire at the end of May. Uh, one of two things are going to happen. Uh, Nvidia happens to happen right around expiration in terms of their earnings. The I think expiration—the big one is the 30th. You've got the 28th on Nvidia earnings. If Nvidia comes through and beats and gets a spike up on the back of the inference stuff, I would expect that Bitcoin is going to go higher. That could be the beginning of what I'm expecting, which is a short squeeze. Uh, Eric Trump says sovereign wealth funds, family offices, and corporates are in a race to the top. We continue to see the adoption going. Uh, UBS—I remember I was at a conference talking about Bitcoin—UBS in '22, and the guy said we would never do anything on Bitcoin. Asia's wealthy are shifting from the dollar to crypto and gold. China says—UBS. Uh oh. A Chinese textile company will issue—issue stock to buy 8,000 Bitcoin for 800 million. More people are doing what Michael Saylor did. A Hong Kong-based investment firm disclosed owning close to a billion dollars of Bitcoin ETF. The Asian money will be looking for a home outside of the system. Uh, if you haven't seen this company, go look at the stock in it. It's the Blockchain Group. It's in France. Uh, obviously a good performing stock. Uh, Nakamoto—they're gonna do—they're gonna do—we're MicroStrategy, Square. They're going to issue uh some converts to go buy more Bitcoin. It's got to be a bubble. I mean, look how many companies are doing it. This has got to be a bubble. I mean, how how long is this going to go on that that people are going to say this?

Um, stable coin usage. I've talked about how stable coins are the network effects. It gets the system going. The more stable coins, the more wallets, the more wallets, the more money goes into the assets. It's outperforming all assets, uh, when nobody owns it in terms of anyone that has any money. You will continue to see this around the globe, especially now that people don't want to hold dollars the way that they used to. Uh, they still want them in those countries relative to their own uh currencies, but they won't ever own stocks if they're below the age of 35. So, their choice for investments is Bitcoin. You'll continue to get that. Um, PayPal now has 434 million customers. They are making it very easy to invest in these things. You will continue to have more and more. Coinbase joined the S&P 500. Regulatory side—we finally got SEC Paul Atkins, and they're focused on making the US the crypto capital of the world. First thing that needs to get done is the stable coin thing. I mentioned last week the Democrats are killing themselves; they uh refused to put the Bitcoin stable coin bill in, and I said that they would come under pressure, and so—fair shake—a massive super PAC is now warning the Senate, basically saying, "Okay, the crypto community needs clear, responsible rules of the road; further delays put American competitiveness and consumers at risk." This is part of our country; it's part of what's going on and what happens. The crypto-backed stablecoin bill gets bipartisan push for quick revival in the Senate. The push back came—the the super PAC did its job.

Uh, JP Morgan says Bitcoin outpaced gold in 2025. Remember JP Morgan has Jamie Dimon, who says this is rat poison or whatever. Now that was Charlie Munger. He says this is a scam. This is only for drug dealers. It doesn't work. You can't do it. And part of the reason is it's very exposed to quantum as a hack. And I'll end it on this because gold was hacked this week. Uh, CERN just turned lead into gold and watched it vanish. But we will—I've said at every speech I've given when people have brought up the quantum side, I'm like, "We will eventually be able to make gold"—just like look what's happened to the diamond market. That's it for me this week. I'll see you next week.