Forward Guidance: Treasury-Led Financial Repression Is Ushering In A Debasement Regime | Weekly Roundup

Sourced by podcast-ingest on 2026-08-21. 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: 53m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG2940175477.mp3.

Show notes (from RSS)

Treasury is quietly taking control of financial conditions and the market implications could trigger a new wave in the debasement trade.

This week, Felix and Quinn unpack Treasury’s accelerating intervention in long-term yields and why it could reignite the rotation into hard assets as policymakers suppress yields and tolerate inflation.

We explore inflation, dollar weakness, AI financing, oil's ongoing supply shock, and where capital likely rotates next. Enjoy!

TIMESTAMPS:

00:00 Intro

03:17 Treasury Buybacks Change The Game

12:53 Is This Fiscal Operation Twist?

19:17 Where Does The Debasement Trade Go?

24:18 How Long Can They Goose Markets?

29:08 Can The Fed Stay Hawkish?

33:39 When Should You Buy Inflation Protection?

37:58 Is Debt Monetization Next?

41:25 Where Should Investors Hide?

46:12 What Comes After The AI Boom?

51:58 Final Thoughts

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Transcript

Jack Farley: Nothing said on for 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 Forward Guidance. And the first one without our, without our man, without our Ponzi man. He, he would be laughing if he could get away from compliance right now. You just know the type of. He'd be saying to you. So we're recording on Wednesday. We just had the best announcement. We're going to talk a about it, but man, like, I miss that guy. He would. Tyler would be all over this right now.

B: The Ponzi. The Ponzi just got kicked into high gear. I mean, we, we saw glimpses of it for every week basically for the last, since the start of August. And this is just the next leg because in practice we'll talk about it. But, you know, this is, this is a small announcement compared to probably the stuff they're going to be doing, but it sends a big signal.

Jack Farley: Yeah, yeah, 100. Okay. Yeah. First off, obviously it's just us two for now this week, but we're definitely looking at starting to get, get a few rotating regulars onto the show to join us once in a while. So if anybody has any suggestions or people they think they'd love to see on here for the next little bit while we start to get some, some, you know, we'll still do the, the duos and then we'll, we'll shop around and have a few folks come in once in a while as we start, start to decide on, on who we want to be a, a third guest. Like, you know, for sure the roundup is at its best when there's three of us. You know, we can all just like, banter and bounce off each other's ideas. So definitely going to lean into that. But yeah, I just want to open up that if anybody has any suggestions or ideas on people as we start to vet and plan for the fall. Definitely, yeah. Leave some, leave some comments, let us know. Okay. Other piece of admin. Digital Asset Summits are kicking into high gear this fall. So for those that don't know, Digital Asset Summit is the digital asset institutional conferences that we put on. We do three every year. There's the bread and butter one in New York that we do every spring. We've been doing one in London for a few years now, too. And then for the first time in October, we're going to Asia. We're going to Singapore right around the weekend of token 2049. So the whole industry is going to be there. It's it's going to be a lot of fun. I haven't been to Singapore before, so I'm excited. It's. I've heard a lot of good things. It's gonna be great. We have some great speakers. We have the CEO of Hyper Liquid, Jeff speaking, which is sick. I'm definitely the most excited for that. But yeah, we'll be there. We'll be doing some macro panels as well. Quinn's coming. Yeah, looking forward to it.

B: Dude, it's gonna be sick. I, I booked my flights ready to go. It'll be a nice little, little getaway after, after, you know, coming back into the swing of things in the grind.

Jack Farley: And in September, the lock and grind of the fall is there's nothing like it. Like after Labor Day hits, you're just like, let's go. And it's just like, I'm ready to travel. I'm ready to get after it. It's good. Yeah, it's, it feels good.

B: Yeah, totally. All right.

Jack Farley: Get your tickets. Yeah. Prices will be going up pretty regularly, so, you know, don't leave it to last second. All right, let's talk about the elephant in the room. This news that just came out this morning of what Secretary Benson is doing. So last episode, obviously we had a whole, most of the episode was framed around this idea that marginal macro policy is moving to the treasury more so than the Fed and Scott Besson and Treasury is making sure that the long end does not get unruly. And you know, nothing really hit. Obviously we've had these small little sample, you know, little appetizers like we had the QRA where they changed from, you know, potential increases in coupon issuance to a change which opens the door for potential like lowering of coupon issuance. So already signal there, there's the end intervention stuff. And now we got this today, which is that they're announcing an increased size of nominal long end treasury buybacks. So this is definitely pretty meaningful. And the language is really aggressive, like this is really here. The U.S. department of the treasury is increasing by at least double the size of liquidity support buyback operations for long dated nominal Coupon Securities. The 10 year to 20 year sector and the 20 to 30 year sector. The current maximum size of 2 billion per operation will be at least $4 billion per operation. So okay, what does this actually look like is that these are, these are buybacks. So they're not just, you know, you have to, the first thing you have to think about is okay, what's funding the buybacks and so the first leg, what are they buying? They're buying off the run, long end bonds that are super liquid. Obviously we've been talking about how the 30 year in the long end has been, you know, at least decade highs in yields. So. So it's getting pretty unruly. So they're coming in, they're buying the author on bonds, which are the most illiquid. And what are they funding it with? They're funding it with treasury bills. And so you net that out. If you're issuing treasury bills in no duration and you're buying duration, you're taking duration out of the market. If that sounds like a different variation of qe, it's because it is. And yeah, so obviously this is like hilarious because, you know, Besson, before he got confirmed, he was ragging on Yellen for all these things and now he's just take, he's just like putting the pedal to the metal here. At least 4 billion. So this is obviously a pretty huge moment in terms of this debasement narrative. Yeah, I want to pause there and get your read on. I know you had a few tweets talking about how things are going to get pretty tough for Besson over the next few weeks as the third year was going higher. And I don't know, he lasted about a couple days before he, he capitulated here. So I'm curious your thoughts.

B: Yeah, I mean, there's a lot of unresolved issues facing this market. And I think people, you know, it's easy to look at prices and say it's, it's fine. Right. Because at the end of the day, that's what people tend to use is their barometer of like economic health or treasury market health, whatever is like stocks, right? Okay. Stocks are highs, everything's fine. But what isn't being taken into account is that's a nominal number. And you can, you can play with that number by, you know, all the things crypto bulls for many, many years have been and gold bulls many, many years have been talking about, which is debasement. And so starting in August, we had the dollar debasement via yen intervention. Then we had the coming out about the repo facility and like you said, the qra. And now this coming after the qra, which is a very unusual thing because clearly they met, you know, outside of the normal quarterly decision making process here. And it's, you know, just so happens that there's a midterm election two and a half months away. So I think that reading the tea leaves for the last number of weeks it's been clear that they are choosing the inflation and debasement path to support markets. But that is very different than things being okay because there's, you know, for example, the Strait of Hormuz still closed. There's absolutely zero signs of a deal. Commodity flows. If you look at the price of oil, I've been long. I think it literally just ticks up every single day without anyone really talking about it anymore. So all of the inflation and things that make bond markets unruly are there and currency problems and volatility. It's just that they're printing money and artificially devaluating, you know, inorganically. Not artificially. It's absolutely. Officially, you know what it is, but inorganically devaluating and intervening. So I think it's, it's interesting because it sets up, you know, the midterm elections are a big, big date in, in two and a half months. We're still two and a half months away and this is happening on a weekly basis. So yeah, you know, one, how big are the problems that they're doing? Yield curve control when The S&P 500 is at all time highs. This is crazy. In 2023 I just reset. Re. Re tweeted some of the stuff I was writing back then because sniffing that out led to an extremely profitable period. But that was after a huge correction. Bond yields, it were well over 5. Stocks were down 12% I think at the lows and they came in and kind of fixed this here. There's volatility already stifled you know, was already weakened. Stocks are already at highs. So it's, it's pretty unprecedented really. I mean this is Japan stuff. And if, if you want to know how this ends, go price gold, oil and anything else that's a hard asset in yen because this is the playbook. They've been doing yield curve control and all these things for years and years and years without more obvious problems, which is what the standard used to be. So for me, you know, inflation and debasement are the name of the game. They have been for a number of weeks now. And this takes it into overdrive. And you know, Bessant also knows all this and he knows what this is going to do and he knows that the outcomes and the side effects this produces. I mean this guy is very intelligent and knows exactly what's happening, but there's political incentives that he has to play for. So you know, ROE with the stream and I would imagine he doesn't want a 6, 7, 8% inflation problem in 2027. So I'd imagine he will take the air out of this via.

Jack Farley: Yeah, but there's a ton of Runway now for them to really goose it, but.

B: Exactly. We're two and a half months away and this is what's happening. So I'm just, you know, we've been getting long and long and long for the last few weeks. Inflation protection and I guess weekly now there's an announcement that keeps it going. But yeah, it's, it's crazy, I think.

Jack Farley: Yeah, for me the signal was, look back in, I don't know, May, June, we were, we were in the dark. We didn't know what the plan was. We didn't know what the playbook was going to be. There's a lot of question marks around Warsh. There's a lot of question marks around Bessant. I mean, just literally like a week before that qra, there's talk of, oh, are they gonna, are they gonna signal Hawkish that they might actually start to normalize the amount of issuance on, on the long end. So, you know, there's a lot of question marks and it's become extremely clear what the plan is. And the plan is to manage the long end. Because look, this is just a, it's a repeat of everything we talked about in the last round of two weeks ago. Like the AI build out is now being funded on the marginal basis by debt issuance because operating cash flow has been tapped out. So they're going to the corporate bond market. The corporate bond market is anchored to the long end. We've been seeing this. You know, they are hand in glove here in making sure that those yields don't get in really, because we need to build out the AI buildup because we're in a rate. It's a geopolitical game against China. So they need to make sure that this happens. You know, Warsh has talked about AI a lot. He's on top of it, Besson's on top of it. So that's, that's the one big leg that they're trying to focus on. And then in the same vein, there's this, this idea of emerging fiscal dominance where marginal policy moves to Treasury. It started with, with Yellen and, and, and here we are now. It's, it's big. One thing I want to talk so couple years ago, 2024, Stephen Moran and Nouriel Roubini wrote a paper called Activist Treasury Issuance. And it was really just piecing apart everything that Yellen was doing back then and putting A name to it. And it really provided people with the vocabulary to understand that this is just, you know, if QE is on the table, taking duration outside of the market, all this stuff is the, we're just not putting it in on at the onset. Or you could even make, I mean you can make the case with these buybacks even that it is also taking duration out. So, so they wrote a paper back then, so this morning I pulled it up because I wanted to go just, you know, reflect on what's in there compared to this announcement today. And it's just, it's illuminating. So this paragraph was about buybacks within that paper. And, and the most interesting part, so the best way to contextualize like what, what does this really mean? Is it qe, is it not? It's the best way to look at it is just this, this, this section here. Basically it's fiscal operation Twist. So whereby the Fed lengthened. So when the Fed did it, they lengthened their duration of its balance sheet in 2011 by selling short duration securities so T bills and buying the long end. If treasury decides to ramp up the biogram and, and does so by issuing bills, it will have a stimulative effect on the market as the Fed's twist program did 13 years ago. Removing duration held by the public and replacing it with more money like instruments bills will be stimulative. This will particularly, this will be particularly the case as treasury increases the size of the program while adhering to its forward guidance to not increase coupon auctions. So they're adhering to their forward guidance. They're actually making the forward guidance even more dovish. They're increasing the buyback significantly like we, this is the playbook obviously. Like it's, we're ramping into midterms. They're going to goose it. The basement trades back, man.

B: Yeah, it, it is, it is notable I think too that they all have laid this out and, and that's why I think it, it's, you see a lot of stuff on Twitter that kind of sends people for a loop and tailspin if you're, you know how depending on your, your playing this. Because like this is nominal, this is debasement. And so if you're just outright short, like that's going to be tough. And so you have to, you know, I, I, I can make a case to short NASDAQ or other parts of tech here, but I, I continue to believe that that needs to be paired with the inflation protection on the long side. Because if you know, nominal number goes up, you don't really make money on the short side. And so but, but you'll see people kind of pretend that these guys don't know what is going on here. And the other thing I would say is they know full well. The other thing I'd say is from an economic perspective, just to play devil's advocate, looking at the housing data coming in of late, construction job growth, things like this, mortgage rates, you know, back to cycle highs into a, you know, negative real wage growth type of environment as inflation has come back, there's some like you can make an economic case for the consumer and Main street why this makes sense to do because the, the forward indicators when real rates get as high as they're they are creates problems, definite problems. And so this is effectively front running that before the problems show up via construction job layoffs, the housing market coming to a complete stop and having to, you know, to, to really stimulate much harder in a bigger event. So I'm sympathetic to the, the camp that's like wow, they are running this so hot they're going to have to slam on the brakes at some point. I'm sympathetic and think there is an element of that. But on the other hand the people at the helm are literally writing the playbooks years ago as to what is going on and they are doing it as they wrote the playbooks. They obviously know the ramifications and are making a concerted like a decision based on all the information at hand that that is the path they want to choose which so, so you have to play that and say okay, they know that this is going to run a hot. Are they going to end up slamming on the brakes at some point? Maybe, but you will have to see a meaningful change in their behavior. And in many regards as we've been talking about the, the hawkish balance sheet policy of the rhetoric of the Fed that has lifted the long end in real rates with it is breaks on parts of the economy like housing asset markets that now they are trying to sort of offset in a more covert way so it's not looking like overtaking of Fed independence and these sorts of things. So there's a lot going on. To me it just exemplifies the sort of problem that kicking the can on deficit spending for years and years and years culminates in where even the most vocal critics have to succumb to, to the remedies because of how bad the situation is. And again like there's another video of Vesnt I believe from, from a little while back which was like, you sort of have to let the bond market like lay the law or Congress will never change the behavior of the spending. And obviously they're not going to do that two and a half months before the election. That is all Republican controlled at the time. But you know, keep this in the back of your mind. It's very likely the Democrats are going to at least win the House. They might also win the Senate. Trump's approvals are like some of the worst any president's ever seen at this juncture. And what better way to say stick it to the Dems, you know, in their first kind of split Congress, you know, session early next year to, than to, to let the bond market go and say fix this and cut your spending because Doge didn't work.

Jack Farley: Yeah.

B: All of the other things didn't. Tariffs didn't work. All of these other things didn't work. It has to come from real legislative changes and you kind of need a crisis or event to put that through. And that is, you know, obviously they're not going to do that pre election, but at some point after that is something to be think about in my opinion. But again, there's winners and losers of this because look at housing stocks, they're up big today. Look at the nasdaq, it's like teetering between almost being down for the day. So yeah, yeah, it's, it's interesting to me because like, if you take that approach, like think about it, that angle, you're like, man, what, what does get the NASDAQ if they, if debasement and like this doesn't what gets it up?

Jack Farley: Yeah. The cross asset price action today in light of this is actually really, really interesting. So yeah, to your point, let's just go through it. The Q's are down today, 10 bips. SPY is up 30 bips. The dollar is down 75 bips. The long end is, you know, down as you'd expect on yields. You have gold that is up three and a half to 4% today and breaking out almost 40, almost 4,500. You have Bitcoin that is at, you know, just saw one of the actually biggest short liquidations, $1.27 billion of shorts got liquidated on Bitcoin. We talked two weeks ago. We're like, don't short this market. Are you insane? Like, like the pain has already. You don't want to be shorting something. Don't short a dull market. Right. Like it was just chopping anyway.

B: So.

Jack Farley: So bitcoin's up, gold's up dollar down. Equities are kind of flat in this reaction and I do think that's, that's really interesting. Joseph Wang put out a tweet this morning about how, you know, he, he has this framing of you know, dollar wheat like so much of, of of foreign, of, of the flows into the US equities is from foreign investors. Actually have a chart here to show you know, you look at especially lately like the rolling six month net foreign purchases of US equities is just like absolutely ripping. So, so when you see dollar weakness, that actually is a potential headwind for US equity allocation from foreigners because of the FX hedging related aspects of it and opportunity costs. So it's, it's really interesting and it really just you know, shines the light on during these moments of you know, back in 2021 it was obvious everything goes up QE infinity. It's. Ever since then macro has been a lot more nuanced where you have to understand these, these levers that they're pulling and the potential impacts because as we talked about, okay. With this approach of treasury manipulation or suppression of the long end, you want to be more directly exposed to these debasing trades. So precious metals, gold, Bitcoin, et cetera, short dollar maybe. And that's, that's, it's really interesting to see how well those are doing while the Q's are down on the day on like such a clearly macro positive event.

B: Yeah, the dispersion, you can see that in correlations and everything is, is huge. And I, I also just think back to this like if you just zoom out and you're like if, if stocks are already at all time highs and you're doing this to debase the currency at some point it's almost, you'd imagine like you know, too much of a good thing in the sense like it sends a message to global investors. They're like, hey, you're owning, you hold. All these US assets are already at like peak valuations and we're going to just crush the dollar. So do you want to sit in these while you, while they tread water and the dollar debases or you know, do you want to, do you want to, you know, probably make moves and send that capital elsewhere and, and obviously there's a huge rotation of capital flows from you know, these assets. Because if you look at the NASDAQ and US stocks less the, the currency impact, they're all down. The NASDAQ's then down huge. Right. Because the, the dollars. So if you're a foreign holder of U.S. assets here and you're in the NASDAQ, you're down whatever, you know, like minus 0.5 to 1%.

Jack Farley: So

B: I think that's something that might get lost here a little bit is yes, this is a market support and intervention mechanism. But if it's, if it sends a mark message to the market that's too inflationary and too loose and says you're going to lose control of the, you know, the inflationary ramifications of this, then it can backfire because the market will say, well screw you, I'm taking my ball, I'm going home. Because you're about to do some, you know, you're going to really dent your currency and purchasing power and you know, inflation. So it's a, it's a wonky one, man. I like we've been talking about this dispersion for a while and saying like, you know, the indices are what they are, but the opportunity is in the rotation of the hood. And it's, it's, it's just fascinating to look back at like, you know, huge blow off in metals to start the year, huge correction over the last bunch of months while semis ripped, semis blow off metals bottom. It's like the baton just passing back and forth and I mean, you know, I, I don't know why you would fade this. I guess given, given the Runway the next few months.

Jack Farley: Yeah. So okay, that Runway, like to me it feels like, you know, it's game on until February. Obviously you need to see how the, what the actual results of the midterms are. But you know, high confidence interval from here until November, it's just fucking goose it November to January, you know, it depends on how things pan out in terms of the outcome. But you know, after, after elections it takes a bit of time for, for Congress to get set up and everything and everybody's sworn in and all that stuff. So like nothing really happens until February then February. You know, assuming that we continue to be reckless with, with fiscal, with, with the financial conditions like we are, I imagine inflation is going to begin to accelerate higher here. Suddenly you get some nasty prints in Q1, 2027. And yeah, to your point, it's like, okay, now we gotta, now we got to get the reins on here and oh, look like we can't, we can't get in control of fiscal spending because we have a deadlock Congress. Yeah, that makes sense to me. Yeah.

B: If you recall back to the other similarity of 2023, obviously besides the intervention here is the, we had A big sort of inflation scare in the middle of that year that led to the Fed staying hawkish into Q3 kind of caused this correction. Liquidity assets took a dive. Oil was very, commodities were ripping, oil was up big. I think we had. Well, I think yeah the first kind of Israel like the Gaza stuff was I think in 2023 so you had this inflationary impulse and, and then they, that leads to the correction. They do this. And then in 2024 again you had another inflationary impulse. So I think what you're saying is spot on that, that people should bookmark which is it. Besson also knows this, right? So like the, the real rate rise over the last few months that, that was digested very well by the market then dampens the growth coming in the next three to six months later.

Jack Farley: Yeah, yeah.

B: And then you know that pushes the inflation readings down for you know there's. But then you're still in this hawkish period. You get the stimulus, you get the support and then they do this and it's inflation. So it's just this constant game of kicking the can. But the Fed is just, there's really nothing the Fed can do here. If you think about like a projection like what I would forecast for inflation for the rest of year is kind of just like bouncing between around three and a half and so there's really no. Like even if you look today at silver futures, when I checked this morning they were down meaning market priced in an incrementally more hawkish view of the Fed which makes sense because if they're stimulating in other means, it means there's less likely that the Fed needs to or can stimulate. And so that makes complete sense to me. But you're just going to have this continued talk, hawkish talk, tough and no actual which yeah I'm really two year

Jack Farley: yield is up today which is interesting.

B: I mean oil and I'm really curious what, what Warsh is going to say next week man. Because like in my view the inflation pressures are just smoking you in the face. Agricultural commodities are ripping, oil's ripping, diesel's ripping, gasoline's ripping, metals are now ripping like screaming, screaming inflation in a forward looking manner. And, and what is Wash gonna say? He's in my view he's kind of extinguished his ability to, to maintain credibility or it's getting along in the tooth to maintain credibility of this hawkish stance with no action. He's, he's trying to hit 100% talk yields up and in primarily through the balance sheet and being hawkish There. But if he doesn't come out and actually do anything, which in my view here would be talking about the changes they're going to make to the balance sheet, meaning, you know, reducing duration and tightening because they're not going to cut. So if he doesn't do anything or commit to anything from a balance sheet perspective or they're not going to hike. Excuse me, they're not going to hike.

Jack Farley: Yeah, they're not. Yeah, yeah.

B: So if he doesn't commit to anything hawkish from a balance sheet perspective over the next, let's say the Jackson Hole speech and then into September, fomc. Yeah, forget about it. I mean like there's zero reason to offload. You need to just hold on tight to your inflation protection.

Jack Farley: Yeah. The short rate thing is very interesting because it feels like a lot of it a red herring in many ways. I mean, so much of the talk was on this hysteria for a potential hike in jaw in July. And I don't know, maybe the same thing will happen again in September where there's this hysteria on the short rate. But yeah, it feels like he's just going to keep dragging his feet as much as he can and stop his committee from being divided and in advocating for, for hikes, like, yeah, they're obviously not going to cut pretty high confidence. They're not going to hike either. They're going to try and keep it neutral while pretending to talk hawkish as much as, as possible. You know, maybe use some of those task forces to, you know, try to talk tough and see like he's trying to take things seriously. But in reality, in the background is, is what Besson's doing. And you know, like we all know Besson and war are very close and you know, Besson advocated for war to be the, the Fed chair and, and that was, you know, and they all talk with Trump like they're all talking. This is a concerted policy and the concerted policy is to, you know, have the Fed look like they're talking tough while avoiding doing anything. What meanwhile in the background, besants Easy.

B: Yeah, exactly. And, and it's working now because it's not the, the Main street public. Right. Doesn't doesn't see the inner workings of the debt issuance. And yeah, all the efficacy of the tools decline as they become used in hit mainstream and just get priced into the markets. And that's what you're seeing with metals today. But my message to people listening is, I think I talked about this a few months ago is over the next multiple years Inflation is coming back. They're going to suppress the cost of capital, things like housing. Like we talk about the affordability crisis and high cost of capital, all these things but it, it actually can get worse. And, and it actually will get worse because there's still two years at a minimum, two and a half, two years of this before you know, maybe AOC or someone comes in and kind of takes a more burn it down approach. But even then it's going to be inflationary, replacement costs are going to rise, etc. And housing is the only asset you really can get 30 year fixed rate debt at 5x leverage or more in, in the US and not really have liquidation risk assuming you, you know, don't get over your skis. So you, you need inflation protection. I mean you, you just really need inflation protection like this, this is, this is inning one. And I do think like we say Bessant knows what they're doing and knows the problem. This will recreate with inflation and we'll do things to try to press downward cyclically after this, this run at hot period of, for the midterms. But even then they will not cause a recession. They, we know there's no appetite to phenomenal job losses or GDP declines or anything of the, of the like. And yeah, it, it's, it's, it's pretty, it's just crazy, man. I, I don't think, I don't think like even us were talking about this and pretty astounded. I don't know if we fully grasp how my tweet said. It's, it's, it's completely unheard of for developed nations, particularly the empire and the global hegemony, to be manipulating currencies and bond markets to this extent with no visible problems at stocks at all time highs. And so given that expect things on the other side that are also not normal for global hegemonies and superpowers in developed nations, which is this inflation problem. And yeah, of course they're going to fire the BLS guy and there's going to be changes to the inflation metrics and WARSH is going to switch to trim mean when it gets out of hand and all these things. But we are staring down the barrel of a very interesting situation. And this is also not saying go max short markets for the reasons I talked about earlier because the nominal number is going to go up.

Jack Farley: But yeah, it should be the opposite. I think, I think people mix up the sequence of events of inflation protection assets quite a bit because like look over the last six months or so I would say that one of the biggest drivers of markets has been inflation fear and warsh being hawkish and gold hasn't done very well. It's, it's actually been down. Bitcoin's been not doing very well. But it's, it's not about, it's almost like implied volume versus realized volume. Like when you have realized inflation is actually not really good for these inflation assets which sounds paradoxical but it's more so the implied expectation of inflation and the lack of commitment to fixing it. So right now is like the perfect time because we had this idea of Max Hawkish that we've been talking about at a time where there's expectations of them hiking in July didn't formulate. So you had the market all in on that one direction. And then you have the sequence of events of them loosening and loosening and loosening and that's the time where inflation hasn't, you know, yes, we're above 2%. Obviously there's inflation but the inflation that I potentially expect if they continue to be this reckless with things could, could be a lot, a lot larger in 2027. So you want to ride the, the ramp in that implied expectation and then sell when it gets realized. So you know like if you're, if you're trading options right. Like you're not, you're not buying the call option when implied vols in the top 10 like in the 90th percentile you buy it at 30 and you sell it at 90 when realized Vol is elevated. It's. I think, I think that's a really important way to keep in mind that the sequence of events for these things, things.

B: You're so spot on man. I mean simplest way to say it is the markets are forward looking much more than the economic data and the Fed. But it's exactly why we've had the Fed pivot hawkish at in inopportune times in the last bunch of years and then, and then also pivot dovish at in opportune times because they end up you know, in 2024 when Powell made the big cut in September and bond yields started to rip and know everyone said was it a policy mistake, you know, whatever politics etc. And the other thing of that is, is people who like you know, kind of perma Bitcoin bears will always say oh so much for the inflation protection asset. It's falling when you know the inflation comes because it's, it ran 400% and then when they cut the year before. Yeah when they hiked rates to stop inflation, then you're reducing money supply. And exactly what it hedged is now doing the reverse. And this is one of the times where, I mean just take a look at the bond market. Before today the yield curve was steepening consistently and no matter what happened on the economic side, we got two months of soft inflation, two months of soft jobs, soft retail sales, shitty housing data. Every reason for bond yields to fall, they just kept going. And everything about that was saying one, there's a structural supply issue, probably a structural demand issue and a structural inflation issue. Some combination or too hot of nominal growth which is inflation plus real growth, some combo of that. And also keep that in mind then when they do this action to intervene in the bond market because at the end of the day what they're doing here is not that, that that crazy. It's they're buying back long end. They still need to issue more debt to make up for those purchases. But that debt is then going to be more skewed towards the front end and bills which we know, you know there's, there's, there's, yeah. Demand for via the Fed and, and front end.

Jack Farley: So yeah, yeah, it can get so much crazier.

B: Yeah, yeah, yeah.

Jack Farley: Like, like the, you know the extrapolation of where this goes is, is like this, it's all right treasuries issuing 20, I don't know, 10, 10, $20 billion a month of bills to buy back off their own long end bonds. But then at is buying 10 to 20, like it's matching that T bills with buys like when you get those two happening, what, that's literally debt monetization. Like that is. Dude, this is, that's the, that's the Pandora's box situation where literally it's, I mean this happened a little bit in 2020, like late 2020, the Fed was buying, buying bonds, buying debt from the primary market, from, from the treasury, not for the secondary market. It was literally hand and glove debt monetization. That's the next leg here. Is that okay. The Treasury's taking out long end duration, they're funding it with bills but then it's really being funded by the, by the Fed. Like that's where we can go and we're not, we're not there yet. So this, so yeah, just like keep in mind that to your point, this is inning one. If, if we need to get there, we can get there.

B: Yeah. And, and gold in the 70s which if you want to use that as the last time we had real rampant kind of Secular, secular inflation. Gold did like a 20x or something plus I think and you know, we, we're like what, a 3x off the lows or something here. So that, just not saying that's going to repeat but it gives context as to how long policymakers will kick the can down the road in the face of what seems so obvious of ramifications and side effects. So we're sitting here and fintwit in its bubble is saying holy cow, I can't believe they're doing this. This is so inflationary. But if you go talk to people and ask them about this, they'll have no idea what this means. When you tell people this means 3 and a half to 4 to maybe 5% inflation is almost a guarantee over the coming years, they think you're crazy first. And then you look back into history and look at these times where you have to quote unquote, grow your way out of the debt, run it hot, which don't happen that often, but when they do, they happen very seriously, like the 70s. Then you see that these things run for a very, very long time in the same way that the stock market ran unfettered basically from 2008 to, to, to now, essentially without very, very many drawdowns or big drawdowns or, or long drawdowns. That's probably the equivalent of what you're looking at from an inflation cycle in terms of commodities and all these unloved, un underinvested assets. Because if you're continuing to spend 6 plus percent deficit to GDP, you're going to get nominal growth around there, which is inflation plus real and that's the spending side. And then you're monetizing on and debasing on, you know, the, the, the monetary side. So it's, it's just a, it's a crazy cocktail for, for debasement of currency. But yeah, we, we've hit this point hard. I, I, I mean there's, there's probably even, you know, we can talk for a long time but spend time on some of the other stuff.

Jack Farley: Yeah, I don't think anybody's unclear on our physician here at this point. I mean it's, yeah, like to be honest, it's not a whole lot else going on. I don't know unless you have anything big else. But. Okay, so I mean we can talk a little bit more about asset allocation. I mean we talked about obviously gold's a beneficiary, Bitcoin's beneficiary, dollar short's probably a good one. Anything Else in your mind that you see here?

B: Yeah, obviously, yeah. Bitcoin is a commodity in my view and I think that today's move started to make sense over the last few weeks. It's traded, traded quite well and, and you have everything else ripping. Every time these intervention tactics happen, it tends to move. I do however continue to like the commodity, the other hard asset complex, better just across metals, beta metals, oil. Just given where we sit geopolitically and the sort of tensions and things that are coming down the pipe that I think will be in further demand and also supply demand. I mean if you look at the oil situation, I think it's much more dire than you know, we've been desensitized to the headlines of the straight of horror moose for, for many months. Right. You just get tired and every, you want to move on from the topic. But I actually think it's getting like, you know, watch me say this, this will air tomorrow and, and you know, we'll have some fake Trump taco thing. But the, the facts are, in my opinion the US is not leaving the straight with, with Iranian control handing over and that means this is going to last. And you have global reserves being drained to very low levels. They've been being drained for six months now. And you've had a demand side factor of China reducing the largest import of oil in the world, reducing by extremely drastic amount that can't continue in perpetuity. And if you look across the commodity complex of assets that don't have those strategic buffers that crude does, the gasoline, the finished products, the heating oils, the sulfuric acid, et cetera, they're all sort of, in my opinion, sending a signal of what's to come once those emergency measures run out for crude. And that's the big inflation bug that like you need the oil crisis to really ensure there's a true inflation issue. And I, I do think that is coming at some point barring on the path we're on, that is coming. So it's either the straight gets resolved in the next three months or that's coming. I'll just do what, do what, you know, respond to the news. But the nice thing is you get paid to wait that the positive roll yield creates a carry that helps long investors in oil futures to the tune of 20 plus percent year to date, like almost 30. So yeah, yeah, it's, it's a really interesting setup and you're going to have to deal, you have to size it appropriately because you're going to have to deal with these tape Bombs from, from the Trump admin with you know, all, just all the, you know, the, the headline jockeying that's coming. But as far as assets that like obvious seem very obvious but I'm very constructive. Look at xle. It just absolutely tore out to new highs last time that happened. It front ran a big, big move in oil. The commodity itself wouldn't be so surprised if, if that's happening again. We've seen the same behavior in gold miners front running the move in gold. Yeah, I really like.

Jack Farley: Wow. Yeah. XLE broke out from the highs in the end of March. That's wild.

B: And you look at these other things again that you can't suppress. Right? Yeah. You're not like the treasury isn't going to go and sell short ExxonMobil, right. And try and suppress the price of oil equities. They're going to do that in, in oil futures. You know, they're going to drain the SPR reserve and, and sacrifice the future resiliency of, of our, of our, you know, crude reserves, etc. But if you look at some of these indicators that kind of I think are leading the way of what's to come barring, you know, don't say, oh you idiot, they just reopened. You know, okay, this changes if that happens. But I don't think it's going to happen. It might, yeah. MOU type of in front of midterms. But that's probably the other thing I'm thinking about and I still don't like tech. I think semis are probably putting it in a right shoulder. If I were to guess like we have the anthropic IPO coming up in, in October, which if you remember back to the SpaceX IPO it was sort of throw the kitchen sink at this market to keep it elevated to get this extremely important trillion dollar IPO off. And then we did and that marked the top.

Jack Farley: So

B: I mean it doesn't play out the same way usually, but could it? Yeah, it very well could. I don't know. What are you, what are you looking at?

Jack Farley: Yeah, I'd probably agree on. So look at the tech side of things like the, the sectors there, like the model providers. I'm probably definitely not like, yeah, I probably wouldn't be buying anthropic at these pre IPO levels or whatever it's at right now. The memory side of things and all of that. Like I think there's actually some, some fairly fundamental shifts happening. But the technical market structure side of things is just like there's so much burnt money There right now that it's like you just have to work through that. It's gonna like, like we said, like you know the, I think the bottom was probably put in but it's not on like memory. But I don't think it's. Yeah, it's just going to chop around. I think honestly what I find the, the Neo clouds actually really interesting right now. Like I think, I think there is. We're going to this next level of compute shortage in some ways. Like you have. So you had this news this week of OpenAI talking about how they're pausing model pre training because of AI safety related concerns and like you know, that's typically something anthropic does. Open AI is kind of just like a accelerationist more so and it was just, it's quite interesting to see them start to talk like that. Like yes, of course. Maybe they saw something that was like oh my God, we got to stop training or are they just out of compute? And then like right now you have like there's been some interesting shifts in terms of agentic workflows of like leaning like Grokbot came out recently, which I've been playing around with, which is like really powerful where suddenly you're just getting like multi agent orchestration and the, the compute demands for that are another leg of, of non linearity. If you think about like initially it was this like singular chat use, then it was agentic work and now it's like you know, multi agent orchestration. I don't know. I think, I think there's a few different things that, that get me somewhat constructive there. Especially at the same time if they're tamping down on the long end of, of the yield curve and the associated credit spreads with the hyperscalers and that sort of thing. Yeah, I like that. I think like the, the health, the healthcare innovation sector is also like. I don't know if you saw what happened with this Moderna trial. It's up like 150% today because they basically cured cancer and like you got Eli Lilly and what they're up to like this. I think it's, it's a really powerful expression of AI adoption is looking at some of the stuff some of these, these companies are coming through with. It's like one, it's incredible like if everybody has a family member who, who suffers from health disease, like we, we all have been hurt from that. It would be an incredible thing if, if we start to see some of that get, get solved more. So I mean that's. Yeah like I'M not top blasting Moderna after It went up 150% today, but it's like really cool to see. I think that these things are happening. Happening.

B: That's true man. Like we know how Amer how much Americans love their, their pharmaceutical and you know, we'll, we'll take any sort of. Rather than taking the, the hard medicine of like exercising and cutting. Yeah, we'll, we'll triple down on the spending money to fix, fix the problem. I, I think I'm not as deep on like all the AI stuff as you have been, but that stuff makes a hell of a lot more sense to me than like still chasing semis up here. Like there's such a, we've already seen the 80% margin prints on some of these AI capex bottlenecks like we're seeing in my opinion like peak, peak spending whether it's this quarter, next quarter, whatever. Like once the Frontier labs stop juicing their numbers, when they're all public, like there's going to be some come to Jesus moments for either cost is going to have to rise to make up for it or you know, growth is going to have to come from somewhere. And the biggest beneficiaries have seemed to me like health is, is a big one. You know, maybe some somewhere in financial service and agentic payments, but the health one just seems like a huge, huge especially while you still have like RFK and Trump. So I get that I'm not as deep. It's also a defensive sector generally which I think is making it attractive like healthcare and these things outperform in a downtack type environment which when we're talking about rotation is probably prudent to be in. But I like that man. I mean it's definitely tough. You have to be finding the areas that, that you want to be long in this market into the midterms and, and staying away from. I think the, the areas that took the cake for the last six months. We, we, we were saying this at a different time. Whether it was in January or some other time where it's like find the unloved things and, and spend time there and it's probably going in again.

Jack Farley: Yeah, sweet man. I think we're gonna leave it there. Yeah, obviously, you know, if people need a hit on their head, obviously a pretty big regime shift happening like you know, I, I see it as durable at least until the end of the year. Yeah, yeah, definitely.

B: I mean what, yeah, put it this way. Why are they going to intervene week over week over week over week like four straight times in August and then let things fall to in September and October into November. Not saying they have utter complete control not saying that's the case. Yeah but they are why would they stop trying to to prop things up a month or two before the election and so 100 that's saying maybe it doesn't work and the AI stuff cracks appear or whatever but long the stuff that benefits from their attempts.

Jack Farley: Yeah 100 so it did.

B: We'll see. Well good stuff man.

Jack Farley: That was a good one. Yeah. Have a good rest of the week and see you for the next one.

B: Sounds good brother. Take care. See you.

Jack Farley: 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 block Work. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments and blockchain technology involve risk. Terms and conditions apply. Do your own research.