This week, we're back to discuss the current AI driven market rally and wether or not it can continue. We then deep dive into the positive tailwinds for energy companies, the trillion dollar wave of I

Forward Guidance: Can The AI Driven Rally Continue? | Weekly Roundup

Sourced by podcast-ingest on 2026-05-23. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 52m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG1086473600.mp3.

Show notes (from RSS)

Timestamps:

(00:00) Introduction

(03:42) The Bond Market Sell Off

(14:32) Can This Market Bubble Continue?

(29:06) Why Active is Outperforming Passive

(38:44) The Wave of Trillion Dollar IPOs

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Transcript

A: Nothing said on for guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research.

Tyler: Foreign. Welcome back, everybody, with another episode of the Forward Guidance Roundup edition, recorded early Wednesday, May 20th, without our fearless leader, Felix. So you got the two inmates running the show. What's up, Tyler?

Matt: With two inmate haircuts. What's up, Matt? How's it going?

Tyler: Looks like we just got out of the yard, did a couple hundred push ups, and here to talk shop.

Matt: I look way tougher with a shaved head, huh?

Tyler: Me too.

Matt: You got, you got. I said this before, but you got some Taylor kitsch thing going on. Like. Yeah, I think it looks good. I think you know the flow, the 1990s, you know, Rider, strong, boy meets world. No, I think the shave end looks good on you.

Tyler: Wow. I didn't think I'd get this haircut and then for the first time hear niceties out of you.

Matt: It works in reverse with me.

Tyler: That's true, that's true. How'd it go? Did your, your son shaved yours?

Matt: It turned into a battle over the Clippers and I was thinking it was going to be a little easier than that, but you know, you have three kids under seven. It's like, my turn, my turn. It devolved. I was like, okay, Lauren, it's your turn.

Tyler: Anyway, trying to make it Texas. And we had had some scheduling issues and then Felix couldn't, couldn't make it this week. He's out. So we're, we're postponing it. We, we put the, the funds toward the, the charity and we'll do an in person thing soon. But I wanted to, I wanted to kick off with a bit of a thank you and, and covering where we ended up. So we, we landed on $10,500 for, for the total donation, which is insane. Like, just unreal.

Matt: Community.

Tyler: Which actually put us at the third place team rank for this whole entire organization. And it's a huge organization.

Matt: Like, oh yeah, it's amazing. Really amazing. Thank you for buddy.

Tyler: I wanted to shout out everybody more. Isaacson, Matthew Weaver, Fabian DA Alex Carino, John Shelton, Jackson Shad, James Perry, Michael Boyce, Will Beaumont, Isaiah Earhart, Daniel Polikoff, Sean Meta, Chris P, Nikhil Gupta, Jarrett Knapp, Josh Herd, Ashton Doms, Jonathan you, Chris Gibbons, Jing Mu and Andrew Braun. On top of the dozens and dozens of anonymous donors.

Matt: So yes, thank you guys.

Tyler: Appreciate every one of you guys.

Matt: One of my favorites is this guy, isn't he. I, I call him JP because I don't really know his real name. But he, he's a boomer and he roasts me on Twitter all the time because I'm always going at boomers. And he waited till we hit $4,500 and then donated 500 just to put us over. So shout out to you, jp. I appreciate it. You're one of the good boomers. I love you.

Tyler: That's awesome. All right, so markets, busy week. We had not too crazy of a slate. We had Fed meeting minutes today and Nvidia earnings today, but other than that, not a whole lot. Where want to start on, on the rates market. Seems, seems like that's been probably catapulting to everybody's radar. No one cares about bonds and then when they start blowing up, then everyone becomes a fixed income person. What are your thoughts there, Tyler?

Matt: Yeah, I mean I think we're getting more and more scares here on the fixed income side. They're clearly trying the volume controllers, the volatility controllers are trying to control the bond volume so that we can build out the AI Manhattan Project infrastructure. And I think we're, we're getting to the point every single time. The yen kind of floats near 160 to the dollar. Anytime the 10 year yield gets above like 450 and global yields kind of start rising, we get in trouble and they pull out. You know, today we saw Trump come out and say, oh yeah, we're in the final stages of Iran and last week they unleashed 9.9 million barrels from the SPR to, to keep the price of oil down. So we saw oil go down, you know, yields go down today and they're doing everything they can to kind of keep this thing up. But I got a couple charts that can kind of encapsulate what we're looking at. Let's maybe start with 30. So this is slide 30, the 30 year yield and then I have the JGB, you know, Japanese 30 year yield and then I have the purple is the 30 year fixed mortgage and the high yield bond spread is the yellow. So basically what I'm showing here is, you know, the, the white line is the US 30 year yield that's going up and to the right along with the Japanese yield. And what's interesting is this is all the bond volatility is happening on the sovereign basis. And if you look at like, you know, the spreads for, for junk bonds and you know, housing, which is the purple and yellow lines, we haven't seen the spreads widen on those things yet. So that's what, you know, there's still inflows into actual, you know, fixed income products like mortgage backed securities, etc. And in high yield in the face of these rising sovereigns. So this is largely, you know, that that hasn't reacted yet which is why the market in equities keep going up is people are still piling into those risk forward debt products. So but one other thing is if you go to slide 29, we can see this is the term premium. And the term premium, you know, is how much extra yield you demand for the time value on your fixed income. And this is what the Fed was really trying to stomp out for such a long period of time. And it's finally breaking out here to the upside, which is a real concern that you could get that yield spike in volatility. And this is what Mike Howell talks about is you want to stomp out a lot of the volatility in the fixed income market so you can keep that leverage, the re leveraging effect going. And now the term premium because they're not doing as much monetary policy and investors are demanding more yield on Treasuries, that's kind of breaking out here to the upside. And then finally if you go to Slide 31, this is the skew on TLT. And I thought I wanted to show this because this is from yesterday, but basically because yields were breaking out to the upside, people were buying downside protection on TLT which is essentially betting on yields spiking. So this is the 10% out of the money call in put SKU. So if you look at the white line that's on the top, that is showing you that people are buying downside protection in TLT and the ratio is below, that's the line that, that goes up to the right. This is from the guys at Piper I think are the best in the biz on the deriv side. But basically, you know, their TLT skew was rising which means people are protecting, you know, their sovereign bonds. And when we see this, the new framework is, I think the government is actually watching this stuff and then they, when they see that kind of dislocation, they jawbone it down and they just, you know, they immediately stomp out the volume. They know, you know, the fixed income market could become unhinged and they, they pull out all these crazy policies. So, so I think that's essentially where we're at here. And you know, it's really hard, it's hard for this thing to crack because you're backed by Trump in like a million different policies. And every single time we get to the point of like the market trying to crack, they reverse it. So what do you think about that?

Tyler: No, it's a good point. I mean, we've been talking about that whole credit problem at the sovereign thing rather than the corporate for a long time. And you're seeing that high yield is drastically outperforming even with a little uptick in credit spreads, outperforming the global sovereigns. And so that's very much a theme I'm bought into. I think when you're fiscally stimulating the economy at 5 to 6% GDP deficits per year, plus all of the other shenanigans they're doing to juice markets into midterms, you get a situation where corporates are fine and it's really the, the inflationary side effect of, of that seeping into, into the global bond market. Yeah, I, that I unloaded a bunch of TLT puts this week that I had from weeks ago. That's short bonds was probably my highest conviction trade over the last few weeks. Just because the persistent inflation prints above three and a half and soon to be above four. I think continue regardless of what happens in Iran because of so much of the structural damage that you really don't get a meaningful decline in the inflation outlook until back half of this year. So, so even if, you know, I, I believe that this is a big growth destruction thing when you, when you start getting prices up here for too long and a consumer that's not particularly strong. We, we talked about, Felix walked us through a couple weeks ago how the savings rate or savings rate is falling as people are dis. Saving relying more and more on their wealth effect from stocks going up and the consumers, you know, wages aren't growing. We're seeing now negative real wages. So there's actually a lot of signs that the consumer's under a lot of stress. So I've actually been thinking, I'll share my slide on. I've been writing about some things because I also tweeted some things this week because we've been talking short bonds for a long time and I was kind of thinking when makes sense from an entry point to go long so for and bet against rate hikes that are being priced in. And I think that pretty Interesting to me because when you see what's how, how much the curve has moved in just a few months, you know, it's, it's definitely betting that the energy price spike is, is kind of persistent through because historically central banks don't hike into oil price shocks because of the growth that occurs from them. So we're already almost at two, two hikes priced in from what was two cuts to, to start the year which is a drastic, drastic change. And you know this, this coming week is, is going to be Warsh's first on the job who is a Trump appointee. So there's a lot of confusion as to what he's going to do. But I think that it's important to, to suss out the difference between the long end and the front end because to me when the, when the economy isn't you know, the consumer isn't super strong and there were signs in the last inflation report that things that are more discretionary in nature were getting pulled back on because of this price spike. And I thought this variant perception had a good thread on it basically comparing this to 2022, saying in 2022 real yields were deeply negative. Fed was still calling inflation transitory today. Pretty much high multi year highs in real rates across the curve and the neutral rate being higher now because of fiscal capex OBB et cetera but still near 2%. And then he goes on to say that the headline CPI spike is mechanical Iran is a largely energy pass through and shows how the core goods inflation their line black is separating to the downside from headline going up. And this is what Besson and Warsh have actually been talking about quite a bit and if you recall from, from their Warsh's hearing basically where he touted these revamping the metrics that the Fed looks at to judge inflation and one of those is looking at trimmed averages and more core focused things that exclude the volatile food and energy which you could exclude it but I still have to pay for it. And then the rest got a lot of yeah talking about the, the housing disinflation that's likely to continue quits rolling wages following you know, all these, all these sort of other data points that point to it and the last one that I thought was kind of had me thinking is how stretched the stock to bond ratio is over the last month like a plus two standard deviation event after this recent rally. So it's a strange spot to be in because you've had all this good news priced for equities while bonds have been Selling off which higher yields means lower discount rate historically over longer time horizons. But stocks haven't really started to care except for those couple days where bond volatility really started to spike. So I think what you're alluding to around the volume controllers has been just name of the game here because even today and yesterday, you know, the vix, the VIX isn't moving. Like, it's like the equity market doesn't care about anything like bonds selling off, oil spiking and then the second it does, Trump comes in with the headline. So really interesting market.

Matt: It's, I mean it's pretty incredible because I mean you can make the argument the VIX isn't moving because earnings have been fine. There's really nothing macro, I mean in terms of like the earnings power. So growth, growth has been okay for now. But here's one interesting thing. Go to slide 33. You know, we're, we're obviously watching the Tale of Two Cities which is, you know, it was the best of times, it was the worst of times, but this is the s and P XRTs retail ETF versus the 10 year treasury yield. So we, we basically are watching the consumer, your average consumer get taken to the woodshed as yields rise. They're super sensitive to it because you know, they're probably levered, they have a lot of credit card debt, student loans, etc. So they're, they, they go off, they just stop spending. And XRT was literally on the cusp of just breaking lower and that's literally the exact moment we get this, this headline of Trump. Trump's kind of gonna have to walk back the Iran thing now. Yeah, I think he's gonna, you know, they're gonna make a compromise basically because we're at the point in, in yields where if it goes more they'll, they'll break the economy. Right. Like they, they will get the super Vol. Spike unraveling of the AI trade I think. And like. But the hard part is go, this is slide 27. Look at how levered we are to the a buildout. This is the prime brokerage book of Goldman's semis. And where we're positioned here is you basically have to maneuver yields lower for the retail investor. So this can keep threading the needle, but there's so many imbalances built up here and it's like whack a mole, right? If you try and bail one thing out, you're just, you're basically going to just have to go out into a huge, a huge bubble like we're already kind of in like a manufactured bubble. And you know, Stan Drucken says, Miller says, like when, when you get a bubble, just buy it because it's going to get even crazier. And I don't even think we've gotten the, the mania phase if they can keep the yields intact. That's the nutty part is like I know people are making money because I was at a dinner this last weekend and some orthodontist that I was sitting next to was telling me he was up 70% this year and he's going to fire his wealth manager. And I was like, I was like, ding. You know, that's like one of those things where it's like as soon as you get those type of, you know, those are one of those, it's like the mother in law indicator where they're like, oh, you know, should I buy this thing? It's like, that's right, what, it's going to crack anyway. That's just incremental stuff. But we're, those are the imbalances we're dealing with. And then there's one last gray chart and then I'll stop showing so many charts. But this is slide 34. This is the 10 year yield versus the 10 year yield, 60 day rate of change. So the rate of change is basically on the bottom. And when we get a yield spike like this, this is when the vault controllers kind of come in and pound it right? Like it's almost to a te. This is exactly what happens is you get, you know, the 10 year yield spiking it, it causes all sorts of like capital flow unwind if you don't keep the lid on it. And so they must be watching this stuff now because that's my only like the fact that it happened today is maybe if they want this to keep going and get into like a real euphoria, they're going to walk back Iran, they're going to, you know, pump more fiscal. They're going to figure out, oh, now we have two hikes baked in. If you look forward and oil keeps going lower and they release more SPR reserves and they just get oil lower, that makes the easing, the narrative for easing come back on the table. Now I don't know, I don't know if that necessarily happens, but you can, those are the two paths, right? You either let this thing unravel here, which we're on the cusp of if yields keep spiking or you manufacture it lower and pull out of Iran and get the world copacetic again. So I think those are the two paths of that we can choose.

Tyler: Yeah, I agree. I mean they're obviously watching. Besson's got a team thousands of people at the treasury who, whose whole job is to keep this plate spinning. So they, they definitely all are behind Bloomberg's and, and checking it to make sure it doesn't go out of, out of whack. And it's funny because they all the G7 finance ministers were together this week as well over some things in Paris. And you just know that it was kind of funny how that meeting was happening while everybody's bond yields were were breaking out in a big way. And I, I like that point you make around the whack a mole because yeah, there couldn't be bigger divergences going on than what we're seeing with XRT breaking to like draconian looks like the consumers on life support levels and then semis and Nasdaq which are being supported by fiscal monetary policy at seeing t tens of billions of inflows into levered 2x3x ETFs on a weekly basis over the last month. So it's like. And I think that dispersion is going to continue because the liquidity environment isn't amazing and I don't know if it can support all that. But that's why I think the, the current position we're in right now is, is interesting because I'm not sure that that the tech leadership really has much more legs. Like today was was Nvidia's earnings and you know every. It's a $6 trillion company. It's like almost 10% s and P. It's very hard to surprise on that. And so you know that's kind of the last big catalyst. And then you know, you'd think that if we do get some sort of resolution or pull out of Iran then you know, small caps and breadth would widen because we've seen deteriorating breath and really just the largest mega cap tech keep us up. So it is, it's, it's a tale of two worlds, that's for sure. I had a couple slides on while we're on the top of Iran because I thought that was super interesting what we're seeing in the oil market. This was a good tweet here from JH which just talks about. He said since the outbreak of the war, the US oil industry has anchored global supply for both crude and refined products. Basically they've been running down reserves because product inventories are drawing down at a much faster pace than crude. A pricing mechanism will soon kick in to incentivize exports and keep barrels domestic. So basically we're seeing this record, what you alluded to, these record draws in crude and that's globally like Japan, Europe, US but we're really the marginal supplier here to the world as all these tankers are coming and we're using our reserves to, to keep prices down everywhere else. But it's interesting because the, the oil futures curve still are betting very aggressively on rapid normalization like totally back to the 70s over the next few years. And I just also found it interesting, you know, we've seen length come out of, out of both Brent and WTI futures. So you know, I guess people are pretty worn down by the tacos and know, you know, one of the things I point out, the more the bond markets break, the less room Trump has to maneuver and escalate because he's already have, has problems with that. There's still this, kind of talks about the first one. There's still a huge premium in the front month contracts. This is Brent first minus seventh contract spread. So it's still above 20. It's, it's still a massive number on an annualized basis. But one thing that I found interesting is that the gap between Brent and WTI is closing. Meaning when this war started, Brent skyrocketed because you know, the issues were more global than they were domestic here in the US but since we began really, really drawing down our reserves and exporting globally, we've closed that gap as US Oil has been sold overseas, brought the price of Brent down and, and brought this WTI to Brent spread in which as is a longer term play. I think if we're running our reserves down and putting ourselves as a country in a more vulnerable position long term I would, I would think some sort of premium stays in here because you still have this risk in my opinion of export controls. Here's that chart just showing multiple different expertise, how it's, how it's really come down from the highs. And this I included because it's a, it's basically this article that actually came out and said that one of the reasons Trump pulled back the, the attack this week was or last week was due to basically Iran kind of figuring out and improving their defense systems and, and revitalizing their, their missile launchers and other other tactics. So and just to end on a meme, this the one where both Biden, you know, we have to call a spade a spade. I was criticizing the Biden administration for draining the SPR ahead of 2022 midterms and here we are. Corporate needs to find the, the difference in these pictures and they're the exact same. Midterms come along and you throw everything out the window. It's wild man.

Matt: It's a one part, it's a one party state, dude. It's like you think, you think it's Republicans adverse Democrats. It's not, they all do the same thing. It's so, it's so absurd. It's, it's wild. And also you know, to your call, I think you made the call, you know, you, you know, stay long xle. When you think about, you know, what a higher WTI does is like these, these US oil and gas companies are probably just printing, printing dough and a lot of them I think are buying back stock which is really interesting analyzing like if you analyze the sectors where tech was buying back stock for like 10 years, right? Like large cap tech was buying back stock for 10 years and now that's morphing where you know, at the time large cap tech was buying back stock and they had all these cash flows, you know, oil, oil and gas companies were fixing their balance sheets because they were over levered from the big boom in 2015 where they just raised a lot of debt and now they're back and they're like I'm not going to lever up, I'm just going to like use this to my advantage and my margins are going to up and then we're going to buy back stock. And it's just a funny, you can kind of see where cost of capital changes hands where supply on the debt side grows in one sector and then it shrinks in another and the balance sheets get better. So that, that phenomenon I think is, is kind of here to stay in, in this new world. But you know, who knows, maybe there's a Pax Americana and open up the straight of Hormuz and everything's great again and it's game on and we go into super bubble. But I don't know, I mean I

Tyler: think that they're, I think they will slowly allow transit because Trump, I mean we're less than six months for midterms now so. And his approval ratings are way even below where he was last time, way below Biden's. It's, it's very, very low compared to recent presidents. And you, you can't, you're getting in inside of six months and you can't really have too many slip ups anymore. He's already had a number of failed policy Rollouts from tariffs to, to the Iran war. And so you. Regardless though, there's been enough damage both to global reserves plus infrastructure plus sovereigns just having a wake up call. That said, okay, I can't rely on anyone in this situation who, who's been supplying me oil. Like I'm not only going to top up my reserves, I'm going to double them. Because who knows what's going to happen when things get more scarce. Because the really everyone should put this in the, in the back of their minds is that the US has approved an SPR drain basically down to the minimum operating levels, so they can draw it whenever they want. And obviously every spike we see in the price that gets batted down is, is them deciding probably to pump more into the market in the short term. But the big thing there is they will use that to their full advantage ahead of elections. So if, if you continue at the pace we've been doing in the first month plus since they've started drawing down the spr, it basically gets you to the minimum operational levels right around midterms. And so again like the problem actually is after that when they do everything possible. This is why Trump's been so confident he can get prices down ahead of the midterms, because he can just crank the SPR out.

Matt: But yeah, it's awesome. Free markets.

Tyler: Yeah. At what cost? The long term. Inflation. And that's what bond investors too are probably starting to see. It's like, well, we're talking about taking the SPR down to like zero, effectively operational minimums, not actually zero, just to keep oil prices from breaking out of 120. So how in the world do we get back to like $70 oil scenario? And then like you said, that just is a cash printer for these companies who, who are profitable now. And it's so funny how the hyperscalers are levering up and reducing share buybacks. And at that, that kind of peaked when everyone was calling for zero dollar oil. And then here we are with, with the inverse. Like it's just the cyclicality. It's why, it's why the S and P, that's why corporate profits get competed away. Every demand response is met with supply.

Matt: Exactly. I guess even though we don't have free markets over long periods of time, I guess they're freer than most. But this is a really good encapsulation. This is from my Buddy, go to slide 37. This is my buddy Kevin Burke, who's a partner over at Sapphire Ventures. And they're kind of wild numbers, but Each gigawatt of AI compute is now measured in the tens of building billions and it costs 15 to 41 billion to build out a new gigawatt. So like the Vera Rubin chips that costs 41 billion to build out. So if you, if you think about this is like I'm not like bearish on tech per se. Like I think this can go on for a long time in terms of like the suppliers of this stuff. When you think all that, that 41 billion has to get built out where it's going, that's where you're obviously wanting to invest in. But it's just, look, it's crazy looking at those numbers. And then this is also from Kevin, we'll put the link to his. He's got a great like monthly deck on private markets and like AI and software themes. Sapphire is like great at that. But so then he also has this from, from the packet and he said, you know, reach out to him on LinkedIn if you want to be added to this distro. But this is the total VC activity over time. So you're getting, you know, the debt from all the hyperscalers is feeding into that, you know, building out 41 billion per gigawatt. And, and then you, on the VC side you have all the AI models are driving like there's no stopping this like anthropic, the growth in revenue, like it's self reinforcing. We haven't really gotten a data point to prick this bubble yet on both sides on the debt side and on the VC side. So like those are the things when I think it's going to be like super over. Right now we're getting the macro volume which makes me concerned about positioning. Right. But we haven't really gotten a data point saying like the AI bubble is, is over. In fact it's actually growing more. So those are the two things that are really fascinating to me that like the cap, the, the money from the capex, it could cause earnings to go up for you know, a couple other years for all the people levered to the power and networking side of things. So it's, it's really a fascinating dynamic. It's very, I'd say it's not conducive for passive management. If you're a stock picker, you can crush it, you know. And I think that maybe that's where active management actually comes back because you have like, you know, real things are coming back. You have to invest in real stuff and not just like pile into crazy high pe, you know, nuts stuff. With zero earnings, it's, it's kind of wild.

Tyler: We'll see if that remains. Right now, everyone's happily piling into IP things. I mean, this, this tweet was really good from Bob Elliott. He said, pretty interesting chart in light of the bid on the hyperscalers as they move from high dividend buyback bucket, high dividend plus buyback bucket, to the high capex bucket. So basically what this chart is showing is performance of stocks in the S&P 500 over time based on how they use their cash. And so the blue line is dividends plus buybacks. Obviously that's just been big tack up into the right and the cash M and A and capex and R and D really hasn't performed that well relative to the index. And so you're, you're getting this hilarious rotation, like who would have thought, where the Mag 7 hyperscalers are moving from the blue to the green and then you have the energy producers moving from the green to the blue effectively. But that line up in the green just recently is simply because those mag 7 went into the capex bucket and they're still ripping. So it's a little funky. And short term, things can move differently, but these business models are just fundamentally changing. Like there's just no, I like this chart you had. I think it's on 35 showing the cap, the market cap weighting.

Matt: Yeah, I mean, that, that, that makes me so nervous. I mean, but at the same time, the market structures completely change. Like when every 401k is forced to invest in this stuff, it's like you need an actual legal change to make this, you know, change. So I don't know. And then go to the next one. This is 36. This is what makes me really nervous right now is this is the allocations to equity in the short term. This makes me pretty nervous given where all the macros at is. Everyone's piled in and you know, you have, you have some major short term imbalances on things. And I could see like one of those derivative unwinds or quant one wines in Momo stuff happening.

Tyler: I mean, totally. Like the, the question really is like, how does the S&P493 hold up or perform? For me, that's the biggest question over the next month. What is the catalyst? Is it, is it opening the straight and pulling out, taking the L and move and bringing your chips home? Is it warsh coming in and being more dovish than expected and kind of refuting the market's recent move against Accommodative liquidity and rates. I personally think that the yield problem is not done. I mentioned, you know, went through that section at the top of the show about starting to think about longing. So for futures is a basically with the belief that like if yields continue any higher it puts a curb on stocks, puts a curb on the economy, it slows things which is you need a steeper yield curve to, to rebalance the capital flows and kind of how large cap tax benefited so much more over Main Street. And so you do need that for the banking sector financials you need this steeper yield curve and it's actually, it's really a 10, 20% correction on the major equity indices that allows for the rate cuts to happen. So it's all just become one trade. But I do like a steepening yield curve particularly in the election because I mean think about how much is going on this year. It's May, I mean just in January we had the Lisa Cook thing. In January and Feb we had the Trump directing Fannie Freddie to buy 200 billion of mortgage backed securities that push mortgage rates 25 bit slower in a day. We've kind of forgotten about all of the quivers in the hat that they may or may not pull out for, for midterm stimulus for Main Street. Like housing, home builders have gotten crushed, retailers crushed. Like everything you look at does not paint a pretty picture for the average consumer. So they're definitely going to try things here.

Matt: I know it's fascinating that XHB and XRT almost did the exact same thing today when you know it looked like they, it was a complete, complete taco. But I, I just, what's, what's more interesting is like I don't think you get a rotation if you have a lower cost of capital for the AI stuff. I think that just keeps rocking. Like I think that still will, will if you get sovereign yields lower that's just going to rip even more and turn into like a giant gamma squeeze. And if you look at the cost, you know the compute prices, they just keep going up, up and to the right. So there's, there's real demand for that stuff. But you also have to take into consideration like I think you need to lower the cost of capital for your actual citizens somehow I don't know how, how to do that. But it's, it's like not even at a level, you know when you have credit card rates at 20% and you know high yield spreads are really low for corporations. Like there's no way, you know Your average person can catch up. And you see it in the consumer confidence numbers, you see it in housing affordability numbers. I don't know how you solve that without. And maybe you just create a massive supernova of a bubble and then you delever the government balance sheet, etc. I think maybe that's the policy, but it's. We're, we're, we're getting, you know, you still have to trade it and it's, you almost have to fade everything. You fade the, you know, when, when things are breaking out, it feels like it's, you know, you see skew rising. You just have to fade that because the policymaker is going to do. That's my new, that's my new policy. When I, when I, when I go ultra, ultra bearish, just fade it. It's just like. Yeah, so I, I think, but if it was a free market, it would probably, you know, it would probably unravel. That's the, that's the thing.

Tyler: I, I sometimes I just think about how like, you know, I'm, I'm planning and trading and investing, you know, over the next, for, for multi week to multi month time horizons. And, and there's some parts of me that just say like, given we know that the kitchen sink has already started to be thrown at the markets ahead of midterms and will continue to be thrown. Like how do you, what trades do you, do you participate in ahead of that and then, or even, you know, one of the hardest things to do as a trader market practitioner is to not to sit on your hands and not do anything. And there's times where that is the most profitable thing you can do as well. Because you know, we, we also could move to an environment where the trend, you know, we've had a beautiful trend for the last 40, 50 days because things have just gone straight up. But that could also change. Like you could get a much choppier environment. 2018, for example, was, was a midterm year where you had, you know, his original trade war rollout with China and, and you had this basically this huge range that the S and P move throughout. And I find it interesting like coming out of this China meeting, some of the things he was saying about Taiwan and the importance of kind of reshoring the chip industry and it's no surprise to me anyways that SpaceX moved up their IPO date to basically as quick as possible in mid June. This just yesterday or today that came across the tape was open. I open AI might file as soon as Friday. Like everybody and their brother is like seeing this strength and it's like, get me to market ASAP. Like, yeah, you do not want, if you're SpaceX open anthropic, there's, there's 4 to 5 trillion dollars quoted of, of IPO market cap coming to market. Obviously the floats will be very tiny, so these things will pump and it won't be that much paper. But like you don't want to be the last one of them, right? Like after all the liquidity is drained, it's like crazy.

Matt: Like still as an active manager, you still have to raise some money. Like if it's you know, 75 billion IPO, you still have to raise some dough. Like supply has to come from somewhere.

Tyler: So it's, it's not coming from energy, it's coming from semis. It's coming from like presumably that, that to me that sets the stage for why NASDAQ relative to the rest of the market could be topping out for a long time. Because starting in three weeks, you're getting a string kind of back to back to back month or two months apart of multi trillion dollar IPOs. And so, and you're getting this, you know, who knows how quickly they will be listed in the, in the NASDAQ index. But as you said, making room for that paper as a tech investor or just general overall market investor, that has to come from that exposure. And you know, in some ways it makes sense that they did blow the bubble in this stuff to create the room and the liquidity. Like, oh, now you can sell your semiconductors up 70% from where they were month and a half ago. Okay, I guess you have a little extra dough to buy these IPOs.

Matt: You know what, there's also something to be said about maybe we're just watching a whole giant reorganization of our economy. I went on this call with a guy named Ian Weiner. He runs this fund called Center 15 Capital. It's like a lot of defense tech. But he was saying there's like a fundamental shift in defense. And you know, one of, one of the companies I invested in with him was, you know, these are private so I can talk about them. But it was, is epirus, it's anti drone technology. And basically what he said was like this Iran war went from, used to have a lot of these, you know, European countries wouldn't buy certain US defense tech, but now that's opened up because every single one of these countries has to spend on their defense now. Right? They need a fiscally and we think about that, okay, fiscally now we have to grow and use money from our balance sheet and that means higher yields. But it also means you have to actually invest in your defense as a country. And that's happening. And just like, you know, Louis Gov also is on this podcast recently and he's like, just like you said about you have to have a strategic amount of commodities just in case something happens. So this is like, I think we're watching just like money come out of like dumb leverage and like dumb spending in terms of like it used to be about housing and commercial real estate and you know, all these things that are really like, they're not really productive for a 21st century economy. And then they're going, you know, we're watching money kind of like go into things that like you need in a 21st century economy. Like there's, there's like mind blowing, you know, things that productivity unlocks from AI that money will be going into. And I think we're kind of watching that on a slow basis. But you know, can they stomp out the, the sovereign bond problems and keep that, that fiscal spigot going and the growth higher than you know, the nominal rates and I guess that's, that's the name of the game. That's the new game now.

Tyler: Yeah, it is pretty crazy. Like if, if real GDP is still hovering around 2, you have inflation now about to be cycling over 4, like nominals in the 6 to 7 range. And you know, it's not that surprising then to see bond yields break closer to five if, if you're running things that hot.

Matt: And when, when you think about like the cost of like a lot of this infrastructure that we have where like, like you said housing is like how do you maintain that stuff? And if you have that inflationary impulse, it's, you might get like that prices might have to, to come down if, or, or, or I guess like the prices. I don't know. You're kind of bullish on housing because of that.

Tyler: Yeah, I think the replacement cost, because everything around it, every, the cost of everything is going up because like you point out the spending that the government and people are, corporations are doing right now in terms of data center, AI tech, defense, but they're, they're not cutting elsewhere. So the government, like Trump's proposing a 500 billion increase to defense spending next year. But even, even this year they, they didn't really cut spending. They just rearranged the chips. They just added to defense removed from education. You know, they didn't touch any of the discretion, the the non discretionary Social Security stuff. So you, it just leads to the debasement and it just creates these, the, you know, the elevator up and down basically because you know, you, you have these supportive liquidity periods where all the shorts get squeezed and then we stall out. But from a government balance sheet perspective, there's just no, there's. You're also looking staring down the barrel. Like if you're the bond market in, in November, they're very likely the Republicans are going to lose the House. So then you're looking at a split Congress into a lame duck presidency. Two years and we know nothing good really happens there. If anything, the Republicans, if it's like last time, will have to actually scrap the debt ceiling, like come to the table, spend more to, to get the Democrats on board. And so you like any progress they did make on the deficits is just going to get way worse. Like it's. Yeah, we're at peak deficit improvement demographically.

Matt: I can't wait till some of that money starts coming in the next generations too. Like could you imagine if they were like, oh, free child care for having children, you know, or instead of like hey, cost of living adjustment on your Social Security.

Tyler: Yeah, I feel like actually I, I retweeted this, retweeted this tweet from Paulo Macro. He mentioned the, the Massey election today that happened which is just. Everything about that is like, but it just horrible. But voters 65 and over were the only age demographic in Kentucky's 4th congressional district primary to favor Ed Gallerine over Thomas Massie. But their support obviously swung the race form so it's like it's just still boomer led stream news. So maybe, maybe it's stuff like that that's giving Trump a lot of confidence going into midterms because he's, you know, obviously him and Israel spent tens of millions of dollars on a local congressional house. Like it's, it's pretty crazy that that to happen on the same day that Trump cuts a deal with the IRS to never be audited ever again is like that. That's how like death of democracy type stuff is. Is set.

Matt: Yeah. I mean what's, what's weird is like I don't get all this grift that Trump's doing now this, this time around where like the whole world Liberty fi. Like all this nonsense and insider trading stuff like you're a billionaire, like what are you doing? It doesn't, it's so bizarre to me and like I don't, I think the first term, to be fair Is like, he's always been kind of a loose cannon, but I don't think he really did a lot of that stuff. But it. Maybe I'm wrong. I just. It's just. It feels like it's just going down some crazy, like, oh, you know, might as well pump this one one, you know, while I can. And. Yeah, I don't know. I think it's. I'm really. I'm really interested on. I think this is the last election of old people, and we're. We gotta get some new blood in there, some new narratives of, like, what America is going to be like for the next 20 years. Because I don't think this can keep going on. Or maybe it can, but I. I'm. I'm very excited for that.

Tyler: Yeah, I agree. It's never a good thing when. When the Trump family makes Hunter Biden look like Mother Teresa in terms of grift and fraud. I know.

Matt: Oh, man, those are our choice. Those are our choices somehow.

Tyler: It's great. Well, good stuff, man. We made it through a full hour with. Without. Without Felix, so, yeah. Better come back soon. Otherwise he might. Might lose his job to the two hooligans.

Matt: Yeah, dude. By the way, I don't know if you can see that this is my Kobe shirt.

Tyler: Oh, I love Kobe.

Matt: I had to. I had to say this because I watch. I don't really watch much pro, you know, sports anymore, but I watched Jalen. Did you see the Knicks cave last night? No, dude. Jalen Brunson, they were down 22, and he just absolutely butchered. It was the coldest performance. You got to watch the highlights I've seen in 15 years. He just, like, took hard into the cleaners, and the Knicks came back and won in overtime. But it was like one of the. It actually got me excited to watch, like, NBA for the first time in a long time. And I don't know. I got a shout out. I grew up out outside New York City, so. Still kind of love seeing. Seeing the Knicks do well.

Tyler: That. That moment that on your shirt where the guy fakes the. The pass that Kobe's had and he doesn't flinch. That is like the. That is one of the best videos of all time. Yeah.

Matt: Gives you. Gives you chills. Yeah, yeah.

Tyler: No, playoff basketball is actually good because they show up. I mean, for the 82 games of the regular season, it's like the worst thing ever. But I guess playoffs, and I think we're.

Matt: I don't know. I'm hoping we move past the superstar stage of the NBA, and it turns a little more into, like, the NFL, where, like, it's not about. It's about the teams, because you have some likable teams. Like, I don't know.

A: And.

Matt: And then Wemby's kind of. I guess Wemb is actually a very likable guy.

Tyler: Yeah. He's insane to. It's so cool to watch you like, watching it. Yeah.

Matt: He's in my backyard now. We've become spurs fans.

Tyler: True Texas. Good stuff, bro. All right. Well, are you looking good?

Matt: Yeah.

Tyler: I'm pumped. We. We did it. Hopefully don't roast us too hard.

Matt: Yeah. Yeah. Please roast us in the comments, as always.

Tyler: All right, Have a good weekend, guys.

Matt: See you guys.