Transcription
Hello world, or you know, the few of you who are watching this live. I know that uh, more people will come. I'm going to do a quick little shout out to Zap Stream because we're live, by the way. The last time I did a Zap Stream with Mike Alfred, the Zap Stream just suddenly stopped uh, stopped working. And I realized that um, uh my zaps, my SATs ran out on Zap Stream. He got a pay to live stream there, uh, and so I I restocked the SATs there, so hopefully it won't be running out again. Apologies to anybody who was watching on Zap Stream last time uh and missed the show.
So here we are. You know what? I so Joe Caroselli is a is a good friend of mine and he is going to jump on at some point. He's a busy guy, as you guys know, he's an attorney, um and his uh his work schedule can be a little busy, but he said he'll try to make it. So um, at some point he'll join in, but in the meantime, I'm just going to get started um and uh and I have a little presentation which uh I tell you I can't even believe I'm about to say what I'm going to say. Some people might see the title and think that uh it's Joe who is bearish, but uh I'm actually uh getting increasingly bearish, and I'll go through why here. So apologies for anybody, I generally like to be optimistic. I've been bullish for quite a while um and uh and so it feels weird to watch the incoming data and to have to pivot. As a fund manager, I have to be willing to change when the facts change uh and I think the facts are changing, and I think it has a lot to do with the new Administration, for better for worse uh I I don't you know, I'm not I don't really care, I don't have an opinion on whether it's good or bad. My job is to, you know, preserve and protect my my uh my uh my client money uh in the hedge fund, so that's what I'm going to try to do, and hopefully it'll be uh interesting for you guys, and I'm sure Joe will have some good takes too.
So real quick, just want to I say acknowledge people in the chat: Kevin, good morning; Caleb, hey; Matthew, you're welcome; David, first-time watcher, let's go; uh and Lewis, hello from Madrid, leis uh that's great, or Lis, uh glad to see you, glad you're here. I I get psyched when people um are telling me where they're from from around the world. I'm in Colorado, so it's fun to um see where other people are from. So let me go ahead and get started with the with the presentation um because I think there is a lot to talk about today, as you can imagine. Let me go here. Hey, thanks for guy that sits over on Zap Stream, thousand SATs. Thank you, brother. That's uh that's that's awesome. I appreciate you. Thank you. It goes towards funding um you know this show, which isn't free to run um and uh you know I tell people if I get enough sats, maybe someday I'll buy a real microphone and be like the the real live streamers um but for now we're going to make do with the with the headphones.
So you know, this is my usual uh beginning slide. It's just it's not another podcast. I don't want to do a traditional Bitcoin podcast. I already think there's too many of them. I know a lot of people think you can never have too many. I'm I don't agree with that. Um this this is just me. I I you know, as a fund manager, I spend a lot of time thinking about macro uh looking at charts, making decisions within my portfolio uh and I also you know I'm a Christian and I like to help people, and honestly that's the only reason I'm doing I'm not looking for clients, I'm not looking for patients, I'm not practicing as a doctor anymore. Um I'm just here to share out you know with my thoughts out loud. I'm just I'm just here to share with you what I'm thinking about, and I'll be wrong a lot. Sometimes I'm right, but I'm often wrong.
Let's see. Joe saying he didn't send it to me. Hang on just a second here. Yes, different, sorry guys, I'm I'm actually texting with our our Guest for today uh let's see here. Sorry, this is I'm actually texting with Joe Caroselli right now, so I'm trying to get him on here. Um okay, let me try doing this invite. This is this this makes for really good live TV, right? This is this is the ultimate in live streaming right now. Okay, I'm gonna see if that works. All right, hopefully that works. Um okay, where were we? So uh hopefully come on real quick. Hey uh David from Sweden; Janny from South Africa, huge fan, thanks Janny; Johan from Amsterdam also, oh my gosh, you guys are from everywhere, this is pretty fantastic; Cape Town, Doug, Eddie, hey Doc, what's up Eddie; gobon, I will try to not stop doing these videos, although you know um they're not very fun to do in uh bare markets, but here we are; Philip from Castle Rock, Let's Go, you're close, how about that wind we've been having for the last uh you know 12 hours huh, it's been something. Okay, all right, so um hopefully this is gonna work to get Joe on um and let let me just keep going. So so why am I doing this, you guys know right? I it's I I like to talk about all this stuff. I like to talk about macro, I like to talk about Bitcoin, I like to talk about investing. I used to be a value investor before I discovered um Bitcoin and then uh and and and and then I transitioned also so like right around the time while I was uh figuring out Bitcoin, I also figured out um growth stocks, and and I came to the conclusion you know five to eight years ago that value investing doesn't work very well in a centrally controlled economy uh when the central banks are in control as they have been since the global financial crisis um in 2008 2009 um you have to change, you have to adapt or you die, right? So adapt or die, there's a reason people say that.
Uh and so that's what I've had to do, and I think Joe is here now. Hey Joe, can you hear me? Yeah, can you hear me? Yeah, I sure can. All right guys, Joe made it. Sorry about sending it to the wrong place. No worries. No worries. Um hey, cool. So so so before I get your thoughts Joe, let me go through my little presentation and then let's just let's just talk about it as we go. Does that sound good? Perfect. Okay, cool, cool. How can I tweet this out though before? Is there a link somewhere or how can you tweet this out? Let me see here if I do. I don't know. Okay, well just go ahead, don't let me interrupt, go ahead. Here let me do this. This is the beauty of live stream. Let me share a link for the audience and I'm gonna put it. Can you see the chat on the right hand side if you click on chat of of Riverside? Uh yes, I see it now. Do you see that? You see what I just posted there? Yes, that that should be a link to the show here. Awesome. Thank you. Otherwise it should we are live streaming right now on YouTube and on Zap Stream, so you could go to YouTube, click on that and share the link if that's better. I got it. Go ahead, let's let's get into this.
Okay, so what I usually do Joe, and this is funny, is I usually have my reasons to be optimistic, but you'll notice with my clever uh uh um powerpointing that I'm actually I can't even believe I and I can't and right before you came on Joe I was just saying I can't believe I'm actually saying what I'm saying, but I'm turning bearish. Uh oh. And and I and and it's all changed like like just like that, and I I was laying in I couldn't sleep last night. I woke up at 3:15 this morning and I and I've been awake since 3:15 and I was thinking about this and I thought what what has happened is it's like being prepared for summer to come, like you you're putting away your winter clothes, your scarves, your mittens, your boots, you're pulling out your your you know Speedos and your bikinis and your tank tops and your shorts and and also the Earth it was tilting this way, tilting here's the sun, here's the Earth tilting, so summer is going to hit the Northern Hemisphere and then it's like it just stopped and then starts tilting back in the other direction and and so now suddenly winter is coming back again. So to me this is almost as profound as what I think is happening right now, and we'll get into reasons why. So what I'm saying, Point number one: I think macro summer has been canceled for now. What I say when I when I when I mean by macro summer is I have been expecting growth and inflation to not be crazy but to surprise a little bit to the upside. That's what I've been planning for all the way through until the last couple of days, and now I think all of that is flipping on its head, and now when I peer into the future looking at data in cycles, I think I think that we are legitimately going to see growth and inflation surprise to the downside, and I think that's being reflected in the bond markets. I think it's being reflected in risk assets, it's being reflected in Bitcoin.
Um so hang on, I'm gonna keep going. So reversal of the earth tilt, I just talked about that. Are we heading back into macro winter? I was this is just what I just said. I was previously expecting us economic growth and inflation to surprise mildly to the upside in the first half of 2025, but the Trump Administration policy changes are already having a huge impact. All right, so so tariffs and tariff threats led to a massive surge in first quarter 2025 imports uh uh which is causing a massive, and this is what I initially I just sort of blew this off like it's probably just temporary, not a big deal, decline in GDP growth. So GDP now is now predicting a negative 2.8% GDP growth for the first quarter. Here's the chart Joe, I'm sure you've been talking about this. Um well why do you think it's printing that? Well I and we know why it's printing that, it's because of imports, right? So they exactly yeah. So so so hang on because I I really want to talk to you about this and about whether you think this is temporary or real. So let's come back to this. Hang on. Long-term treasury yields are strongly suggesting material lower in uh future growth and inflation expectations. Um TLT looks bullish to me for the first time in uh a very long time uh and I don't I don't mean long-term bullish, I mean short-term like quarters. I think we at we I think at 2021 or so 2020 started the the was the end of the 40-year or so bull market in bonds, and I think we're at the beginning phases of like a 40-year or so bare market in bonds. That's my take um and we can talk about that. Should I stop there or should we? We got a lot of stuff. Keep going. Keep going. Okay, okay, I'll keep going through the presentation. February ISM, you guys know who watch this channel, I I watch this closely. Um ISM Manufacturing PMI came out yesterday, 50.3 versus uh last month was 50.9. That was disappointing but still barely expansionary um so that's you know okay. Manufacturing new orders, which I really watch closely because this is a forward-looking indicator, dropped from 55.1 last month to 48.6. That usually front runs what the ISM Manufacturing PMI does. Why do I care about that? Because the two things I follow most closely as a fund manager, especially pertaining to Bitcoin, is that Bitcoin does the best when Global M2 monetary Supply is expanding and when US manufacturing PMI is expanding, so above 50 and accelerating. That's that's literally like my main thing, those two things that I look for to trigger the next bull market. I was very excited last month because it looked like okay here we go. Yep yep like right we got we had last month 50.9, new orders were ripping. I'm like this is it, here we go, and then everything just ground to a halt here. Okay, we're getting there guys, Joe's thoughts coming up. Joe has the actual answers. I always just you know throw throw my guesses out here. So risk assets and especially Bitcoin, this is just what I just said right? I I'm front running myself. Um you can read it for yourself. In light of decelerating economic growth, inflation and interest rates, I am tilting bearish for the first time since early 2022. And by the way guys, I hate to say this right because I've been very very bullish about 2025 and I've been make fun of the recession EAS, I'm going to have to eat some serious crow uh probably. I don't know that we're heading into an actual recession, but we may get close to it enough to force the fed's hand. All right, I can't wait to Joe Joe's reacting, this is perfect, we're gonna have a good conversation. Okay. Um I am as surprised as you see. I keep front running myself. Here's here's my take-home points and then we get to Joe. Number one: decelerating economic growth and inflation are generally bearish for risk assets and Bitcoin. Number two: treasury bond market is confirming this bearish outlook for now or for the foreseeable future, right? Three: as a long-term Trader, I almost always follow my trailing stop losses because I've learned to listen to the market rather than my own Dil. So I have my macro points. I go on shows a lot and talk about my macro. I only trusted as far as the markets agree with me. So when the markets when when the assets I own start to disagree with me, like for instance last week I was still shorting bonds. I closed out my trade, it got stopped out, and I actually opened a new long treasury position today um and we'll see how that goes. Number four: Bitcoiners should disregard all of this seriously, just stay humble and stack SATs like Odell says and be thankful for the cheaper SATs while we have them. I mean that by the way. Take home Point number five: the Trump Administration policy changes, downsize and deregulate with deafening speed, the 3DS and reprivatization, I think that's the word that Scott Bessent uses, which I like actually uh they may be fundamentally altering the four-year cycles that we've grown accustomed to since 2008 2009 um so again I want to get Joe's opinion on this. For now, all of my bets are off, meaning everything I said like I'm literally questioning everything right now uh so when I question everything I go to my my Council Joe Caroselli. Um quote of the day: May you live in interesting times, old Chinese proverb. This was popularized by Robert F. Kennedy in his 1966 Ripple of hope hope speech uh it's some people think it's a curse, some people think it's a blessing um remains to be seen. Okay, that's my whole presentation. I'm whipping through it so that I can get to the conversation with Joe. Joe, tell me your thoughts.
Okay, so you know, I think you start from the growth picture, and I know that there's a freakout over the Atlanta Fed GDP now, but it's one of those situations where we know exactly what is causing the decline. You don't have to take their word for it. You can look at the it's really open source. You can look at what's driving the model down, and just to be clear, Atlanta Fed GDP now bounces around quite a bit, right? There were periods last year where it was projecting close to 3% growth, right? We didn't actually print that uh in real terms, right? It came down south of that, so it bounces around a lot. Right now the the recent move has been by this I think it's like what is it $150 billion dollar in trade deficit uh that is most likely I think firms doing what's quite predictable, which is front running the tariffs, right? So I'm curious why is that is the is the Atlanta Fed GDP now the primary reason you believe Jeff that that that the growth is softening or is it ISM or or is it both? So so it was the ISM that um I was waiting for yesterday, and when that came out it was sort of like a slap in the face, which then brought me back to because because Joe I got to tell you Lynn Alden posted that same GDP now thing and and somebody responded Trace Sellers responded with I think it's just the imports and I responded to that saying yes I do too. I think this is just a temporary blip, doesn't bother me, but then the ISM came out and I'm like oh shoot like it it actually is having a real effect though on the economy. That's what bothers me. ISM has been weak for what nine I mean actually the the manufacturing PMI as of January hit like a 9-month high right so so that that data is noisy too. So I guess is there any anything else in terms of fundamental macro data you're looking at because the reason I the reason I start there is that you and I both know and I think we agree on this that um it the the fundamental macro dat isn't really what's important. What really is important is the liquidity picture, the liquidity picture and and obviously I I tweeted out yesterday I'm like okay if the S&P declines 25 30%, right? You're going into a recession. It this is this is where I I I take an issue with this the fundamental Mac it's not that the S&P leads the economy. I think the S&P markets declining actually triggers the recession. I think it pulls it down and I think it you can't wipe out trillions of dollars of collateral in the system without causing a recession. So that's where like I'm looking at this saying okay it's almost a self-fulfilling prophecy, the market going down which is what apparently B and Trump seems to want which is a fascinating thing we can talk about um I know that you know real smart people much more so than I are saying well that's the goal, the goal is crush inflation by collapsing asset prices and be able to blame it on the prior Administration which they're opening openly saying okay but the the the thing for me that's most important is what is the actual economy doing because collapsing asset prices in the short run while that may trigger a recession it is always one of those things where is this really just a goal to get yields down so you can get fed cuts so that you can restart it and this is really just a blip. We'll be talking about six months from now with asset prices heading higher because inflation has finally gotten brought down uh somebody tweeted out today and I'll just I'll just quote I I'll get the the exact tweet but I agree with it um you know I bet pow seeing some of this seeing asset prices come down seeing the 10-year go down I bet he's pretty happy about it. I mean I you know don't you think? I mean that's that's kind of what he wants. It's not that he's you know his arm is being twisted to cause cuts, he wants that 10-year to come down. He said openly to Congress he doesn't control it, right? It's market driven, it bounces around a lot. So I guess what I'm saying is this is this really uh one of these things where we're talking ourselves into a down Market or is it something fundamental that's really weakening because the ISM you know we're service-based economy, ISM matters right but but how much so in a service-based economy? Yes. So I say all that exact same stuff as you know we do these you know these mastermind discussions and other things like that and I agree. I think the US is primarily a services-based economy, but for whatever reason uh so so looking at Bitcoin in particular, Bitcoin does really well once the PMI like I said earlier spikes above 50 and then moves higher in conjunction with an expanding Global M2 monetary Supply. So you had asked early and that's why I pay attention to that uh as far as far as my fund goes, but normally I'm more concerned with what the services economy is doing. Why do I think it's more real than just that right? Bond yields as you just talked about, bond yields the the long-term yields are a reflection of future growth and exp and uh inflation expectations, right? That's how I view it. Yeah, no I I agree but but they they're bounce they bounce around a lot so right but but the yield curve is inverted again so so it's distorted again. I agree that so I was saying even up to a week ago that the FED doesn't matter anymore, but now I think the FED is going to start to matter again. I think they're going I think the Bond Market is going to force the FED to start lowering rates um and you probably agree with that. Let me let me see is this on here but just just just for context for the listeners, right? We're sitting at a 10-year just above four four 413 right which is by the way where it was in December. Okay. Yep. And by the way it was where it was in October and before that it was where it was in March of 24 um so like you know it's hovering within this range, you know chopping around. I don't know if you you can pull it up on the chart. Oh you have. Okay yeah I mean it's it's hovering within this range. By the way the current tenure just just for those following it is almost darn near within like seven or eight basis points of where it was when the bond market bottomed out in 2022 in October of 2022. So you have to look at this thing in context right like yes it has come down, it's come off the highs of the yield which I was expecting and I traded that but I'm wondering like is that re it's not like it's crashing to 3.5% or 3% right? That says imminent recession here, get the hell out. So that's I don't know what do you take on that any of that? So so I agree with you and again I and I would have totally said that previously and in fact that's why I have been short bonds up until last week uh because I thought you know if anything we're going to see you know this is probably just a local bottom, we're going to see growth and inflation accelerate a little bit from here. Everybody's you know they're uh you know panicking a little bit more than they need to um the the indicators that I follow though suggest that this is a little more real that this is going to be more of a substantial move and again I'm not calling for like what GDP are you expect just or or stocks? So so so all of it so I think they're all saying the same thing to me right now. I think Bond so so yields falling uh uh long so the long and falling um Global PMI disappointing new orders especially back into contraction mode um GDP which I wrote off is a one-off I think well maybe uh you know like we like when you have a certain view if anything tends to disagree with your view at least for me I tend to blow it off as like oh that's that's just human nature so that's what I have been doing um but now as I keep looking at this other data also so you know in my fund right I have I have all the Meg seven stocks, Bitcoin uh lots of other things kind of spanning I have like 30 different stocks that I follow really closely. All of the tech stocks look very toppy to me. Some of them are already rolling over and are just flat out bearish from a longer term perspective. Let me throw up a good example here um so Microsoft right I mean clearly is rolling over and turning down. Could it pop back up? Sure um but I think that it you know when I look at all of the mag seven stocks I see you know obviously their their multiples are are hugely expanded right now, but when you when you don't have the economy backing it and monetary Supply backing it strongly you don't see the multiple expansion you start to get multiple contraction but but but that's where that can we pull that apart for second so the monetary piece of it okay the tariffs have already resulted in a pricing in at least of one more cut okay and maybe that doesn't matter U maybe that's irrelevant right because it is kind of you know one 125 bip cot who who really cares is that amount amount a whole lot but you've also got the 10-year coming down which I think we agree on is far more impactful for consumers that's going to drive a real estate at least some imp credit impulse in the real estate market with mortgage rates under 7% right across the board here so I guess what I'm I'm I'm curious about is that if the tariffs and but I also saw OPEC OPEC's increasing Supply they're going to do a supply hike so so that's also disinflationary and if you go back like three months the the thing everybody was talking about is second wave of inflation there's a second wave of inflation that's the most important thing the market cares about that you're seeing serious disinflationary forces take hold so my my question to you is if that is true and inflation's coming down why isn't that positive unless the only argument I could see you know playing devil's advocate myself is like okay it's not positive for risk assets because inflation's coming down for the wrong reason it's coming down because you're you're entering growth weakness is that your view is that yes yes exactly so the only time inflation disinflation is bad is when you have uh concurrent growth weakness so when you have and again these both took me by surprise when I was looking ahead both of these were supposed to be accelerating a little bit right now and both are now decelerating for the month of February it looks like for the month of March we're going to see more deel more disinflation and more decelerating GDP growth as well um and it looks like now that's going to continue into the second quarter that's basically the only setup that I see that's actually bad for tech stocks and actually bad for Bitcoin. Can you explain that why do you think it's going and that's where I I agree with you the Atlanta fed now I agree with you you know well I think the Atlanta fed now is noisy but putting us out I agree with you the PMIs they're disappointed but what what is telling you that that this is in a trough um tell tell tell me that just so just putting all of the things together so so watching these overvalued stocks roll over looking at so what normally does well in this type of environment where you have uh you know slowing economic growth and disinflation what does well are things like utilities consumer staples um and and long bonds being long bonds um and all of those things are breaking out to the upside now for the first time in quite a while and I can show some of that stuff to you yeah show show me the utility picture because that's that's interesting to me um so here's can you see that utilities now XO yes okay so to me this is a very healthy looking chart um it was It was kind of trending sideways throughout most of 23 and 2024 when all when all the mag sevens were just crushing it Tech was crushing it it lags and that's pretty standard and then since here we are the bottom here what October of 2023 it's been on a tear and a pretty strong bull market I think that looks like this is you know if I were I don't own this in my fund but if I did I would be very long this right now and adding to this position okay so just a another way of looking at this that I think is is helpful pull up pull up the ratio chart and this is what when I look it's it's the SP SPY over the XLU sure hey by the way you can share your screen too if you want can I yeah yeah that'd be great so down below I think you have the same thing as me do you see where it says stop it says somebody else is currently sharing so yeah so let me I'm stopping now now do you see you share yeah okay perfect um window don't want all my attorney client privilege documents to come up here but um okay here we go um so this is the XLU I don't know if I can make this bigger um can you see this all right y Yep looks good okay and by the way there's some people who are just listening to this so try to describe yeah yeah I'll describe it so this is this is where I where I'm I'm interested here right so like what I see in this chart is sort of the opposite um I'm looking at a chart here where if you take s Spy which is the market cap S&P 500 construction ETF right uh it's constructed Bas on market cap um you you you put it in a ratio against Utes okay utilities you have the November 21 High which looks to me to be going to be tested I think this this November 2021 High where you had you know obviously that's massive peak in Risk assets across the board followed by the very brutal 2022 downturn right it looks to me like this area this pocket um needs to be tested and what we what you see in the chart is that 2022 we sell off really hard the s Spy versus utilities which is consistent with the risk-off atmosphere then you have the burst forward with the risk on and interestingly enough this actually peaks in February of 2024 which by the way is coincident roughly with the launch of the Bitcoin spot ETFs right you're you're seeing them right around this period where you see a massive wave what what do you see after that you've basically seen that the Peak spy and utilities was made back in February of 2024 so through most of 2024 you've actually not had from you know the risk-on standpoint if you're just taking the S&P 500 you've not had the bullish Market that people were expecting in fact it since February 24 utilities have outperformed sby by 133% right Jeff yep okay so to me that that is telling you that this this period that we've seen basically for the last 12 months has been solid right like I me if you look at the nominal chart of spy it's not like the market sold off but it really has been more of a defensive environment it has not been the rip roaring market so what are the what are the possible pass forward here the possible fast forward of you know what I see is you make a stand here right I don't know why I did that but um you make a stand in this area yep and then you go higher right or it breaks down massive recession the end is here yes right to me okay I don't see this I think this is very unlikely um given the growth picture given you still have high uh deficits to GDP um yes I understand Doge and and all the narrative around that but this does not seem likely to me I I'm curious to you if you had to put a probability here on this scenario where full-on Market is peaked the rest of the years down you said macro summer is over it's not coming what would you assign this probability here so we don't have a crystal ball right I don't so right now okay so before so so what I'm waiting for I think the next major event to happen is going to be the fed capitulating and restarting QE at some point once they do that I'll probably get bullish again like once I know that the FED is behind the markets and is going to start you know doing what they can to prop it up um that will probably help me to Pivot bullish again but for now I think that it's it's heading lower until further notice I guess is the way I would say that I'd say we're we're going to continue to see utilities outperform we're going to continue to see rates going lower uh in general uh until something changes and until we get that pivot what but from a probability standpoint so you're saying confidence level okay and I understand you don't have a crystal ball I don't either but I always try to say like you know with my views my confidence level is x% like I think that to give your your framing right until there's a significant change on the QE front which by the way Paul has said I'm not doing QE unless rates are zero which I I really find it hard to believe that rates are headed for zero I mean that what think about that if rates are going to get to zero you have not just a a mild recession you have a very very painful recession you have S&P below you know 4,500 type recessionary forces so like to me I think in the scenario you're laying out well QE monetary easing that that sort of thing that seems so unlikely here maybe you're right um if I had to put a probability level on that it would be less than 20% um that that's where we're going but uh where what are you you have it sound like 80 80 yeah I was gonna say I'd say about 70% wow until I see until I see a pivot where the FED is getting behind this or something changes I'm like I have an increasingly High conviction that we're just headed lower you know people were criticizing the FED last year okay not even last year like what 10 what is it nine months ago saying oh they're they shouldn't be cutting right we're in an inflationary environment this is only going to pour gasoline okay well now those people have to eat their words if you're correct and we're on the verge they did exactly what they should have done that 50 basis cut was spot-on Perfection from pow right he could have done more probably if what you're saying is true which I I think is fascinating right because everybody likes to be armchair quarterbacking it and saying here's what's they're doing wrong but you know if what you're saying is correct like they they they didn't get behind the curve they were they were doing it and they probably should have done more uh they probably should have stopped the QT which by the way they're still technically doing QT they're still withdrawing liquidity from the system right so I'm curious like you know do you do you think that Jerome Powell um and the rest of the fomc that they agree with you or you think that they're you know uh behind the curve and they're still Mis uh uh Mis they're underestimating the deflationary force disinflationary forces in effect I think they are behind the curve I think it's just sort of fortunate that it worked out for them this way um because I I think they were just following you know they always look in the rearview mirror right they're looking at Old dat everybody knows that and they just they just basically admit that um but they were criticized for cutting I mean like that was the main narrative why are you doing this and I would say they should have been criticized because I was one of those people who thought we're we're cutting into an economy that's revving up into inflation that's starting to pick up again um and now again I just feel like on a dime almost everything has changed and I think it's not just a blip I actually think it's here to stay for a while I mean I'm I'm pretty bearish now which is astonishing I literally just last week did this emergency you know emergency LOL um live stream about how these are great deals this is a buy the dip opportunity and a bull market all dips are for buying and all caps and all that kind of stuff and I sincerely believed that but then the data has changed to me materially and significantly enough to where it's making me make actual decisions in my FR can we let me let me because I think I'm still missing some you got ISM you got aaed GDP now you've got the market-based indicators like the bonds and obviously equities what else what other the data are you looking at well those are pretty big for me like all of those things are basically what I look at those are my my biggest indicators and for me the most to me the market doesn't lie the equities markets are they they look into the future to see what's coming and I think what markets are anticipating is okay we've gone far enough we don't have the support we thought we did the economy isn'
To call it a 10% decline, and then we rip right, we rip seemingly, um, without—I mean, I guess there was some positive fundamental macro data that came here, but it really, you know, it was just basically a bunch of noise when you think about it. We had this Midsummer slowdown; inflation's back; the Fed is cutting; um, and you have the bounce, right? Then you have another nice little correction here. I'm just curious, like if the market makes a stand here, and I know you've stated your belief very firmly, and I appreciate that—if the market makes a stand anywhere in this range and we bounce, does that change your view?
Oh sure, like I change as the data changes. So, but that's how I—so I have this kind of longer-term trading system I use with trailing stops, right? So, if the momentum suddenly reverses, I'll close out any shorts, go back to long. Tell us about that. What does that look like? Where would we have to bounce to give you conviction that okay, this was a head fake?
Sure. So let me share my screen here. All right. So, in a very simple way, and I don't like to give away like all the stuff, but don't just—and like I don't even own, I don't own the S&P 500, but if I did, right, so I would still be long the S&P 500. This is the 50-week moving average. This is like basically a five-year chart, weekly Bollinger band. What do you have on there? Yeah, Bollinger band is the blue line here. So you know which kind of tells you the range of volatility that's expected. Um, we had, we—it constricted a little bit over the last few weeks and now it's starting to open up and widen out. Um, to me, that just suggests we're going to see a period of higher volatility for a little while. So the last time the S&P 500 dipped below its 50-week moving average, which is about a year moving average, right, was back here in early 2022. Popped above and then fell back, and then that's when the recession started in earnest for these equities back in April of 2022. Um, could this be another fake out like back here in October of 2023? Absolutely. So, so what I would expect for that to happen is for the, for Powell, say, to come out and be like, you know what, we've done QT long enough, we think that things are looking risky, we're looking at unemployment spiking a little bit, we looked at what the GDP did, blah, blah, blah. Um, we're going to just stop doing QT and do, you know, maybe even if he just says we're going to stop QT, the rolloff, I think that would have a positive effect, but I don't think he's going to do that yet unless we have a huge breakdown in the next two weeks before the next meeting. That would be my guess, which is possible, right? It's totally possible, and the markets maybe kind of front-running Powell and like helping him along with his decision because I've been watching the—I know you watch this too—the CME Fed Watch. Um, let's see, make sure you can see that. No, it's not on there. Hang on, let me share this screen here real quick. Stop share, window, uh, where is it? Share. Okay, just so that people that are listening to this, what this is is the CME Fed Watch. It's basically looking at futures probabilities of what is going to happen with the federal funds rate. Right now, the target rate is 4.25% to 4.5%. There's still an 87% chance that it's going to remain the same two weeks from tomorrow at the FOMC meeting and presentation afterwards. So, but what I'm watching is here that you can see this, Joel.
Yes. Yeah, so down below, look, one week ago the odds of having a single rate cut were as low as 4%, and they might have even been a little bit lower than that prior to this, but I've been watching this tick up day after day, and now today it's at 13%. So still very, very low chance that they actually lower the Fed funds rate at this next meeting, but if we have enough of a dump and if treasuries continue to—the yields start to, you know, continue to decline—it may force the Fed's hand. I mean, look at the two-year rate. Yeah, and I—not let me see, I got to share that screen now just so people can see this in the audience here. I know you watch this, Joe. 3.9%. Yeah, so the two-year rate here, let me get the—which, which again is higher than it was last September and it's exactly where it was back in September of 2022. To your point, it's basically just waffling up and down, you know, you know, it's at the level when people thought there was contagion in the banking system and SVB was blowing out, you know, I mean, that that's the level you're at on the two-year. That, to me, that's not screaming crisis. Um, you know, I don't know. Uh, you know, the interesting thing for me is I, I, and we've talked about this before, I don't focus so much on the overnight rate. I'm more concerned about what they're going to do with the balance sheet. I think that's far more meaningful. Um, and you know, the interesting thing is that you've got—who is it?—um, oh shoot, um, let me make sure I pull the right article. Um, you know, look at the reverse repo, right? You talk about that all the time. Waller, who says the reverse repo—I'm quoting him—is the excess liquidity, you know, gauge that is most important for the Fed to monitor. The excess liquidity gauge the Fed is most—the most important for the Fed to monitor. It's down to 78 billion.
Okay, pretty much empty.
Pretty much, yeah, right. Pretty much empty. So to me, like if you're looking at some measure of liquidity, you know, focus on the reverse repo is far more important than the overnight rate. Like I get it, but but that's new lending, right? That's new lending activity. You're effectively influencing rather than actual securities and collateral in the system, and I think Michael How talks about this too, like that seems like the more meaningful thing that the market's going to be focused on. So I don't know, maybe, you know, the overnight rate isn't—is there undue influence in your mind on the overnight rate? Like I know that they're not projecting a cut, but they can give guidance on the balance sheet, which, to me, that could cause a bullish move. I think the guidance is everything at this next meeting. So, so if I had to guess, I would say that the markets are going to remain tumultuous until the meeting, and they're going to be, for the first time in a while, hanging with baited breath on the words of Powell and what the statement says, and he has the—he, he will—it will be a market-moving day, I think. And so basically, if they kind of just say, no business as usual, we're going to continue with the runoff, the QT, and we're going to keep rates as is, and we'll monitor the situation, I think markets tank at that point. That would be my guess, and it may even force his hand to do something in between meetings, have an emergency meeting as they say. Um, if, however, he hints at dovish—if you're like, you know what, Mark, uh, you know, we, we wanna—we want to help out, um, you know, the bond markets or whatever he says—whatever you—and what he says and doesn't say, but if he's basically like, let's stop QT, let's stop the rolloff and just see what happens, that will be taken as bullish, I think, and I think the markets will react positively to that.
Can you pull up oil for a second here? Yep, and I want to know your, your, your take on this oil market because this is one of the things I look at, and well, let me just before I prime you here, tell me what you think. What are your thoughts on the oil chart here?
Yeah, so I think it looks weak. Um, I, I personally think that oil is going to be at best kind of choppy sideways throughout lots of Trump's presidency to down. I think his "drill, baby, drill" is for real, and I think that we get a huge surplus of oil. Uh, and then if you mix it in the near term with—if we do have a US kind of lead mini-recession or whatever you want to call it, a slowdown, um, or, you know, a mini contraction, I think that's negative for oil prices in the near term. What about you?
I agree. I mean, OPEC saying they're going to hike supply. Uh, okay. And you've seen oil—I mean, I, I've seen this pattern time and again, right? This looks like, uh, you know, what reminds me of—kind of—it kind of reminds me of the Bitcoin chart in 2018 where it tested this level again and again, 65, 67, again and again. In Bitcoin, it was like in 2018, it was like the 6K level.
I yes. And then it breaks, right? And it breaks. To me, this looks like—I, I really want to go to, at a minimum, the high 50s. That's what it looks like to me. Now, the reason I bring that up is if that occurs and gasoline falls precipitously as a response to the oil move, that is stimulus. Okay, that it's a gross load on—right? That that's a lot more money in regular people's pockets.
Yes, which makes up—and so—so, and it also brings down prices across the board. So I guess, you know, I guess we're back in the phase where, in the pre-Co era phase where disinflation equals bad, whereas before, you know, if you were to ask me six months ago, I think most market participants say disinflation equals good, right? That's that's bullish for risk assets. That's what risk assets want to see. They want to see that CPI number print closer to 2% rather than sticking around around 2.5, 2.7. Um, I don't know, do you disagree with that? Is that the wrong framing now? Have we entered the new era where disinflation equals bad again?
I do, and I think—by the way, you, you keep sort of alluding to this, and I agree with you—this is generally good. These kind of things that are happening, it's sort of collapsing the K-shaped recovery that we've been having. It is good for the American public if stocks come down, if mortgage rates come down so that housing prices come down and the market is—housing market is freed up again. If gas prices come down, that's great for the American consumer. It's great for the lower and middle-income classes. Um, I'm very excited for that from that perspective. I think what—I think they're actually trying to close that K-shaped inequality for now, or I don't know, I should say they're trying to—I think that's what's going to happen, though. And so even if we do have short-term pain in these risk assets—say Nvidia crashes 60% or something—or, you know, which is possible considering its valuation—that's generally good for everybody. A price reset at lower levels would be fantastic. So I'm cheering for that.
I'm with you, and I think that oil looks like it wants to drop as well, and I hope it does. Uh, let me—can, can I share my screen for a second? I gotta show you something. I think this is funny. Um, and I want to get your—you on the record here in a recorded space with this one. Um, I think I can't share yet. Oh, sorry, I got to stop mine. I think okay, there. Uh, look at this chart here. This is fun. This is not, you know, for the people that say, you know, CPI is all fake, you know, government number. This is the TR-flation data. Okay? This is the True Inflation index for the United States. Um, obviously, you have this May 2020 number where we were negative, right? Uh, we actually had deflation technically in their price index. Then you have this massive burst up to what they claim was closer to 12%, much higher than the government stats, and then uh, if you look at this number, we're now down to 1.4%. 1.4% below, you know, what—if this number is more reliable than CPI—below the Fed's target. Uh, and the reason I want to bring this up is uh, so, so, so was JPow right all along? Was inflation transitory, Jeff?
Well, the spike in inflation was transitory, to me. I still think that's what he was saying, but it gets out of context all the time, so he looks stupid. I think he thought there would be this peak and it would roll over, and I think that's—and it did—and I think he was right. So yes, he was right, but we—but that, you know, the point that I think everybody else likes to bring up is it doesn't mean prices have come down. It just means the prices are going up at a slower rate now, but that's the economist—I mean, that's how economists talk, right? Like they're never going to say like prices are going—everything's going to get cheaper, right? Um, uh, so the reason I'm looking—I mean, this, this is a mass massive move, right? We're talking about—this is just—let's go to the monthly chart. So back on their own gauge, this is a private sector, you know, priv—private outfit—they're making this—this is not the government. Okay? Their inflation index as of the end of February and in the last week has fallen like 60 bips.
Yes, it's incredible. That is huge. Like you said, turning on a dime. Um, that's amazing. That's what's—so that—that's why I couldn't sleep last night, Joe. This is why I've been tormented. It's—everything is happening so quickly. I'm like, what the heck? Like I knew it would have effects, but I didn't think it would be this dramatic and it would happen this quickly. I thought it would be sort of a slow process of rolling in, or at least slower. And you, you may be right. I mean, I was texting you about this, like you may be absolutely right. Like the thing that's troublesome for me is that sometimes these short moves, they do end up just being noise, right? Like any—it's kind of like one of those things where if it happens consistently over weeks and months, I have more confidence in it as being something other than noise. Short-term move like that—that's why I'll just tell you my bias, and I respect your opinion on this, but I throw out the Atlanta Fed GDP now completely with this tariff stuff. Like I throw it out. ISM—that's far more convincing to me that I buy that argument, right? But the Atlanta Fed GDP now—there is a clear and—and—and plain reason why you got that move. It's—you can go look at the data. You can go look at the front run from the exports and imports. Uh, I don't really put a lot of stock in that now. The, the bond market, right? To me, the bond market—uh, and again, I want to be specific at what I'm talking about—I'm talking about the 10-year. The 10-year, to me, to really make me a believer that this is quote-unquote "the big one," that we're going down much harder, I have to see it break four convincingly. Because right now, and I'll just pull up this chart again here, um, what I'm looking at—so, so you know, for just—hold me—do this—anybody who wants to—wants to, you know, say this is Joe's view on this—I'm looking at us sitting at 4.16, okay? Which is, by the way, back where we're at in December. I want to see us—if we're down here, I'm a believer. Like I, I—that—that—that I, I don't see a—I'm not going to be—I'm not going to be bullish at—when we're sitting in the—convincingly—put it this way—convincingly below 4%, because to me that's telling you the growth picture is ugly. Um, but a 4%—like you said, you started out saying something like, you know, this is a 4% expectation of growth. Well, I mean, a 4% expectation of growth still sitting north of 4%, um, to some degree, right? Like because that just bakes in some inflation and so forth. Um, I don't know. I mean, to me, that—I, I gotta see something more than that. So yeah, I think that's very reasonable too, and that's how, you know, so my system works. Like I use these, these markers as sort of cut-offs, and what happens a lot of time is when it chops, I get chopped up because I go in and it goes up and then it goes down and then I go out and then—and then I go in and it chops. So I want to see a definitive move, and what I'm saying is I'm biased this time around to thinking that this move is for real, that I do think we're going to get your sub-4% 10-year. I mean, look at the two-year, it's sitting at 3.92 right now. Um, uh, to me, that's that's front-running the federal funds rate, and I think the federal funds rate—they should—but so that's that's the difficulty when you look at the yield curve and the different parts of it, right? If it's front-running the Fed funds cuts, okay, and the Fed has already cut—which those cuts are really not going to be felt until, I think, you know, basically the middle part of this year because it takes time to go through the system—and they give forward guidance on the balance sheet. Um, I mean, we could be looking at this and saying this was all a big head fake in six weeks. That's what makes this so challenging, and I appreciate your systematic way of saying, like, look, price is king. I'm going to look at the price, and what I understand you're saying is like if the market makes a stand here and heads higher, you're going to be back on full-on—not necessarily bull, but bull crab, I guess, would be where you'd go back to.
Or sure, it, it depends. Yeah, just—it, it depends if all the factors are with me. So I turn bullish based on monetary supply, so M2 increasing substantially. Like I—we still haven't seen the Fed get behind this, right? They've still been doing—as we talked about—still doing the QT, the rolloff. So I want to see the Fed get behind it, uh, and I want to see um, PMIs back above 50 and expanding again. So I want to see the next new orders to show that this was just a one-off. So the new orders came in at like 48 or whatever it did. I want to see that pop back well above 50 again. Can you pull up the PMI chart? You, you have the ability to do that. Let me see if I can do it. Let's see. And then I got to jump, get back to real work, but um, yeah, here it is. Hey, this is good work here, Joe, by the way, while you're pulling that up. Gman commented, I think Jeff has a subscription to Macro 42. Darius is saying the same. Darius, Dale—Darius Dale. We, we both know Darius well. He's a good dude. Um, I don't have a subscription. I actually did for a bit. Uh, I like his work a lot. Um, and I do, I do think he is saying the same thing, and it's just because we're both looking at the same macro data, and we tend to have the same framework for thinking about things. So there's no shame in listening to anybody. I, I'll listen to Dave H, contrarian, even though I think he's ridiculous, but uh, you know, he's he's been calling up for a melt-up for like five years, right? So yeah, exactly. Followed by 80% deflationary bust. Uh, um, but okay, this is what I want to see. We'll, we'll end with this. Okay? So again, I, I am open to your point of view. I'm trying to be open-minded here. Uh, this—to me—just for the listeners, okay? Which—that's last month's reading, by the way, not the most current.
Correct. Correct. No, last month's reading. Um, what is the current reading? This is not 50.3. Okay? So just, just for the listeners here, let's go back. Um, to—you have had—and this is why I said this—March of 21, right? You've had a declining overall—I mean, obviously there's bumps along the way, like any other chart, right? It's nothing straight down, but you've had basically a declining PMI since March of 21, which, by the way, that's right when Elon's SNL pumping Doge—that's when Bitcoin made its first initial high in 21 above 60K. A lot of markets um, uh, were really ripping here. This is the height of the NFT bubble and everything else on—on, and then, you know, obviously risk assets still held up there as PMI was declining. In fact, Bitcoin made a new high here, Nasdaq made new highs, S&P made new highs all the way into the early part of 21 as you may had this first decline in the PMIs. But what I want to point on is here—look, since March of 23, the PMI readings have roughly stayed around the range of, say, between 46 and 50 on the high side, right? And the reason why I think that is significant is despite the PMIs hovering in this area here, Bitcoin's been on an epic run, okay? Like it's, it's, it's been fantastic as, as you have seen this, this, this trending consolidation right here. Now, to your point, right? We have—we, we, we—we went—you don't see it on this chart, if you—you saw on this chart, it look something like this. This is what you've seen in the PMI. Okay? If it were updated, um, that is higher than October. It's higher than November, December, right? So to me, explain to me why this is cause for concern. Just because here—so type in Joe—do—US—MNO—that's new manufacturing new orders. Okay? Oh, and it's not updated. This is not updated, but this would look like this. I think it's down to 48, I believe. So down below 50. So that's, that's what it should look like. Y—which is the main thing that I follow, right? Because it's a leading indicator is what the new orders are doing. Um, it doesn't have to, but I think that the next one or two readings for PMI itself are probably going to be sub-50 in the contraction phase again. Um, but I—so I totally hear you, Joe, like I, you know, that whole move from the bottom has been kind of where I transition from bear to cravish and then to bullish. Um, but what we—to get that final—what we've seen in the last multiple years when you get that final huge exponential move higher in Bitcoin is when PMI is rapidly expanding, shooting up to 60 and above. Um, and so that's why I was so excited last month, and that's why I'm subdued right now is because those—it's looking lower. Look, I admire people willing to change their opinions and uh, and sense when the direction of the wind changes. So if you are correct here, this is an unbelievable call, and also if, if it's premature and we get a bounce here and it goes higher and you change your mind again, I don't fault you at all on that either, because that's, that's what you should do. You should react uh, in a Bayesian way to new data coming in and move your probabilities of bullishness or bearishness in accordance with that. I don't, I don't like people who get wedded to these views that no matter what data is coming in, I'm going to be a bull. No matter what data is in, I'm coming in—I'm going to be a bear. You should move with the data. That's the only way to do probability. So I, I respect that, and um, I do have to run to get back to work here, but uh, um, anything else we should chat about?
Well, Joe, I just want to say thanks so much for coming on, man. I would love to make this kind of regular with you, maybe at least like monthly or—as interesting data comes in—let's go over charts together. That, that'd be a lot of fun. And—or—one thing quick before I forget, I want to ask you about this. Uh, I know you're an MSTR bull, right? You like MSTR?
Yes, but now I'm—now I'm—now I'm nervous about it.
Yes. Okay. So, so one major market catalyst, and I keep seeing—I, I own a very small amount of MSTR, but one thing I wanted to get your take on real quick—if you give me the TL;DR—is that I heard a bunch of people last night in an MSTR space talking about how, look, if Bitcoin can't get moving here by the end of the month, that's going to be the key data date for um, inclusion or consideration in the S&P 500, and obviously this is the first, first print where you're going to get the data on their balance sheet with the new FBY accounting standards. Uh, so my, my question is, let's just assume for the sake of argument Bitcoin doesn't get running by the end of March, and uh, MSTR has a balance sheet that's equivalent to current levels or maybe even slightly below, um, what is your take on a market reaction of non-inclusion in the S&P 500 for MSTR? Is that pretty bearish, or is that neutral? Does it matter? Is it irrelevant?
I, I, I'm more in the irrelevant camp this time around. I just think it follows the price of Bitcoin with leverage, and so if Bitcoin can't take off, MicroStrategy won't take off either. Um, and I agree, like I think if, if, if unless Bitcoin takes off, they're going to have a negative quarter of earnings for the first time in four quarters, I believe. So yeah, that would mean they won't be included in the S&P 500, and that carries—right? You explain this—I haven't looked at it too closely—that carries for like a year, right?
Yeah, I believe you have to have four straight quarters of positive earnings to be in it. So yeah, they would have to go for another four quarters of positive earnings to get back in. The only reason I ask is because I keep hearing this narrative about people positioned for the inclusion on their options positioning, which, to me, that, that's like a red flag, right? Like if that doesn't come true—oops, sorry, I gotta go, but thank you, Jee. We should do this again. Talking—I'll talk to you. All right, take it easy. And I'm leaving too, everybody. Joe, thanks for coming on. We'll do it again sometime.
Awesome. Take care. Bye. Thanks, everybody.