Forward Guidance: The AI Unwind And Warsh's Long-End Gamble | Weekly Roundup

Sourced by podcast-ingest on 2026-08-04. 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: 49m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG2134022026.mp3.

Show notes (from RSS)

AI’s leverage-fueled boom is colliding with a Fed determined to tighten conditions without touching short-term rates.

This week, we dig into the Situational Awareness liquidation, the Fed meeting, and whether markets have reached a genuine growth inflection.

We unpack the ongoing AI unwind, Warsh’s long-end strategy, the Fed's credibility shock, and the administration’s market choreography. Enjoy!

TIMESTAMPS:

00:00 Intro

01:45 Situational Awareness Liquidation

04:49 Why Leverage Fueled The Boom

07:51 Price Drives The Narrative

12:42 Did Markets Misread Warsh?

21:08 Why The Long End Matters

25:42 Warsh’s Communication Problem

29:17 What Comes At Jackson Hole?

33:14 Growth Hits An Inflection

38:27 Markets Vs Midterm Politics

45:46 August Slowdown Risks

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RESOURCES

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EVENTS

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DISCLAIMER

Nothing said on Forward Guidance is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only. Any views expressed are opinions, not financial advice. Hosts and guests may hold positions in the companies, funds, or projects discussed.

Transcript

Jack Farley: Nothing said on Ford Guidance is a recommendation to buy or sell any investments or products. All right, what's going on, everybody? Welcome back to another roundup edition of Ford Guidance. Just the duo this week. Tyler is on summer dad duties on vacation right now, so we'll give him a break as the two guys without children. So, you know, sometimes you got to do that. We miss you, Tyler, but yeah. What's going on, Quinn?

Quinn: Not much, man. Another week flying by. Can't believe it's August already next week. So, yeah, no shortage of excitement for. For a summer trading week, that's for sure.

Jack Farley: Yeah, I know. I was hoping for a chill summer, but it's like definitely not that we'll get into it. All right, before we get into it, dude, just want to do a quick shout out. Quick shield here about the Digital Asset Summit. Click. Conferences coming up this fall, we're going to Asia for the first time. Singapore one day affair right around token 2489 happening at the same time too. So the whole industry will be there. But yeah, get your tickets. That's gonna be a great one. Got the Digital Asset Summit as well in London that we're doing once again in November as well, so keep an eye out for that. Tickets will be going up in a couple weeks, I believe. So make sure you get in early because, yeah, as always, these things sell it pretty quickly and prices go up in time. So, yeah, get ahead of yourself and get a ticket. Should be fun.

Quinn: That'll be a good time, man.

Jack Farley: Should be good. Stoked. Yeah. I've never been to Singapore, so it'll be cool to see that. I don't know. I don't know. Have you.

Quinn: Yeah, I've been. It's a cool place for sure. It's. Yeah, it's a cool city.

Jack Farley: Nice, man. All right, with that out of the way, why don't we get into things? So we're recording Thursday today and want to talk about the talk of the town. Talk of the news right now around the wonder kid, Leopold Ashbrenner. Once again, Icarus flew a little too close to the sun. Yeah. Obviously we've been talking about the AI trade unwind over the last few weeks here and it's obviously starting to hit the big dog. Yeah. News started to come out that last night. I believe he was looking to try to raise capital. Typically if you know, if you're. If your main market that you're trading is in the downtrend and you're trying to raise capital, it's probably not for good reason. So there's already a. Yeah. Hints of that coming down the pike. And then this morning came out with news that yeah basically they, they had to basically sell off their whole public markets position. I think some of their private marks too like anthropic and everything. And know first off it came out that it was just a single buyer and lo and behold the legend himself, Ken Griffin. Kenny Griffin Citadel came in and yeah bought the lows once again man. I'm curious to your thoughts like especially from the market practitioner aspect. If you see a main character develop like you know suddenly everybody was tracking his 13 Fs and try to copy trade and you know you have that and then you have the washout and then the force liquidation feels to me like that's a pretty meaningful signal at least I don't know if I'd say that we're going to be you know obviously we saw the reversion higher as the big, the big buyer slash seller was. Was taken out of the market and everybody coming back into the trade today pretty big rotations back into long duration tech and everything. Yeah. As the low end. What do you think?

Quinn: Well the macro conditions which we'll talk about the fad and environment after this. But just as it pertains to this example I think obviously you get a fat mean reversion. I, I would had been writing starting Tuesday that the selling had started to get pretty, not necessarily disorderly but high volume and, and pretty aggressive and. And was covering things up a bit from the short side. And then yesterday I was very surprised in the morning how heavy the tape still was because you had rates sort of lower a little bit. You had SOFR futures up. I specifically wrote. There's a lot of things about this that don't make sense because you just had this idiosyncratic huge selling in equities and I just sort of drew it up as FOMC panic. But the, the rates market wasn't panicking. Like you know you had a couple of these big calls one of them from Citadel which suppose is unrelated to this I guess but saying rate hike could happen. And so I, I guess there was that vibe that some people thought to, to de risk ahead of it. But yeah man, it's you know we've talked on the show about how much of this, you know the weeks and months ago it was like it priced in right. Like is are these things trading at fair value? Is the AI trade you know fully appreciated by the market? And I would always, you know we'd point to the fact that how much of the semiconductor asset class and sector was being driven by these 3X retail ETFs that were causing rebalancing of, you know, basically every day the socks moved 4 to 7%. There was no 1% day because if there was, it would be a 3% day because the market was all levered ETFs. And so when you just take a step back and you're like, all right, that got flushed, right? The AUM is, is like cut and cut by two thirds. You have Korea, the Korea degeneracy, that obviously margin call. We all saw those stats last week. And then you have this situation which one of the most successful AI investors of the past few years, what, he started his fund at like a couple hundred million or something?

Jack Farley: Yeah, it was like 225 million, I think.

Quinn: Yeah. Ran it up to billions. These are huge, huge numbers that are completely separate from, from the fundamental story. Right. Like the 3x levered ETF AUM growing, growing from 25, 30 to 100 billion. The Korean margin stuff. This, this stuff, like, yeah, that, that. It's very detached. But what I think is important to recognize is like where we went with all of that stuff and the perfect narrative, the perfect story, like, it would be very surprising to me if we got back up to those levels just given how much leverage induced that move

Jack Farley: it took to get there.

Quinn: Yeah, yeah.

Jack Farley: And there was the, the fundamental story too did also start to get into question because SK Hynix had their earnings miss and is the first meaningful miss of that whole complex. So there was, I don't know, I'm a, I'm a fan of reflexivity. Like, I don't think it's a coincidence that the same time that you get the first SK Hynix miss is also when you get the max amount of lever in the system. And also like, you know, the sort of tape warfare that we saw here, like, I don't know, the rumor mill was swirling that Leopold's firm was shopping around for, for buyers as late as last week. So, you know, if, if, if the sharks smell blood, they're going to start to short those names. You know, obviously you did have that fundamental aspect of SK Hynix missing and it makes sense to see it to beat down. But I also don't think it's a coincidence that at the same time you had, you had the sharks swirling in the waters trying to short these things. And you know, when a big player has a target on their back, the market's always going to test them.

Quinn: Yeah. It also just reinforces the idea that it's totally price that drives narrative, that drives price and not the other way around. Because in a situation like this as the market's declining, right. And selling off bigly, there's all these things being drummed up as the reason like the AI trade, the Koreans, the Meg 7 is going to slow spending every possible and so everyone's trying to put their finger on it and then it comes out that wait, it was like these huge leverage liquidations on multi billion dollar players and then it's like now it feels like everyone's like oh that's what it was. You know, thank God it, it has nothing to do with the fundamentals. Nothing to do. You know, we're, we're back. So it's, it's just the market can be so flippant in both ways.

Jack Farley: Yeah, I think like 100% to get back like what SanDisk needs a double to get back to all time highs. Like that's a lot of leverage that got built up to get back there. I think like again I mean I've been harping on this since we started talking about this memory trade like time horizons, risk sizing leverage or spot. Like these are things that you should have pre planned before you get into the trade to, to know what you're working with and you know, if you have a year long horizon, time horizon obviously when you know a big player gets taken out like this it's, you know, it might be a good spot to put some in but don't expect all time highs in the week. Like I don't, I don't know if like you'll see that sort of V reversal right back into things but you know, maybe just some low bleeding like low volatility chop from here on out. Obviously at the mean reversion today. Some of these names up 20 and you know that, that part's done and yeah, I could see it, you know, just kind of chopping around for a little bit here. Obviously there's like we're gonna get into, there's so much context around this from what was going on with the Fed too that we need to piece apart. But yeah, I don't know again like it just matters what time horizon you're playing in and how you actually express the trade. Like path dependency is so important. You know Leopold's thesis, like I, I don't know if anything of it is in question but he's been carried out now just because of the way he implemented that strategy and executed on it. You Know, a year's time he could be proven completely correct and then some, but still lose.

Quinn: Like yeah, he was.

Jack Farley: Markets are hard.

Quinn: He was proven very, extremely correct for a long time. So I mean it's. Yeah, it's tough, man. I think, I think it's also helpful to think back to these recent trades that have captured the. The narrative attention flows in zeitgeist. When you think about the metals and silver, even around oil for a bit there, even crypto last year, last summer, it can be a pretty long period of digestion. Once enough, once there's been enough damage, like if you're in a uptrending aggressive bull market like semis and some these assets have been over the course of the past few years, you know, the dips get bought. The dips get bought. But when you, when you really injure and damage that, that buyer base and, and reaction function, I think it can psyche.

Jack Farley: Yeah.

Quinn: Yeah, it can take. So I mean, you know, maybe, maybe, maybe the brain, it's best to just avoid the brain damage of the sector. And for six months, kind of like metals, you. And like if you're stepping into gold now after just shelving it for six months in January, you did better than any like metal specific trader because you just avoided chop and yeah, you know, headache.

Jack Farley: That, that mental model is so good to like have a cooldown period on tickers. Like I've been plenty guilty of this before. You know, where if you, if you make a bunch on a, on a certain ticker, suddenly you spend more time attention on that ticker and you try to trade that ticker more often. And in the opposite too, maybe you lose a bunch and then you want to make it all back and then you try to do that using that same ticker. There's, there's nothing wrong with just you. Yeah, you don't need to express a view here. You know, you can, you can make a funny tweet, a funny meme about whatever happened with Citadel and Leopold and then just, you know, just side stash that for a little bit and then just let it sort itself out. You, you don't need to be the hero every single day. It's, it's. You can go look at a different sector, let it cool down. Like to your point, that's exactly what happened. Gold, it had its run and then it had its cooldown period. And yeah, if you, if you just try to knife catch these things throughout those cooldowns and especially if you're coming from a place of weakness, it's, it's A tough recipe.

Quinn: Yeah, totally, man.

Jack Farley: All right, let's talk about the Fed. Other big news this week, of course we had the second meeting from Kevin Warsh yesterday. Odds going into there, we're pretty uncertain. Definitely a part of the new era of the Fed that we're in now. Yeah, I think going in there, odds are around 60% for a pause, 40% or so for a hike, and presented with a pause but with three dissents, which is super interesting. And you know, I think Kevin Worsh characterize it as he asked for a good family fight and he got one. And so I think it's, it's somewhat by design, but yeah, I think there's a couple good takes here. This is just from Nick Timoros piece on the Fed meeting yesterday and his take and also from, from then there he looked like he, he had a, a little commentary from Mark Cabana, who's a really great Fed watcher from, from the bank of America. And he said this is a classic central bank credibility shock. The long end. And stocks turned together roughly 3pm while Warsh was still speaking. Investors had priced nearly 2 increases over the next 12 months. What they heard Wednesday was a chairman whose willingness to deliver them they now doubt. And really importantly, this might be a good place for us to start here. But there's three things that really unsettle investors, like just a bit of context here on the initial statement that came out when the market's priced for only 60% odds of a pause, obviously you're gonna see some sort of a relief rally. We saw that. But then when the press conference came in, I was listening to Joseph Wang's debrief on it and he called it a disaster of a press conference yesterday. But I think, yeah, it's just obviously we have a lot more uncertainty. So of that uncertainty there's, you know, just this question mark of what even inflation gauge are we using? Kevin Morse was asked about it and asked about what inflation measuring relies on from the Fed's official PCE gauge, but said that he left room basically to look beyond it when he said his own lens is broader and that the central bank's overarching strategy statement, which lays out how it argues and targets inflation, which reissues each January, could change. So obviously if you're a bond investor and you don't know what inflation gauge the Fed is even trying to focus on, that's going to cause some pretty meaningful rate volatility. And we saw that the 30 year bond sold off pretty meaningfully. And also asked whether higher rates were the remedy for inflation that won't come down. He said that well could be part of the solution but wouldn't say whether they're the main one and suggested the market's own tightening had done some of the Fed's work. So yeah lots for us to piece apart. Curious, what was your high level take on yesterday?

Quinn: Yeah I can't remember an event I can't remember some less so markets oriented sometimes political where I like fundamentally like diametrically disagree and oppose the consensus coming out of the event. I think the level of I guess clearly the communication was was needs some work because if you are from if you've read his, his comments, his writings his listened to his press conferences and his speeches and talks over the last you know multiple years you, you like it was very clear what he was trying to signal throughout this speech. 1 if you look back at that article you just post he the reason the long end increased was because he said that he wanted to remove balance sheet accommodation for the long end. He said at the outset he said a core question I posed to the committee and our task forces is how much accommodation is the long end Is the Fed's balance sheet providing the the market and monetary policy. And it's obviously a lot because you have a record flat a record flat yield curve and you've had Fed balance sheet growth that started again massively last year and when they expanded their balance sheet they doubled it in Covid they never unwound it to the same extent. They just hiked rates. So we've been talking about this for a long time that to properly rebalance monetary policy and therefore the economy which has been extremely imbalanced and just helpful to tech and large cap corporates over small business and medium and consumers is you need to let the long end see free market prices. And so he was basically saying that he wants to let the balance sheet remove the Fed's footprint from the balance the the treasury market and let the the long end of the curve price to fair market value. And as soon as he said that the long end yields rose and then when you do that it restricts one it discounts, it's a higher discount rate. So it, it lowers valuations but it also restricts financing conditions and you also saw credit spreads widen. So it to me the price action made perfect sense based on what he said. And then you know those other things where people said well he didn't want to say that rate hikes are the main tool. Well if they, if they let the long end reprice to where it should be without Fed intervention, that's probably another 50 to 75, maybe a hundred basis points higher in the long end of the bond market, you bet you're going to get a stock market correction, you're going to get lower growth and you're going to get lower inflation. Like if they actually. So I think, I guess clearly everyone just didn't understand him but I think they will over time. So maybe you know that's feedback for his communication. But I think that my biggest question is not around what he communicated yesterday. I think it was very clear about based on everything you know, we know to date. But where I would just question is like again it's easy to, to talk tough when stocks are 2% off all time highs equally just made new highs etc. So at some point I don't, I don't think you'll be able to be this hawkish. But I mean he, he was, he never ruled out rate hikes. He just was trying to express without saying it that they want, he wants to use the balance sheet tightening tool first. And I think he's right that that will fix things. It's already caused a dampening in stock market momentum. It's caused credit spreads to widen. Real rates are high. Like this will slow the economy 100%. This will slow the economy, it will slow the housing market and it will slow inflation. Like that's what you have to do. You have like you have to take pain. So to me it was just him trying to dance around like him trying to say Powell's like August 2022 there will be pain speech without and try to be a little cuter about it without saying there will be pain. But it was pretty straightforward in my view. I think, I think there's a lot and a lot of misinterpretation and misunderstanding

Jack Farley: around it Seems like there's a lot of emotion around it too. Yeah, there was people, people just seemed really mad.

Quinn: They were furious. Dude, I could, I was just surprised. I actually was. I actually in some of my accounts bought. I just bought some things because like man I've not seen people this. It was very, it was like some. I saw a tweet, Anna Wong from Bloomberg who's like a very I think straight and narrow like down the middle person. Like she's, she's not emotional or ridiculous in any political way. She's just like this was the same exact reaction as when basically is pop like when the long end rose when Powell cut. But the outrage is just from different based on Your political leaning. Yeah, it was so weird, man. I was like, wow, I've never seen people. It was sort of one of those things that just snowballed of like one or two accounts were like chirping and. Yeah. And like. And then everybody just piled on because it was like the cool thing to say. But by the time you were reading your timeline, nothing that people were saying made any sense and it was like. It was weird. It was weird, yeah.

Jack Farley: I don't know. Yeah, I mean like when you look at. So this is just looking at the two 30s which is where all the action was yesterday, it's still like not that steep. I mean obviously there was quite a bit of cuts priced in to the two year at one point. So that obviously, you know, when you reverse that you saw quite a bit of a flattening. But now obviously we've seen to your point about how the 30s was where a lot of the action was. This was actually a really good chart from Lighthouse Macro who's on the show a couple weeks ago. He has some good stuff. But just piecing about the, the compositional changes in the, in the curve yesterday, which I think is a really good way to look at all of this because you can see just how if you're just looking at the nominal yields, I think you missed a little bit of the action of what was going on because you can see like the, the shorter end, the twos and the fives. The fives here is the shortest duration on it. And you can see like on a lot of what that affected was more so on the TIPS yield and therefore higher inflation expectations obviously because there was partly 40% odds of a hike coming in. And if that's not happening, that's going to lead to short term higher inflation expectations. But then you look at the 30s duration, it's completely different. You saw high real yields and maybe you can make the argument that this is where some of that credibility questioning was brought in. But you know, in the same vein, I think a reasonable way to look at this is what you're saying, which is that look like everybody has been saying for years how the long end has been suppressed, that it's leading to looser financial conditions, that we don't have a true fair value long term discount rate. And a lot of that is because of the balance sheet and what they've been doing there. And you know, if there's talk about removing that, there's a lot of people who would have been supportive of that idea that were actually quite upset about what was going on yesterday. So I, yeah, I do find that a bit confusing.

Quinn: Yeah, it was like classic, you know, everybody doesn't want inflation and, and wants a hawkish Fed when, until it affects like your levered, you know, asset holdings that you're, you're. Then that's where all the emotion came out. It was just weird.

Jack Farley: Maybe there's, there's valid criticism that like look, if you're really trying to do this, why didn't you hike yesterday?

Quinn: Because that's the wrong reason. Yeah, the reason for that is because the, the, the front end is actually not that far from where it should be in a normal operating environment. If you look back in history it's, it's pretty standard that the front end is anywhere from 0 to like 50 basis points above inflation. And if you think inflation is like run rating in the three to three and a half area right now and the front end is like 3.5 to 3.75. Yes, it might be a little loose but all else equal, it's the back end that's way too low. And the reason it's low is because the Fed. And that's what Warsh is saying. Warsh is saying, hey guys, look, we could hike rates because we do really want to get inflation down. But I mean there's, we're, we're not going to just go crazy here. It's, you know, we're 40 days in or whatever he said and we're going to start with the biggest problem which is the long end of the curve, which should go higher. And he obviously should have done a much better job communicating because the people that were crying out about credibility and oh my God, he's losing the long end. Like I would bet a lot of money that he walked away from that meeting and will walk into the next FOMC and say hey, hey committee, I told you this would work. We restricted financial conditions, forward inflation, swaps and break evens are falling precipitously after that speech because real yields cranked higher and we didn't even have to hike. Meanwhile know stocks are down 5%, credit spreads are wider. Like I just like everything he said he wanted was happening. So it's very hard for me to take that and say wow, his credibility is wrecked. Like yeah, I was, I was watching the price action, I was like wow, everything's doing exactly what he wants from this meeting.

Jack Farley: Yeah, I mean maybe, yeah, it might just be semantics around this corner. He's pinning himself in, around this communication style that he's trying to pursue of like not saying anything while also kind of saying things like, yeah, there's, there's something there about that I would say could be improved. Like, look, directionally. A lot of the things that you're trying to achieve here, I, I agree with like on that point. The short rate is not the lever to pull here to achieve what we need to achieve. It's the long end. It's letting long term bond yields go higher. That's, that's what needs to happen. It's just, you know, maybe the way they went around that was because he's trying to toe this line of pretending to not give forward guidance while also kind of saying, hey, we're trying to focus here. I think that's a little messy.

Quinn: I think the reason for that is because you need, it's a, you need to vote and you need committee, you know, consensus and approval to make these changes. He can't just come in and say tomorrow we're going to do this to the balance sheet. And we know that the whole committee, obviously Powell's still there. They all are like very dead set on balance sheet expansion, which never was a thing pre all these interventions. And so he was trying to basically steer the market towards his view without having the approval and sign off of the committee to go there and say we are going to do this. But he was trying to like guide the market towards it, I think. And, but he didn't have the full ability to say that was definitively going to happen.

Jack Farley: Yeah, it's this weird period too where he has these task forces that he wants to let provide the guidance on where to go and he obviously needs to wait for that to play out before he can, you know, show his cards. So maybe there's a bit of that too.

Quinn: You knew, you knew there was like, I knew it was gonna be a, like it was an emotional like response when there was some accounts like one of them an economist like Claudia Sommer, whatever. Yeah.

Jack Farley: Oh yeah, she was, she was not stoked. She's the most classic representation of the Yellen era.

Quinn: Yeah, she's, she's very political obviously. But yeah, she was complaining that, um, I can't believe this statement. There's no Fed reaction function, there's no mention of the data. And like these. She listed like three things that are like one, they were never in the statement. Like they, you never, they never listed their reaction function. Like if data does this, then I like. And also the data is public and like, why do I need the Fed chair to tell me that the unemployment rose rate rose and this happened like just look at the data and make a decision. And also the, he didn't, what, what didn't make any sense to me was like the market going in went to 30% no hike or 30 hike and 70% no hike. So. And then coming out, everyone said he lost credibility by not hiking, but the market wasn't expecting a hike. So you don't get your cake and eat it too. Where somehow he does what the market wanted but then lost his credibility because like there was so many things that didn't make sense about people's responses that it just showed how much emotion was, was, was all over the place.

Jack Farley: Yeah, agreed. Where do you think we go from here? Obviously the next. So, so there's no meeting until September, but we do have the Jackson Hole Symposium, which historically is a venue for Fed chairs to provide that more, you know, one year time horizon type of outlooks or you know, if, if the plan is to really focus on the balance sheet in the long end, I would assume that discussions are, you know, Kevin Warsh's speech, keynote speech at the Jackson Symposium is probably going to be related to that. I don't know what you think or if, if you think he's just going to, you know, give a couple platitudes and then just wait until the September meeting.

Quinn: I, yeah, he talked about it, which was funny. Like one of the reporters asked what he's going to use his speech for. I mean, that's a dumb question. Like why would he, why would he know today or tell you like what? Yeah, I think probably because he did say he's going to be talking to the task forces and seeing what they say. I would, I would. We already know what they're going to say. Obviously like the people put in the task force are to kind of come around to his views, but you know, let's give him the benefit of the doubt that there's actually some integrity and like going through the motions. I would say he probably does talk about the balance sheet because if, if the communication, if the feedback from this presser was that the communication was poor and obviously these press conferences are not really the place to go into like a deep dive tutorial on why something big picture policy is the way it is. I would say it's probably a decent idea for him to kind of make the case publicly why and explain why this is a better way to transmit policy, which I think people are confused because he's saying I want to use rates, I want to use the rate policy transmission mission mechanism going forward in the future. And what he actually means is I want to use that to ease, but he doesn't really want to use it to, to restrict and it's actually fair because there's so much accommodation on the long end right now that he should restrict that first and then use all of the restricting needed there. It would very much slow the economy and slow inflation if they see it through. And the yield curve steepens another 100bps with the long end going to 5, 5, like 5 and a half, 6 and then you could think about where the front end comes in. So I guess that would make the most sense. But to me, economically speaking, you just had a huge dent in the number one driver of growth in the economy with the AI stuff and the Meg 7 still putting up earnings and everything. But it's important to remember, I think how much of the wealth effect and spending and the economy is tied to this one aspect and also even further how they're performing in the equity market. And so I definitely don't think it's an all clear. There's not really any liquidity was bad going into yesterday and clearly right, we're seeing $40 billion hedge funds blow up and yesterday the only resolve between now and then was liquidation relief but no policy or fundamental directional shift in inertia. And so for me I think, I think that's still like a slowing growth type environment, although not recession, nothing like that. But equities are still basically at the highs. So I don't know, I don't think the upside is that amazing here over the next few weeks.

Jack Farley: Yeah, I've been trying to think through the outlook of growth from here on out and it's always like today we got some GDP data that came out and again like GDP data is extremely lagging. You don't want to be making forward looking assessments too much on it compared to one like for sure, one of the biggest drivers of consumer wealth lately has just been, you know, stuff like people feeling rich for the memory trade and AI stuff, the AI build out capex build out tariff refunds, the, the boons on, you know, tax season for the big beautiful bill that we've talked about. Just like how big those refunds were. These were all sort of flashes in the pan that are all definitely starting to slow down a bit here. But then at the same time like we got this GDP data today that is, that is quite interesting because on the surface it actually missed and came from consensus was 2.1% came in at 1.5. But the vast majority of that miss was having to do with net exports and, and all that nonsense. Like it's, it's really important these days to try to isolate that dynamic just because of all the stuff that's been going on with tariffs and just changes in terms of trade. But the actual personal consumption expenditure was very strong. If you isolate. This is again a really good way to, if you're looking to try to get the core understanding of how the engine of the economy of the US is without all that noise. Looking at PDFP or real final sales to private domestic purchasers is a really good way to do this. And, and that print came out super strong. So the way I'm, I'm starting to think through this is that okay, you know the, the core engine of the economy was quite strong going into the last week or so. But then you have this tightening of financial conditions from, from war on the long end you have the, the, the total liquidation of, of the AI trade. You have, you know, further questioning of, of CapEx build out from hyperscalers like Meta's down 8 or 9% today or something like that. Yeah, there's a lot of dynamics that look like this is a bit of an inflection in growth. Are you still thinking of it that way?

Quinn: Yeah, I think, I think that Q2 definitely. I mean you also had like things like the World cup and all those, those stimulus measures.

Jack Farley: Yeah, that too, yeah.

Quinn: But I am less optimistic on growth going forward. Again, not calling for a recession because when the government's spending 6% annually deficit to GDP it's almost physically impossible to get a nominal or even real recession. But I definitely think a lot of the big boosts are evaporating and on top of that, so let's just say you have those things going away. World cup one beautiful bill, stimulus, stock market momentum, wealth effect. If you have some of those things kind of petering out at the same time that you have real rates, rising credit spreads, rising financing bond yields and financing conditions. It's, it's usually the case that we see this obviously with a lag like maybe in a quarter or two, but the market's forward looking and so I would expect that people's growth estimates, earnings estimates start to start to come out from the recent, come down from the recent peaks because the, the out like the first principles outlook based on where you know, market prices are and you know, where policy gets to over the next two or three quarters is nowhere near the same as it was the last three quarters. And so I think you have to Bet on you know, this, this 3ish percent real rate growth coming down to like closer to.

Jack Farley: Yeah. Knowing that like makes me want to say that this was the top and long term yields. But I also know that's like the worst thing you could say over the last five years. I mean this is the thing with bonds, right? Like they're, they're self correcting in many ways. Like the cure for higher prices. The cure for high, the cure for high yields is high yields. So as we ratchet up higher it's almost, I've heard it be described before as like a pendulum where you know, the higher the 30 year goes the more it's going to have more kinetic power to swing the other way next. And if you have a Fed that isn't trying to tamp out that ratcheting of real rates like that paired with all those other dynamics like world cup, you know, wealth effect, et cetera, et cetera, I don't know, feels, feels like it's a top.

Quinn: Yeah, I mean the hysteria around it too and sentiment would tell you that at least locally. I mean I'm sure we're cooling off. I guess the thing is, is that every, the real test is if and when equities come down like it's super

Jack Farley: still been all dispersion and rotation. Like S p is like 2% from the highs.

Quinn: Yeah, it's, it's all like deficits are kind of creeping back up again. Interest expenses, rates have rised, have risen. Interest expense as a percent of gdp those things are like we're seeing these spending reconciliation bills come back like the progress that Besson and Trump made in the first 12 months ish of, of you know, bringing spending growth down which they just lowered spending growth. They never actually took spending growth negative. That stuff is, is kind of going the other way now. And so and that's again without, that's without equity weakness which we know is a huge part of tax receipts and then spending and corporate income and then government, you know, corporate taxes. So the proof in the pudding is always when there's a, there's a correction in stocks. And until then it's very easy to talk tough and be hawkish, which I think washes. And I also think they fully understand that you need the COVID to flip to easy policy like the quick to 10 to 20% equity correction, the quicker you can print money again and get out of the equity correction. So I just think that I'm taking worse seriously in the near term in terms of this administration has a history of creating Volatility events to, to see through what they want to get done. But I definitely not believing his resolve long term and I think he will kind of turn out to be the same once we start to get some because no matter what, inflation isn't going back down to low 3 or 2%. Like everybody knows it. Horse isn't stupid. He also knows, he's just, I think he's just trying to sort of muster enough room and energy and like momentum against inflation before the inevitability of having to expand the balance sheet, monetize the debt cap interest rates, etc, again. So yeah, like it's this weird nuance classic right? You have to hold two things, one, one, one brain. It's like can they talk hawkish and try and talk the market down in the short term? Absolutely. Does that mean you should believe every word they say and trust they're not going to just fold all the doves of the past? Absolutely not. So that's kind of where I sit, this new sort of view.

Jack Farley: I like that because it just brings in the framing of the question. I keep coming back to is, okay, we're a few months out from the midterms and by not hiking today or this week, you know, it does put a bit more onus on a September hike and getting that close to midterms to hike like just feels untenable. Like that's just the Fed, you know, they will hike if they need to in front of election season, but they definitely certainly prefer not to impact that in any way. And so if it does feel like a bit of a bet is being made here, which is that, look, if we can, if we can talk financial conditions into tightening here without actually hiking the short end and just really focusing on that long end and talk as if like a hike is given by September, but by the time we get there, you know, it is good timing that we don't have a meeting in August, by the time we get to September we may not need those, those hikes because the long it has already taken care of it. So it does feel like a bit of a bet is being made. And know maybe a lot of other stars align in terms of what's going on with, with the Iran war and oil, that this all sorts itself out by September. But yeah, I, I guess holding those two ideas to me is just there's a bet being made that this recipe is going to lead to some sort of stable equilibrium come midterms.

Quinn: I don't know, I, I completely agree. I think they're, I think they know exactly that is the case. I think, I think it will work out because at the end of the day, who has the power here to control the outcomes in the short term, not necessarily long term, but they're working with asymmetric information. I mean, imagine, right, we're like traversing August and indices are chopping and like right now the rate hike odds are like 55% for a September hike. Okay. You know, let's say there's some pressure growing on Warsh to, to, to hike in September. The odds sort of point there. And then we get to September and they just Trump Besant. Has Trump tweet something outrageous or stir up some volatility. We get a 5, 10% pullback in the equity market and rate hike odds all of a sudden go to 30% again and then it's like, oh, I didn't hike because of this, that it's totally the game being played. And I, I mean maybe to some that sounds conspiratorial, but if you've been following the, this administration for the last year and a half, I think that's, that's like right down the center of the strike zone for what they've, what they've been doing. So yeah, I don't know, maybe, I don't know. I don't know what the opposition case to that is because like they've literally been operating like that for this whole entire administration with very, very close coordination on all fronts. So I think that has to be the base case that they're going to, they're going to manufacture the outcome they need.

Jack Farley: Yeah.

Quinn: I mean look at, even look at this week, right? Like it's, it's, it's sort of like, but passing the baton between different branches of the government to get what they want through. Like oh, you need a little volume crush and popping indices, you know, tweet that the Iran war is over, Trump or you need, you know, to talk the market down and strengthen the dollar. Basset goes on TV and does it, you know, you need wars to do this. Like it's, it's just, it's like an orchestra just in concert. It's. I can't see it any other way because almost nothing about it is like organic. It's, and I'm not saying they have like some 5D chess pre planned like psyops perfect. Like you know, on January 18th we're going to do this. And I'm not saying they all that, but that's still a strategy. Like that's still manipulation. They still have way More information and control than any one market participant. And so like. And you have two hedge fund managers running the treasury and the Fed that were trained under Stanley Jugenmiller. Like it's kind of comical, like obviously manipulating markets, like, obviously.

Jack Farley: Yeah, big time. We'll see. All right, well, I think that's, yeah, enough on, on the Fed, on all that. Anything else you're watching before we wrap?

Quinn: Yeah, it's, it's interesting, I think that, you know, we're going into this heart of the seasonal, a seasonal slumpiness usually like August, September and it's worse during midterm years. So. Yeah, I think, I think on the bright side, the Iran war stuff is going to kind of float to the background because there's enough problems out there for, for the markets that I don't think they can really afford to re. Escalate in a big way and bring that back to center stage. Like, if you, if you look at, you know, the back end of the oil curve hasn't nearly reacted like it did the first price spike. It's mainly just front months and similarly oil volatility is sort of making a much lower high here. So I think that kind of fades into the back and. Which is kind of good for like everyone's brains, but also like peace, which is nice, hopefully, knock on wood. But I do think that these restrictive real rates and financing conditions will catch up to more than just the AI trade because the dispersion when AI was getting clobbered has and had been helping equal weight, small caps, very economically sensitive stuff. But assuming there's no immediate or rapid change to the intentions that WARSH rolled out yesterday, like that will start to have an effect across the board and I think that's the next thing. There could be the rotation back the other way in the total opposite direction here if growth does slow a bit. So I don't know, it's going to be an interesting period because, you know, they're going to be, I mean, we're getting into crunch time for when things matter the most, for midterms and so they're not obviously going to want to cause any market problems and we'll be quick to probably support them. But at the same time, I don't, they don't have a ton of tools to, without liquidity from the, from the Fed to really like juice it like they have in the past.

Jack Farley: Yeah, yeah, I agree with that. All right. I think we can leave it at that, obviously. Yeah. A lot more news than you'd expect for the last week of July, but here we are.

Quinn: Yeah. Hopefully August is quieter.

Jack Farley: Yeah, hopefully.

Quinn: Have a good weekend, bro.

Jack Farley: All right. Have a good weekend. You too, man. 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. 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.