Transcription
Post-holiday week of the second half of the year, and a lot went on. A lot of important, uh, points to go through today. Uh, Tariff Man's back. Stocks don't care as of yet, but we are seeing momentum fall, and is it a warning sign, uh, for a repeat of, uh, what we saw in the first quarter? Uh, I'm expecting a PMI surprise, and I'll go through why. Michael Dell was on the BG2 pod again. Best pod out there right now on tech, and a must-listen to every time it comes out. And then, big breakout for crypto, and owning crypto is no longer a speculative position. Failing to do so is. So, let's get right to it.
Uh, like I said, Tariff Man is back. This will start to dominate people's minds, but, uh, this week, the S&P just hung near the all-time highs. We're still in the blackout window for for buyouts. So, uh, I would not be surprised to continue to see some sideways action here, uh, and maybe even a little bit of a correction because, uh, I do think, uh, he's, uh, he's in the final stages of some of these negotiations. Is going to be more aggressive now that the big beautiful bill is done.
Uh, month to date, we're seeing, uh, energy lead the way. Materials, the same thing. Industrials, third best. You got all the growth, uh, areas on on the top side, uh, which I think is an important sign, which I'll get into. Uh, and the Russell is leading the way. So, small caps so far have outperformed by about 2% for the month. Uh, they've obviously been a big short position for people. Same type of names are leading here. Energy again, uh, as I've talked about, I'm a big believer that the second half of the year is about energy and power. Mag 7 is just continuing to grind. Uh, again, a lot of dispersion. You've got three of the names down year to date. You have three of the names up big year to date. And then you have Amazon near unchanged. I think the Mag 7 is going to continue to, uh, see multiples come down, but not see their earnings, uh, drop off.
Uh, you're starting to see the banks after they panicked in the first part of the year. You got Bank of America lifting up. Um, I did think that when you read through what they said down here, medium, uh, long-term outlook is warm, but hot against bonds. Aging demographics and sticky inflation create a compelling supply and demand case for inflation-proof income and easily favor stocks over bonds. Could not agree more, especially with profit margins benefiting from AI. Uh, Goldman again revised stuff up. So, you know, if if you listen to the banks in the first quarter, it was a mistake. We'll see what the second half does. Uh, but calling for, uh, for weakness and, uh, and bare markets is just not a a good business to be in when you have, uh, AI accelerating and the government deciding they're going to spend, uh, rather than be austere.
Uh, tenure rates remain sitting in check. So, nothing in there. They're just, uh, remaining in the range. Uh, Marco just can't seem to not be bearish. Uh, I can't find many tweets from him where he isn't, other than tactical things. And again, he's continuing to highlight, uh, what I mentioned at the beginning, that the momentum factor has sold off back in Fed. It led to the S&P pullback. Uh, so far, it's not doing anything, but I did want to go through because I think it's important.
Um, here you go. Market rotation put shine on S&P losers. You're getting the underperformers winning. Russell 2000 or Russell 1000 has seen a clear rotation out of the first half winners into the biggest losers. The 20 worst performing stocks of the first half of the year have gained 5.4%. A lot of that again, when you think about energy, uh, the best. And then, uh, the 20 best performing names have been down. So, you're getting it from both sides right now. Those rotations, uh, of momentum, they usually happen at regime shifts. I think we're at one now.
I'm not going to go through this, but the same type of thing. You can see the sector differentials. And remember, right now, small caps, speculators are the most short small caps since 2024. Uh, back here, this is a major ripper. Uh, and again, this occurred during the summer of last year, right around the fears over the SA rule. So, recession type situation, but then also coming out of it, uh, when the Fed cut rates, that's when you started to get Trump and everyone, everything started to turn the other direction.
Here's the monthly for pure momentum. Um, you know, we saw the weakness in, uh, in January. We saw the weakness in March. This is so far, month, the worst month since the summer of last year, and before that, early '23. So, momentum has been weak so far. And I'm going to go back through and just, um, highlight some of the similarities. So, what you can see here is, uh, it lines up very, very well with the market neutral 3-month revision. So, three-month revisions, uh, performance are underperforming right now, and that's leading to momentum to go down. So, the same thing happened during the worst part of the equity market. Uh, right now, equities are not falling, but again, when people are bailing out of the revision, the companies with revisions moving higher, and moving into the companies where revisions have not been moving higher, it's usually a bad sign. So, what you have here is momentum is following it because that is, uh, the number one factor for, uh, for the equity market in terms of revisions. Technology is actually the worst right now. So, again, if you're a technology company and your revisions have been moving higher, uh, take whatever you want, any company that you've been following, whether there's Palantir or any of the ones that have come out with earnings, well, now they're starting to underperform the ones on the downside where revisions haven't been moving higher.
Uh, so here's the overlay of the equity market versus pure momentum. So, again, I started highlighting in here the issue that was going on with pure momentum. Equities ignored it at first. You went back up in momentum, and then you went down violently. The equity market followed it. Momentum bounced from there, and again, most of the momentum stuff is related to the AI situation. Now, what didn't happen, and what's different this time, is that size is following. So, the size factor, which is the white line here, uh, back when we started seeing the disconnect, you had a negative correlation between the two. So, as size went higher, momentum went down, and then they started to get correlated back together again. Well, now they're correlated, they're going down, which means that as the winners are unwinding, size is unwinding. Think about the Mag 7. Think about the the bigger companies again versus small cap.
Now, I wrote this, good timing, April 8th, in terms of this comment. One truth stands out. These times, if you can see past the fear, offer the best investment opportunities. Much like, much like the life lesson we impart to our kids, that nothing worth having comes easy. I believe we are at one of those investment opportunities, similar to when I wrote that, and it's related to this. So, we have been in a recession. I've talked about the fact that the economy has been in a recession for the manufacturing side and for anything related to the LEI. So, this is now basically between, you know, it's about 35 months we've been in this. So, almost three years of recession levels for both the ISM or the PMI manufacturing PMI and the LEI. I think this is about to change, and this is where I want to focus the attention for people on the investment side, and I'll go through why.
Now, what I highlighted back, uh, when I first joined 22V and I did a webinar for the group, there were these inflection points in pure momentum. So, whenever pure momentum has had a downside move, it has lasted, uh, generally for a long period of time. This one did not. This one went right back up. These were all macro regime, uh, shift points. This one here was in 2022. This was the end, the Fed, or this was the Fed pivot. This was just before COVID. This was in at the lows in 2016 for, uh, the energy, uh, unwind. This is the China Shanghai Accord, and this is 2008. So, what you normally find at these points is investors are all leaning on one theme, and then something happens. Right now, the clear theme is be invested in AI-related things and be short anything related to manufacturing. Obviously, the tariffs had worsened the situation. Uh, I didn't highlight this, and I, I probably should have. We went back to highs and now we're going down. I just want to highlight that I think that this point in here was something to pay attention to. I do think there was a regime shift that happened. I've written about it. I'll get into more about why I think it's going on. But this is really important for market neutral hedge funds. It's really important for hedge funds in general. I think the alpha opportunities are going to shift. Uh, and again, the re, the companies with revisions moving down are starting to outperform the companies with revisions that were moving up. That usually means there's a broadening out.
This is the non-sector neutralized momentum, and again, this is, uh, showing where manufacturing, uh, the PMI new orders component. These lines here are inflection points for MO where they didn't make a new high for at least a year. And these were all periods in time where you had a, these are, this is an inversion of the new orders. This was a bottom in new orders. A bottom in new orders, bottom in new orders, bottom in new orders, and right now, I believe the same thing. This was a bottom here. I think the same thing is going to happen. I think new orders are going to start to move this way back up towards 60. Uh, and that is not a consensus call right now. And I think this is something that is going to happen, and I'll go through the reasons why.
We had this start, and this is one of the things that I think is interesting. The new orders did get up to 55 back in December and January. And what had happened was Trump led to this enthusiasm. The PMIs are a survey of optimism, and we had jumped higher. They are very important signal for quant strategies and for cyclical investments. And so I'm going to go through things that are already showing up. Now, we came back down. The tariffs made everyone negative. Everyone, through the tariffs, are still going on. But the most important one to me is the China-US one. I will continue to say that the China-US trade deal was the most important thing of this, uh, and that has been resolved because of rare earths. Uh, that is still not something that I think everyone is, uh, believing. They still believe there's risk that it can unwind. I just do not believe that the US can take, uh, the situation, which I talked about a lot at the end of May and into June, uh, around rare earths.
Now, what things are showing? The PMI already should be going higher. I'm going to go through a lot of different things here related to this being an AI trade. Again, I've said this before, I'll continue to say it. If you're a macro person and you're not doing all of your homework on artificial intelligence and the buildout for it, you have no chance of staying on top of the macro environment. If you're waiting for rates to move higher, you're betting against AI having the impact that it is from a deflationary perspective, which is what's showing up in the data. But at the same time, if you're fading the PMI, I think this is going to feel a lot like the software boom, except this time it's all around the embodiment of AI and the hardware side.
So, what do we have here? Non-defense or, uh, non-defense XAIR, durable goods, just this component. Now, we've made highs for the last three years. Again, this is overlaid with the PMI. So, this has already been going on. We're already seeing parts of the the hard side going higher. And I'm going to go through a lot of them. The revision. So, this revision has gone higher. This is overlaid with the PMI. Again, this is because of tech revisions for the most part. The sector that has dominated in terms of revisions going higher has been technology, that is related to AI. We're going to get through the next component of what's related to AI, but I think the revisions are going to start to move higher for other things.
You have, uh, the Goldman Sachs non-commodity cyclical versus defense index, which has been correlated to the PMI. It's been stretched up here. The part that's been missing has again been the hardware side. You've got a really important one on the factor side, which is beta versus, uh, profitability. So, beta versus quality. The white line here is at the highest level again since back in '22. This to me is the most powerful signal that is going on that signals that we should be seeing the PMI move over. I think new orders are going to go first. The reason that this is going on, and again, beta, like I showed, you're getting a rotation, and the rotation is out of the tech names, and it is into the more economically sensitive names, and especially at this point, you have energy now joining, but it's only joined so far this month. If energy goes, I think this thing will continue to go. You'll see a move into beta, short, small caps will get covered. Small caps historically are very correlated to commodity strength. Uh, that's the thing you want to watch.
My risk-on index, which I've shown on these videos over the last year, which is a combination of the Asian dollar, commodities using the CRB raw industrials, uh, and the global stock market ex the US in local terms. So, it strips out the currency side from the equities. It uses the Asian dollar currency side. The Asian dollar currency side is actually manipulated lower, or con constrained because of what's happening with the peg currency in China, which is a big component of it. If you go through a lot of the other currencies, this will be much higher at this point. This is also signaling at this point that the PMI should be going high. There's a cyclical global, not US global, impulse that's going on. Commodities. This is copper. So, here's Dr. Copper breaking up higher. I do not think this is going to stop. I wrote a piece on it. I'll get into that later.
Uh, the Hang Seng and the DAX. This is something I created a long time ago. I used it as a cyclical signal. There's a very high, very important relationship between China and Germany in terms of their, uh, economies. And so I put a Hang DAX together where I equal weighted them to overlay with the PMI. So, this is basically 50% Hang, 50% DAX combined as one index. It has been storming higher this year, led predominantly, well, they're actually both going higher, but now we're starting to see a broader signal that had been there. I think that's going to continue to drag it higher. You also have the European banks. European banks have also been a very good signal. Think of them as the caboose of global growth. If the European banks are doing well, that usually means there's good stuff happening around the globe, uh, again, outside of the US.
Next thing, currency, Taiwan dollar. I mentioned that the, uh, yuan is helping back the Asian dollar. Uh, I talked about Taiwan, and here John Ro and I did a video. This has continued to move higher as the Taiwanese dollar is strengthening. That is historically a good sign. Remember, a lot of important tech stuff, in particular on the semiconductor side, which is a big part of the PMI belief, uh, bet that I'm making. Not only European banks, these are the Asian banks. Same thing. So, you have the Asian banks and the European banks just exploding higher, uh, as I showed last week. I think the US banks are going to start to participate in this as well.
Uh, this is the Shanghai Composite. So, the Shanghai Composite overlaid with, uh, those, uh, Asian, uh, banks. So, when the Asian banks have historically done well, Shanghai Composite in China has done well, uh, which is a very good cyclical sign. You have the Straits Times Index, the Singapore index, making new all-time highs. Very, very related again. And then one of the economic data points that I think has probably been the most important over the last month is the fact that the German ZEW has gone back up to effectively three-year highs. Again, a lot of these things, we're going back to the 2022 area, and that means that we're getting through, and you have the impulse happening from the global rate cutting cycle going around the world, uh, which I think is critical.
Now, in terms of the PMI, the thing I want you to start thinking about, um, I wanted to basically give you the numbers from this beforehand. What was the estimate of the China urbanization capex from 2002 to 2009? The total urbanization estimates, exchange rate adjustment, about $6 trillion. This is important because the China urbanization story was a structural, given story. It was given because the Chinese government was funding it. It was a long-term plan. You don't see these too often, and it had major implications for commodities and major implications for the investment thing. It was mainly through iron ore, through steel, through cement, through coal. Those were the primary vehicles. This one's different. This is $7 trillion. It is a race to scale data centers, and this is over the next five years. This is from McKinsey. These numbers are higher now. This was written before a lot of things went on. I'm going to go through this, but overall, that's nearly $7 trillion in capital outlays that are needed by 2030. So, over the next five years, in terms of where are they going? This is local news of just all of the stuff going on. Local news across the US highlights a historic wave of data center and power plant construction driven by AI, cloud computing, and digital transformation. Projects span nearly every region, with significant investments in both traditional and renewable power infrastructure to support the surging demand from new and expanding data centers.
Uh, for those people who want to get what I'm getting into now, people faded, including myself, Amazon throughout this entire period. This is a chart of the market cap of Amazon versus the market cap of Walmart. You can see that Walmart's market cap from 2000 to 2020 effectively stayed exactly the same, went up slightly. If you faded Amazon, which most people did, I went to Silicon Valley here because I got sick of shorting it, not having a reason why. That's when I learned about this. If you go back to 2016, for whatever you think about Shamath, uh, from the All-In podcast, if you go listen to the, uh, Iris Summit conference, he spoke at it back here when, uh, Amazon was about a half a trillion dollar company, and he said within 10 years, right here, it would be a $3 trillion company. Uh, he's going to be right. So, how does someone project 10 years out in this? This is what most macro people are missing who are not spending time on AI, because what is already happening is the same thing, the data centers. So, this is the data centers as part of construction. So, when people look at construction, which right now is around zero to slightly negative, that is mainly on the residential housing side. That is mainly on the commercial side. Those are not collapsing, they're just kind of going sideways and going down a little bit, while this is going fast. The problem you have is this is compounding right now at 40%. And this is before the explosion that is coming, which will compound this even faster, which means over time, just like what happened with the Mag 7 versus Walmart, Amazon versus Walmart. If you compound something at 40% a year and something at zero a year, the zero-year thing becomes completely irrelevant.
All the jobs being created in the United States of America right now are healthcare and leisure, which is why we're not going to have a recession. You have to pay attention to the exponential change that's happening due to the digital economy. Right now, what is going on is data center buildout is explosive. This is the construction data. Take it further. Look at the GDP side. This is the from GDP for Q1. This is the computer equipment side. So, again, when you're building out data centers, you need massive amounts of semiconductors. This is the information processing side. These are the contribution or the growth, sorry, in Q1 for these things going back 30 years. We've never seen anything like this. So, to fade the hardware buildout is a huge mistake. It will have implications for PMIs and for GDP. Uh, the AI boom is already here. Purchases of computer equipment, which is what I showed you, they added a full percentage point to GDP in Q1 of 2025. That's higher than the peak of the dot-com bubble. The future is now, and it's not stopping.
So, this is the the main point that I've been trying to get through to people is this is a structural issue. This is a race for military supremacy between China and the US. It will not stop. It's being funded both by the government. This is why you're getting this, and at the same time, obsolescence, uh, for the MAG 7. You're seeing that with Mark Zuckerberg right now spending as much money as he can on people to try and play catch-up for fear of obsolescence.
Now, the other part of the bill that is not just the data center. We are now getting into, remember since Q1, the reason this is different than Q1 in terms of people that want to fade this, we got the big beautiful bill through. That means not only the tax cuts, but all the bonus depreciation, but we also had an executive order on nuclear to do three times the gigawatts that already exists in the US. That buildout will be massive. I've, I've calculated in today's dollars at approximately $2.5 trillion. You can add that to the hyperscaler thing of $7 trillion. You're talking about massive amounts in terms of the data center and the power needed to power it. And to highlight how much we're behind in terms of the energy, and we have to do this, Elon Musk confirms XAI is buying an overseas power plant and shipping the whole thing to the US to power its new data center. So, he didn't want to wait through all of the delays that were going to happen. So, he literally bought a power plant and shipped it over. This is a given that is happening.
Uh, I wrote a paper on on copper. I'm not going to go through the details on this for 22V, but this copper bull market isn't about a cyclical PMI recovery or a China reacceleration. It's about the structural reality of the AI buildout and the electrification needed to support it. This is a geopolitical race for military supremacy in a hyperscaler race to avoid obsolescence. The the comparison of this can only be to the Manhattan Project, to the space race from a geopolitical basis, and from a guarantee, in my opinion, from the China urbanization. You do not want to fade this from a macro perspective and look for recessions. You don't want to pay attention to old indicators. But now, if we get the PMI going higher, you're going to have changes.
This is copper over gold. Gold has been a big, uh, obviously winner here. If we start to see the PMI go higher, don't be surprised if you see copper versus gold. But at a minimum, I would expect this to go higher. I've already highlighted that the best Sharpe ratio trade, uh, that represents this transition from the industrial to the digital economy is to be long copper, short nickel. Sharpe ratio has been insane. It remains the place to be.
Now, outside of the US, in terms of the, uh, buildout, let's just go through what else is going on from a, why would the PMI go higher. China set to ramp up and broaden its fiscal support in the second half of the year. One thing about the China-US trade deal, slash, they want our, our semiconductor software and chips. You saw some of the softening on the software side. I expect the export ban on some of the semis to have to be, uh, lowered as well, because of the rare earth side. So, I think both companies have agreed that for the next five years, there's a truce in place on the trade side, and what they have to do is, like all good divorces, they're going to spend the next five years in mediation and in trying to work out these difficulties where they buy their, they build their own chips. We find our own rare earths, kind of the baby in between is copper, uh, because everyone's going to need it, and they both need to get it from outside.
China's construction equipment sales surging. So, this is excavator sales, which have historically been a great sign for the builders, climbed almost 23% from a year earlier in the January to June period. So, we're seeing the early signs of this stuff going on. Um, and seeing an earnings improvement in listed firms in the first half, about 78% of the 170 companies expected higher earnings or return to profitability. So, you're seeing it in terms of the price movements. I've said in terms of the, you know, the the factors I went through, the global markets, I went through the currency. I went through, remember the dollar has been weaker, that is usually very, very good for PMIs. You have Dr. Copper breaking out. You have Kospi breaking out, and then as John Ro put in here, you've got the Shanghai Composite 7 and a half year base. The chart looks fantastic. You got the MACD's now turning higher. Uh, anytime you see the Shanghai Composite go up, it's usually a good sign for PMIs. And on the back end of China, whenever China does well, Australia does well. Um, and this week, uh, Australian business confidence had a significant improvement, climbed five points, uh, basically the biggest move, I think, in two years, maybe three years, regardless, going higher. And then remember, we have the German, uh, and the European defense spend, which is going to happen. Uh, again, this defense spend is going to be related to technology. All of the equipment that is going to needed to be built is about future stuff. This will include humanoids, Cuba, everything. This is a big buildout.
But German spending ramp-up fuels business optimism. German companies are the most optimistic about the company since early 2022. Good thing for PMIs. Firms plan to boost investments, the first time in two years, with a number of firms planning to increase capital expenditure, research, and spending outnumbering those anticipating cuts. China, Germany, the US, and we have a PMI going up. We also have a president that wants rates to move lower immediately. The pressure on Powell continues. Powell should resign immediately if Congress is misled. So, threats continue. Uh, he's already named his shadow Fed, or not named it, but the two Kevins are are battling out in terms of Hassett and Worsh. So, he continues to make that. Then late on Friday, uh, I've mentioned, uh, PY, uh, uh, the chairman of Fannie and Freddie says he's encouraged by reports that Jerome Powell is considering resigning. I think this will be the right decision for America. I don't know what's going to go on the housing market, but I do believe that there will be some kind of changes in things in the second half of the year, along with rates and ways for people to get housing more affordable. That will again be another way for the economy. We are going to try and grow our way out of this. It is not about austerity. That is the big shift from the beginning.
So, if you go back to when momentum unwound in the first part of the year, and you realize why did the Mag 7 fall? The Mag 7 fell because of deep tech. It fell because the multiples were higher. Mag 7 is unchanged, and they had blowout earnings, growing at 30, close to 30%. And yet, that just means we've had multiple compression. There's nothing changing on the AI side. That was a huge mistake and a huge, huge exit for people that fell behind. You're going to have AI stronger. You have the big beautiful bill in, you have the rest of the world spending money. This is not the same way in China and the US actually have a trade deal. So, you guys can all sit there and worry about the tariffs if you want. Uh, I would fade all of that, and I'd use tariffs as an opportunity to put money to work in some of the trades related to the hardware and the embodiment side.
Uh, again, BG2 this week, uh, best podcast on technology. Michael Dell was on, worth the listen. Highly recommend it. You have to keep listening to these to get more details on what's going on with AI. Doesn't see a bubble and thinks AI is way bigger tailwind than the internet. And then here are the details. AI will surpass the PC and internet in terms of productivity, affecting all knowledge workers in every industry. It's expansionary, not just deflationary. Companies already achieving 10 to 40% productivity gains. A 10 to 20% boost in global productivity would equate to $10 to $20 trillion in economic upside in service-heavy sectors. Uh, current AI investment is too small. It should be at least two to four trillion per year. Remember what I said, $7 trillion by 2030. He's saying the number should be double that. Only 10% of large enterprises are capturing AI gains today. Those who fail to adapt will be disrupted by leaner, faster challengers. That goes for everyone watching this. Whatever your company is, especially if it's an asset management company. If you are still not allowed to use ChatGPT, quit tomorrow. Go get a job where you can use it, or just go home and figure out how to use it. It's not just the companies that need to adapt. It's the individuals that need to get comfortable using it. If you're not allowed to use it, it is a, it is a competitor of yours. Do not make it a competitor.
AI is already fueling a golden age of margin expansion. We've talked about that before. Demand for compute and tokens will explode. We are in the very early innings of the AI productivity cycle. That's because of the agentic move we're entering into now. I've had people reach out to me and say the AI agent stuff is not happening. You are absolutely wrong. It is happening. I have seen what people have been able to do with it. It's happening in our industry right now. If you fade AI agents and sit there and wait for it to be obvious, I know there's been people in the, uh, Silicon Valley world, particularly from OpenAI, that said it's not there. You have to be careful with what's going on. It is absolutely being used. It may not be being used the way people envision it two years from now, but it is absolutely being used right now. Uh, token usage is exploding as we go from basic queries to test time compute to deep reasoning to agents and multi-agents. The number of tokens just explodes. We've talked about that. Where do you want to go? The demand side, GPUs and AI servers, memory bandwidth. I've talked about Micron in here. Uh, stock has doubled over the course of the last couple months. The network and data center expansion. We've talked about Oracle, we've talked about Cisco, all of these things. Basically, you've got a variety of places in there, but you also have the buildout side. Tokens are the electricity of the AI economy. AI agentic future will be powered by tokens. We are in the very early stages of the agentic world. We are still four or five years away from massive amounts of humanoids coming out, which means we have a very clear ramp over the next five years. Don't get caught hearing people call this a bubble and overspending. This will not stop. You have government support, and it's paid for free cash flow out of the biggest companies in the world that are worried about obsolescence, so they can sell it to anyone.
Uh, token usage is the most scalable signal of AI adoption and intensity. So, whenever you get that next report from Cowen saying that they're fading, uh, Microsoft because the data leases are going down, just remember, token usage is the most scalable signal of adoption intensity. So, when Satcha Nadella says in the first quarter, 100 trillion tokens, of which 50 trillion were in in March alone, and then Sundar Pichai puts out a chart showing it 50 times the usage of a year ago. Just remember, usage growth is an indicator of how fast AI is expanding.
Now, Taiwan Semi reported AI-related demand remains very strong, blah, blah, blah. Outpacing supply. Go read this. To address the structural issues and long-term market demand, there's just no way to keep up. Okay, they haven't seen any changes in behavior so far. Uh, highlighted the exceptionally strong and sustained demand for AI and HPC chips. They expect AI-driven growth to continue dominating the semiconductor landscape through 2025 and beyond, with no signs of demand slowing or customer pullback. So, what does that mean? Just start following this overlay. Oh, here's the construction for data centers. Here's the SMH. So, when it fell down here, that was the bet that was happening that we weren't going to see the AI boom. This thing is going parabolic. You need more semis in your portfolio. They are not going to stop until we get further ahead.
Uh, Grok 4 was released, has now taken over, uh, uh, as the leading AI model. All that means is that you're going to have new model releases. Remember, we are waiting for OpenAI to release this summer, GPT5, which again, is supposed to be a major, major step in acceleration towards AGI. Tesla expanding Austin robo-taxi service. So, we are getting more and more as Grok is being added into the cars. Uh, big news this week, uh, in terms of, uh, Isomorphic Labs, which is part of Google DeepMind's, is about to start human trials for AI-designed cancer drugs. This is a very, very big deal. Uh, I suggest everyone, uh, start paying more attention to this, because this will have implications in terms of speeding up what Demis Hassabis of Google DeepMind has said, which is since AlphaGo in 2016, when they won, they shifted towards this, with his goal being he wants all diseases that can be cured with drugs to be cured with drugs, and they are starting to roll stuff out. So, again, longevity is a big part of the optimism that's going to happen going forward. I mentioned that this industry is going through a massive disruption now.
So, Alpha GBT, GPT, this was Mang Group put this out this week, a new artificial intelligence system, Alpha GBT, that can generate code and backtest trading ideas. The system, known as Agentic AI, digs in for ideas, blah, blah, you can read through it. I'm just saying it is hitting the industry now heavy. The agentic side allows for massive amounts of multiple works and streams being done by the computer.
And of course, with everything going on, the most important news of the week, Bitcoin breaks out, makes new all-time highs above the highs that it made in May. And it was a strong week for it. All standard deviations right around one. So, VIX adjusted. It was a very stable move, but as I've said before, I see this reverse head and shoulders here on Ethereum. We had one false break and broke back below, but now we've gone higher again. I think this is the kickoff to the alt season in terms of seeing Ethereum outperform Bitcoin. Bitcoin dominance has been the major thing, but we're going to get a breath of the ecosystem. MicroStrategy, I know the the bearish Michael Saylor, everyone writing stuff. It's very hard to find the macro people fading this as much. Only Jim Chanos out there with his best idea being short this and get long Bitcoin. What a waste of time and money that is. But for people that have been fading this as it hit 500 and came back down, well, now MicroStrategy is approaching again, uh, all-time highs. We'll see where it goes. You had all the technicians out. I, I bring this up not because they're all seeing how this thing is about to break out, but we're at an important pivot point. Not only is the government getting involved, the banks are allowed to talk about this stuff now, and you're getting more and more technicians that are bringing it out. Getting people to focus on this is a real asset. If you never talk about it on here, other than the the skepticism, now you're starting to talk about it from a technical analysis based at a time when retail's allowed to buy it. So, Rich Ross on pace to hit 170. John Ro showed the big bases here, the breakout going on, what this typically does after the big breakout. So, they're calling for higher levels. You have this one looking at a reverse head and shoulders and iBIT and talking about it to go to 83, which would equate to about 165 to 175. So, everyone's got a 175 now on, uh, on the near term. John Ro even highlighted at 22V, the move likely to target 4,000 for Ethereum. So, that would be another 30% in Ethereum as well.
Regardless of which one you're focused on, just remember, uh, I've talked about this all year as we've gone sideways. Liquidity has been booming. So, the first thing you have to remember, Raul Pal, I did his, uh, his show this week, uh, or last week. Global liquidity has been going up huge this year. It's been a very, very big move. If people haven't realized, we started the year at around $80 trillion globally. We are now at $86 trillion. In 2020, we went from $55 trillion to about $65 trillion. So, we went up 10. We're on pace to do as much as we did in 2020. I, I want you to hear that we're on pace for M2 around the globe to grow as much as it did in 2020. So, another reason, and you can see that how far above the 200-day moving average we are on this, uh, significantly above this is the 200-week, sorry, but it's, it's big. You've moved well above.
Now, I put this out, and I just want to make sure the reasons I like Bitcoin surprise. This is from the early June, early June. These were all the things that were happening in terms of, you know, trust in the dollar, the capital stuff that's still a risk in terms of the bill, uh, institutional adoption from the corporate treasuries, which continues to go. Still have strategic reserve momentum from states and around the globe. Haven't seen in the US yet. Inequalities from AI is going to continue. All of this stuff is still in play and still the reason rotation into utility tokens will revive market sentiment. That's what we're seeing right now with Ethereum. But the other thing is one of the most important charts for Bitcoin, the PMI. When the PMI is going higher, Bitcoin's going higher. The strongest moves that we have seen have been, here's the PMI. Here's the PMI. Here's the PMI. These are the biggest moves we've seen. So, with a PMI that's been down, we've been going higher. I can only imagine what's going to happen when we have the PMIs going up. It's been going up without it. So, these are just more. This is actually doing some math on it and talking about the upside could be $240,000 based on a PMI move of expansion. I think we could see the PMI even move higher than that. Uh, but regardless, let's just take that's what's happened historically.
Uh, Lynn Alden made a good point. Tends to bottom here. So, the bottoms in Bitcoin tend to happen when we get the PMIs to go higher. This is back through '23. It does not include now. We were actually rallying into a weakening Bitcoin, uh, uh, PMI. So, if we get a similar bump up in PMIs, which is what the green line, uh, highlights, uh, you can imagine that you're going to see a similar move. The cycles are not this. Bitcoin is strongly correlated with things like the PMI. Cycles are necessary for the economy to work. Bitcoin is unique that it also interacts with the world. But there's a more important thing. Bitcoin goes up with global M2. All coins go up and down with the business cycle. So, one of the things that has been negative has been Ethereum versus Bitcoin, and it's been correlated right here to the PMI chart. So, if the PMI chart is going up, you get an expansion in the ecosystem. Uh, slowly building our way to the perfect alt season once again. We'll see what happens, but it feels like that to me.
Tom Lee, who's now in the Ethereum, uh, treasury strategy, recently, this was a great quote, and I think it's there. I do believe the Circle IPO will be looked back as a ChatGPT moment. Now, without going through this as to why, I have got more calls and more people reaching out, and they're not just looking at Bitcoin now, they're asking about Ethereum. Tokenization is real. Everyone is now starting to realize that with Circle, what actually happened? This isn't just some, you know, game. Now, what does Circle mean? Why are stablecoins worth so much money? So, they're starting to do the homework. Homework on the hedge fund side, homework on the bank side. You're going to see more research because remember, the government is allowing the banks to be involved. As they get more involved, there'll be more positive stories on it. As there's more positive stories, people will read it. It gives more credibility. This is the network effects that I thought would happen. Tokenization, a major thing.
Here's the Robinhood CEO has been all over the map over the course of the last two weeks. First at Consensus, and now again talking tokenized equities with regulators. I believe tokenization is the greatest capital markets innovation since the central limit order book. I've talked about it before. The digital capital structure of the world is changing. Last week's title on the video was about, uh, Venod Kasa's call, which I happen to agree with, that the 2030s will be a massive disruption to all public companies, but in particular, the public companies built on code, which are the highest weightings. This tokenization is part of the digital capital change that is happening in all of our lives, and the reason that you should get involved.
I'm going to put this up again. If you need to go find more detail on Ethereum, go read this, The Digital Oil, which means as activity is growing, you want to understand the importance of the plat, the ETH platform, Sooie, Solana, go through the whole thing. Go spend your time on BitTensor for all of the AI, uh, side from the agentic side. Just go learn more about what is coming.
Uh, for those of you who didn't see it, Rick Edelman, who founded a $300 billion investment advisory one, I think this is so right, and I think it's happening. Owning crypto is no longer a speculative position. Failing to do so is. Recommends 40% crypto allocation for aggressive investors. He has talked about the fact that people are going to live longer, which means they need to extend the duration of investments, risk investments they have. Their risk allocation must go up. This is not just about crypto. This is about the story I showed about Isomorphic Labs. People will be living longer lives, and we are at the inflection point for that. You need to have more duration, less bonds, more risk assets. Crypto is where you need to tell your financial advisor to understand it more so you can at least start talking about whether you guys want to make an allocation, but start paying attention more and more because it is leading the way higher. And if there was, uh, no other reason than to pay attention this week, US Director of Digital Assets said there's a huge week ahead. Time to make America the crypto capital of the world. It's a big week for crypto. It's a big week for the PMI. It's a big week for people to fall for the tariff fears again. Have a great week, guys. I'll see you next week.