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“Is this the top?”

Many ask, nobody knows.

KOSPI fell 8 percent, but EWY is up from Friday at the U.S. open.

USDKRW fell on Monday…

because:

Defending a currency always means digging a bigger hold and praying the market reverses. At best it does nothing when the trend is against. At worst, it increases the probability of tail events. Korea remains a possible catalyst for a “worldwide” meltdown measured by global stock market capitalization.

Market bulls will treat the first leg down, no matter how large, as a buy the dip opportunity. The same with the second major dip in a bear market. The third dip as well. A monster primary bear is closer to three 40 percent losses. It is 2022 for tech, but the down market is repeated three times. Measured off the lows for the last two down waves.

The price move might be something such as: 100 (top), 60 low, 80 top (50-percent retrace), 40 low, 60 top, 30 low. Total loss 70 percent if held from high to low. Dip buyers end up losing more because they sell out low and then hop back in thinking the market has bottomed, riding down for even bigger losses.

A 1-week snapshot shows the market losses are concentrated in technology. The 2000 bear market didn’t really start until late summer if scoring by SPX. The NDX topped in March, but the broader market didn’t give way until six months later.

A look at some ETFs including the main sectors. There are a bunch of funds near their bull-market uptrends that could slide into bear market’s fairly quickly. XLG, the top 50 stocks by market capitalization, could slide 25 percent in year-end and still not break its bull market uptrend. In sum, the possibility for brutal tech-related declines is possible without even breaking the uptrend, a la 2022.

The most bullish-looking sectors in terms of the charts giving way to bullish interpretations are energy XLE and real estate XLRE, with banks via KRE also in the mix (but financials arguing against for now). Tech doesn’t look bearish except as a momentum reversal story. Consumer staples XLP and communication services XLC, with consumer discretionary XLY in the mix, have bearish auras.

Equity issuance is picking up. The bulls will not many bars until the bull died. Bears will note the forecast size of the bar is associated with the peak of dotcom.

President Trump gave an interview to NBC News the past weekend. Here’s the relevant bit for the markets:

Iran is still a bullish wildcard because the market will rally if prices drop. Pressure for rate hikes will ease. Does Trump save himself and the markets, or do they both end up in trouble together? Core MAGA voters will sour on Trump before the YOLOs give up on the AI and semiconductor themes.

Gold looks extremely vulnerable right here. I feel lonely in saying this could get down to $2800 to $3400, with the uptrend from 2001, tested in 2018, 2022 and 2023 slightly below $2400 today. Most folks are talking about buying the dip and so on.

Bulls are seeing a monetary event unfolding.

There’s 10 to 15 percent upside from here before the chart would start looking bullish again.

A lot of mining charts look like this one:

If these charts don’t breakdown, that’s the market invalidating topping patterns all over the place.

NDX 2000 and Silver now.

Need silver above $85 and gold above $4800 to invalidate the massive top pattern.

Momentum rankings after the jump.

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USDKRW has broken out on the short-term. Here’s the scary chart interpretation. It’s already got a target above 2000 if it breaks out, exceeding the 1997 peak.

This chart is the dagger through the heart of the tech bubble and the broadly bullish market. It’s not a chart one sees in a time of bullish strength. It’s a chart that forms in a time of extremely bearish macroeconomic forces.

Right now, there’s no evidence of yen being a risk-off currency. It isn’t crucial for an equity bear.

Yen hints at how weak won could become. If the yen weakens versus the dollar, and the rally, and the won breaks down versus the yen, that would make USDKRW 2000+ a more serious target.

Also do note KRWJPY rallying along with the equity bull market and touching support formed by years such as 2009 (bear), 2011 (major correction), 2020 (major correction). The recent blow-off move in KOSPI being reminiscent of the final doctom run erupting after the Asian Crisis, Russian default and LTCM fiasco. Equities surged with macroeconomic deterioration as the backdrop. Here we’ve had a clear currency signal warning the bottom could be about to drop out in Korea, tech stocks etc. given their correlation, but the market has almost completely ignored the won screaming this risk.

Bull case: the stock market ignored FX to this point, why not ignore it another three months? Six? Nine?

Bear case: the uptrend is broken and FX charts suggest the most volatile FX chaos since 1997 could be on the way.

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Shareholders in these companies are unloading more than 100 billion yuan of shares.

SMH has a paper cut this morning.

A month ago the bulls had a compelling argument about rising earnings. Now we’re back to dotcom flashbacks.

SpaceX is selling itself at 100x current year sales: SpaceX At 100x Revenue: A Warning From 2000

The IPOs of Anthropic and ChatGPT are also forcing changes in model pricing. After the AI binge, companies balk at soaring bills

At low valuations, a whiff of fantasy can send a stock or industry soaring. At high valuations, a whiff of reality can collapse a mass delusion.

Grading on the curve of valuations, skeptics are walking away with the narrative.

AI models are not worth their cost. Forget the sky-high corporate valuations. They’re not worth the bill. Few will ever pay these prices because it’s not worth it. Most users are fine with cheaper or free older models. This is not a statement of usability. The models will improve over time, but improvement will also come with efficiency.

There could be a Jevon’s Paradox in the making. Make something more efficient and demand explodes. Bottlenecks will exist in slower-moving markets such as electricity production and natural gas pipelines.

The stock market is selling a dream, but pricing for a specific payout path. Reality could eventually exceed the hype, but the path there and the winning investments along the way could be very different from how the market is positioned. It could be almost perfectly inverted: a world where the ongoing victory of AI causes macroeconomic changes that collapse the valuation story for hyperscalers and tech stocks in general.

For today though, merely a rotation like we’ve seen before.

Make no mistake: if and when this market goes, the upper left quadrant may remain the brightest red, but most of the above picture will also be bright red.

Change the picture to one-month performance and you can see it. Everything will be red if tech goes and pulls the market lower.

A Rest for BTC?

Slapped a line under the downward sloping H&S on BTC yesterday and that’s right about where it bounced today. Break that level and it’s off to the races again.

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DPZ looks cooked as well if it goes.

MSFT had an island reversal yesterday. Software has to be a value trap if the market tops. Should win an IGV-SMH pair trade, but not because IGV goes up.

The ChiNext made a new all-time high yesterday. CNXT is the most direct way to gain that exposure in the U.S. For similar exposure—though do note the markets are completely different in some cases—MCHS offers more beta and ECNS offers more value.

May Performance

May was a rough month for the portfolio. The SPDR S&P 500 Index gained 5.26 percent and VanEck Gold 1.36 percent, while the portfolio slid 12.61 percent. The dip was fairly broad in its cause as several top holdings pulled back similar amounts during the month.

Closed out positions bought for potential fallout from Iran (GRO, OIS) were also sold after pulling back similar amounts during the month. OIS was a small winner, GRO a small loser.

As I’ll discuss after the jump, the portfolio is now nominally short the market. Early shorting attempts in May added some drag on the portfolio, but were not a material cause in the slide. Moving forward, a melt-up would create a material drag and requires more active trading. Bear mode approaches.

The two most important charts for the moment are copper-gold and the Nasdaq.

Copper-gold is moving in a disinflationary direction. The only exception to the rule is the monetary madness of 2011. Gold peaked on inflation fears and commodities went into a bear market. Gold underperformed as it burned off its excess valuation. Copper-gold then makes a coincident low in late 2016, a year after gold bottomed for good when the Federal Reserve began its first stated attempt at normalization. Maybe Warsh will have better luck!

The worrisome analog is 2020. The pattern to this point is very similar to 2020 with an overshoot in gold giving way to a rally in copper. If a switch was flipped in 2020, the chart continuation signals higher inflation with price shocks hitting sometime around December at the latest. None of this presumes ongoing negative fallout or a drop in oil prices stemming from escalation or peace with Iran. Economic indicators such as freight rates, labor market, and PMIs all point to a strong manufacturing growth phase which the spike in oil hasn’t killed (yet) and would likely benefit from lower oil prices if the Straits of Hormuz reopen.

The wildcard being how much of that growth is downstream from the Nasdaq telling hyperscalers to spend like maniacs. Bulls and bears go back and forth on dotcom. I see a clear inflection in late 2019 when the government restarted QE (in name or not). USG stepped in with massive stimulus that is still going strong via government debt.

If Warsh makes a mistake similar to Greenspan’s in 1999, maybe there’s one big vertical run to go for Nasdaq.

At this very moment, crypto is signaling the money’s running out. There isn’t enough to go around. Speculators shifting into memory chips are pulling capital away from crypto. The phase-change process is over.

An investor who swapped Bitcoin for gold at the peak in 2017 is ahead on the trade. Cherry-picking sure, but it tells an important story. The folks calling for $1 million on BTC are expected another 10x run, but the evidence says that’s more likely to be a world where gold is substantially higher. In hindsight, the transformative bull market ended in 2017. Since then, crypto benefited from late adopters like Saylor coming in amid monetary mayhem.

Were BTC to trade at the ratio with gold from August 2025, it would be near $160,000 today.

Whether or not it was the catalyst, Saylor sold 32 coins last week after repeating he would not sell as recently as February. MSTR’s average cost is above $70,000. The point of control is right where BTC sits now around $66,000 per coin. Saylor still has more than 800,000 coins to sell.

Back to Nasdaq though. Google is raising capital via a secondary offering. AI costs how much? GitHub Copilot users react to new usage-based pricing system.

Some report burning through their whole monthly “AI credit” allotment in a single day.

Everyone knows, or should know, that LLMs are pricing below their cost as a marketing strategy. However, it appears few realized how steep the discount really was.

Let’s pull out Occam’s Razor and slice this up.

One, major hyperscalers such as Google are now selling equity to build more and faster. They don’t have enough cash to fund growth.

Two, hyperscalers are selling their services for far below market cost. Are those usage prices covering the cost or not? If not, the return on investment looks like negative 90 percent before factoring in depreciation. Hallucinations and bad answers from AI are a time sink at cheap monthly prices.

Three, they’re running out of data. Models still can’t generate data for themselves, i.e. they are not AGI.

Four, models become free or close to free for users (leaving aside their own machine and electricity costs) within months as new models emerge. The vast majority of users will probably be willing to pay close to zero without some additional services.

Sum it up and I don’t see a path to profitability for these firms from an investment standpoint. Similar to the railroad boom, it looks more like a great public service is being done via model training that will end up providing nearly-free models for public use. Equities will get wrecked because they’re pricing in massive profits that will not materialize in time.

Five, the bottleneck for the utopian scenario of AGI remains physical constraints of energy and materials. Even if we imagine an AGI starts building factories and robots by itself, an army of murderbots that kill humans to obtain their land for resource extraction, it’s still going to require a huge front-loaded cost that will trigger wartime pricing for commodities and energy. If not a Butlerian Jihad. But I digress.

If you’re optimistic AI, probably want to own assets that cannot be reduced to digits. If real stuff becomes more valuable again, as it did post dotcom, then a cyclical downturn in tech equities and the broader stock market is coming even in an optimistic scenario. In a pessimistic scenario, the only sector propping up the U.S. economy cools off and there’s a recession or at least a major slowdown that puts the U.S. back on the Long Depression trajectory.

Real GDP growth, 10-year compounded annual growth rate.

In conclusion, either the economy grows faster, demands more stuff and charges higher interest rates, and SPX/NDX suffer for it relative to other assets. Or the economy is still stuck in disinflationary depressionary headwinds from China, demographics, bad foreign policy, bad immigration policy and so on across the developed world. Two very different potential directions at the extremes and both terrible for equities at current valuations, with a still potential risk that governments keep trying debt creation to stimulate out of it.

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ULTA can cook in either direction. The gap at $427 could be in play if this pattern completes following earnings. The gap at $394 too.

BTC has been rolling over. The Trump administration boasted about seizing Iranian crypto wallets last week. That might prove a killshot to bulls in the short-term. The flaw in crypto was exposed by Russian gangsters about a decade ago: the weak point is people. The government can target a person, it can compel compliance from companies within the industry. The industry is evolving in the direction of allowing the world to use U.S. dollars everywhere.

The other short-term catalyst could be bears or bulls front running Saylor. MicroStrategy was busted for accounting shenanigans in 2000 after running a Super Bowl ad months earlier. The company did nothing until Saylor jumped into crytpo way late in the game. It had all the hallmarks of another disaster in the making.

In February, Saylor says he won’t sell. This week, he sold 32 coins worth $2.5 million. MSTR’s average buy price is around $76,000. He sold convertible debt to finance buys. The firms enterprise value is about 20 percent above the value of the BTC holdings. People buying MSTR are paying a premium for BTC they could acquire themselves.

MSTR represents about 4 percent of total BTC supply. Being generous, there’s about 5 million BTC trading at anytime. MSTR’s holdings are about 15 percent of the average liquidity. Will MSTR become a forced seller at some point? In pure financial terms, they can absorb losses. In reality, at some point there will be a calculation of whether it’s better to be a $30 billion company or a $10 billion company.

Finally, copper is trading at a new all-time high. It’s almost completed it’s base in real terms.

Copper-gold ratio proceeding as predicted. Massive inflation is coming if this pattern keeps playing out like the analog. Note that gold died back then and went sideways for three years. If gold is merely correcting this time, the implications are far more dangerous for equities and inflation. Equities were coming out of the lockdown panic with a tsunami of money creation flooding the markets. This time, equities are already well beyond valuation peaks. There won’t be a 14-month rally for equities as bonds slump and inflation picks up. It's going to trigger a pullback far more quickly.

A simplistic read of SPX/gold says this is Q3 or Q4 1972, which puts a potential market top anytime between now and October.

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When implied correlation gets this low, the market is prone to sharp reversals with corrections of around 3 percent highly likely once the ascent stops.

If the market keeps running higher, there is only one real analog: June 2024. The market exhibited even more extreme readings that summer, with implied correlation dropping to 3 and Nasdaq/tech and Russell 2000 performance spread that had comparisons in the 1987 crash and 2000 dotcom bust.

It ended with the “financial community” blaming the yen, one of the victims, for causing the reversal. The seeds of the reversal are being sown right now with extreme bullish behavior coupled with a belief that sustained downturns are impossible.

Meanwhile, people still say this isn’t dotcom. They’re correct; it’s not. The dotcom era was almost universally popular because society was in a positive mood. The AI era is far from popular, with even many folks optimistic about the uses of AI worried about the implications.

The latest dystopian nightmare is Nvidia chips running AI on Windows PCs.

Does anyone want an automated BSOD (blue screen of death)?

I would be a hypocrite if I said you should be 100-percent done with Microsoft at this point, but I’d also be a hypocrite if I said you shouldn’t already have one or two offramps prepared. My last computer purchase was a Mac Mini and I am becoming ever more happy with the decision as Windows descends into a hellscape.

NVIDIA and Microsoft Reinvent Windows PCs for the Age of Personal AI

They list all the whizbang features too. Some users won’t care, but my sense if the pool of people who are taking ownership of their data, privacy and security is growing. Personally, I want nothing to do with Microsoft if I can help it. I’m also someone who rejected Apple for it’s entire history until recently because it was like a fascist walled garden. Nice if you wanted to be locked in. The tradeoff becomes a much different calculation as Apple becomes more useful and Windows becomes more dystopian in the post-AI world.

Nvidia moving into the consumer market also marks a shift after many chip companies, including Nvidia, abandoned or downgraded it. That’s not bad for Nvidia, but it’s negative for competitors as well as a clearer path to a market top even in a bullish environment. There are no more markets to conquer if Nvidia dominates the consumer and business markets.

Elsewhere, Latin American ETFs are cooling off. Peru (EPU) had a monthly topping signal as of Friday, but it is gone now.

BTC is also in a decisively bearish setup now. The larger topping pattern points to the $45k area as a possible destination.

And then there’s Trump and Iran. Pure chart read, not bullish or bearish. Volatile as hell with almost a perfectly neutral potential of melt-up or meltdown.

How’s it going? This well. You can click the link to see the post, I’ve clipped it to make it easier to see. Note the numbers of replies, reposts and likes, all indicative that at least on social media, the response was far more popular.

All the way back in Trump’s first term, my argument to the centrists/moderates and anti-Trump factions was let him have his way on a few issues. The best way to defeat a political threat is coopting issues or giving them some success. Had they let Trump do immigration, some industrial policy or whatever and slap the Trump brand on it, it would have taken the wind out of the populists’ sails. Instead, the ruling factions went to war against the American voters and had to be punished with censorship, open borders, lockdowns and other policies designed to inflict pain. Trump comes back with an even larger mandate, but aside from a few issues, he quickly stabs his base in the back and throws his administration into a war he promised to avoid. It’s the worst reversal since George Bush the Elder said, “Read my lips: no new taxes.”

Long story short, populism is far from over. Trump is seen as a betrayer by much of his base now. This is looming context for a stock market at extreme valuations and in a best case, is being supported by stocks of companies seen as destroying what’s left of the middle class. Right-wing populists are increasingly anti-elitist, which could take the form of deflationary or inflationary policies designed to level the playing field. Left-wing populist will pass all manner of taxes inspired by the same anger over growing disparities.

Bush the Elder birthed Ross Perot. Trump, and the Uniparty response to Trump, will birth someone far more radical than Perot. Very likely, someone who could actually win. If and when they do, they will set about exacting revenge upon the ruling class…however they are defined at that point.

Momentum rankings after the jump.

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And yet, particularly in a bubble where the investment flows become large enough to move GDP (see: construction, data centers), it becomes a chicken and an egg problem. Whatever comes first, the other will follow.

tl;dr

The above numbers are based on corporate investment forecasts, not actual spending.

Occam’s Razor says the spending never happens.

The moment the fantasy capex disappears, the phantom growth forecasts disappear.

Data center and the AI buildout are propping up GDP growth.

A bear market with a roughly 70 percent drawdown doesn’t require any of this. Valuations are that high. If the tech bubble busts and there is a recession, it will have three main effects. It increases the probability that a 70-percent drawdown in NDX occurs, it moves the potential losses in a negative direction (odds of negative 40 percent fade and negative 80 percent rise), and it increases the risk of a front-loaded nominal decline.

BTC fell to the last support line. It went through, but it’s not a clean break in volatile crypto until there’s a full candle below. This is the front-runner for the first shoe to drop in a correction.

The most speculatively bearish interpretation of this chart: the market is running out of money. The chip rally sucked capital away from crypto. The SpaceX IPO could well top the semiconductor market or at least trigger an air-pocket reversal.

The U.S. dollar is still threatening a breakout.

Here’s gold vs USDU over the past few years.

Here’s the past few months…but I’ve inverted USDU:

It’s not looking good for gold. I see a lot of people saying this is a correction. Maybe it is, but I suspect it might be like the mid-1970s multi-year downturn should the tech rally give way to a bear.

The BEA reduced its Q1 GDP calculation. PCE contributed 0.95 percentage points to the total, but if you scroll down you see very small numbers.

Keep scrolling and you see all the growth was in services and NGOs. Consumers are buying less stuff because higher prices are eating away their income. Scroll further and you get net exports at negative 1.25 percentage points (adios tariffs: goods imports shaved 2.40 percent off growth rate) and government spending at 0.73 percentage points.

Almost half of consumer growth is NGOs. Goods purchases are flat. Probably some deportation impact in there.

FWIW, the Atlanta Fed’s model has consumer spending swinging to positive 2 percent in the current quarter.

There are still signs the U.S. economy is heating up, but there also signs that heat is fueled by a bubble that could burst at any moment.

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Because it must.

If USDKRW holds to the pattern, it will take off in the next crisis. Until that crisis begins, USDKRW has to go down because to go up is to act as a tripwire for a market meltdown.

For what it’s worth, an ugly daily candle on the KOSPI.

QQQ earned itself a weekly topping signal. Note the recent signals back to 2021 all preceded at least one weekly decline. One of four was a one-week dip before a second signal kicked off a multi-month correction. One preceded a one-month correction that gave way to a final top in late 2021. One came in the summer of 2024 ahead of that summer’s plunge.

USDKRW is a trigger signal. Were it to breakout higher, it would increase the odds of the 17-year bull market ending.

USDJPY is another potential trigger. An overlay of USDKRW over the last few years would show they have been trading like an East Asian currency bloc.

China is moving the other way, likely by force. Earlier this week, the Chinese government cracked down on online brokers who were skirting currency controls.

China cracks down on illegal cross-border securities trading

Economists will debate the merits of various policies, but what is clear: China does not want a weaker currency. It has strict capital controls and it’s still tightening those controls. China’s goal is stability.

When Does It End?

My rough idea is an imminent tradable top by July with the higher probability of a top in September or December.

Some thoughts on stocks.

I haven’t taken my WAG drawing off META because the expected path remains. META is the dog of the Magnificent 7 because Zuckerburg is unpopular, they rely most on social media which is unpopular and might be banned for children in the next downturn, and they rely heavily on advertising dollars. We haven’t yet seen an advertising downturn that wasn’t offset by the rapid growth in new media.

Google would be number two doomed if advertising goes into a cyclical recession that growth can’t mitigate. Not making a prediction yet, but advertising spending was highly cyclical for mature media such as newspapers and television stations. Can you imagine what happens to META and GOOGL if the market starts viewing their revenue stream as a highly cyclical business attached to a company flushing its capital down the toilet amid a hyperscaler bust?

Coscto could hold up if the market weakens because defensives sometimes sink well after the top is in. It did go on a pre-earnings sell-off following a top signal last week though.

If Domino’s is a top, it speaks to the absolute pain that could be coming for growth stocks in a bear market.

How does $150 on MSFT sound? That’s the target if it breaks $350. A 70 percent decline off the top, right in the target zone forecasts for SPX and NDX.

Housing is tracking bonds.

Real estate could get interesting depending on how bonds move.

Signs of the Times

I see “Shoeshine Boy” anecdotes almost daily now. People who are far afield from finance have started “bragging” about their stock picking ability—in quotes because they’re not always braggadocious, but rather exhibiting that overconfidence that the experienced investor knows too well. The South Koreans have dialed their gambling up to eleven. Even if they wanted more risk, it sounds like they will run out of credit.

Anecdotes do not make for signal. These come alongside new highs. A viral pile on would be useful, but it’s also possible there’s a post-peak social signal.

In the past few weeks, I noted the Hindenburg Omen signal was hitting zero to one and that the end of that sequence opens a potential bear window. A Hindenburg Omen fired last week. The window for a correction is wide open.

Whether or not a bear chooses to short now or to wait depends on specific targets, leverage and loss tolerance. There’s enough reason to be raising cash though, especially if one has been riding SPX and NDX up.

Individual stocks will falter first. Indexes can hang on longer. Once semis go though, it’ll be like pulling the plug in the bathtub. There will be calls to get “defensive,” but most won’t work. Finding bull targets will become extremely difficult and will shift into bond funds perhaps, or far afield areas such as emerging market small cap value. If bonds help trigger a bear market, the bear market will be worse than 2008 by the end. It may not exceed the peak panic of 2008 when people thought the whole financial system could implode, but for that reason of not reaching that point, and because rates will be too high, the Fed will be unable to act.

Remember of what long-term bond yields do when the Fed goes into bailout mode/QE mode. It’s risk-on and triggers a sell-off in bonds that had rallied in the crisis. If the crisis is one of rising yields, it changes the calculus. USG might have to slash spending and bond issuance, or the Fed has to hike short-term rates to pull money out of the long-end. Any investor younger than 70 years-old has no experience in this type of bear. Some might if they are immigrants or worked in certain emerging markets.

If you’re a professional managing money and must stay 100 percent invested, reducing tech exposure to near zero is the cleanest way to prepare for a bear. My first stops if I was getting defensive in a 100-percent long portfolio that cannot hold cash or bonds, or facsimiles, would be sandblasted consumer staples like Brown-Forman (an example of being blasted, not sure that’s an upturn candidate yet). Real estate would be another sector I’d be keen on, but not data centers unless they held up. Stocks like Macy’s, recently bought by Berkshire, might be a real estate story with the market cap below the estimated value of their land (that’s a back of the envelope read of their balance sheet and public estimates, not hard research).

Cheap emerging markets will bottom out early and those will be the ones to own for the next bull. The incipient moves in many natural resources are the prelude. The absolute lows are gone, but there will still be time to get in on what will look like the ground floor from 2035 or 2040.

If the AI boom is real, it must lead to faster economic growth and higher demand for resources.

If nothing else stops the advance, the seeds of the bull market’s own destruction are contained within the market:

Chipmakers’ record bonuses to fuel demand for houses, luxury cars

There isn’t a future world that doesn’t pass through a massive bear market in technology either in relative or absolute terms because humans still like spending their wealth on real stuff. Either that inflated wealth is destroyed in a bust or it flows into high inflation which will be even worse for the equity investors because the real low might be closer to 2040. Best case is a stock such as Micron falls 90 percent in the bust and cheap memory chips help fuel that AI boom.

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Some options and more stock ideas below.

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Closed out the SMH puts.

Didn’t expect the war end to kick off a rally, and now it’s into the Space X window. SMH also gapped up today, usually precedes more upside.

BTC Bitcoin still not coming to life though, this isn’t an everything YOLO rally yet.

The market will be on autopilot until mid-June at least, but if assets such as crypto can’t get going, it won’t turn into a kitchen-sink mania.

Saw this next chart posted on X. I’ve discussed this in the prior Momentum posts. Almost everything surging in momentum that isn’t downstream from the Iran war disruption is related to the chip bubble.

Now it’s heavily influencing broad EM indexes. Take the chip stocks out of EM and the gap is massive.

Takeaway: the underlying capital rotation thesis is still cooking. EEM/QQQ is the better index comparison for now because it neutralizes the chip impact. The breakout failed vs QQQ, but is still intact vs SPY. EEM is now 14 percent in TSM, and about 26 percent in TSM and the top two Korean chipmakers.

However this is also at a point where investors should consider ditching broad EM funds and going with small-caps or some alternative to avoid this bubble. Conversely, if you want exposure, then just buy EWY and EWT, or better, buy TSM, SK Hynix and Samsung along with Micron and SanDisk or some combination thereof. If you own something like EEM in a taxable account, riding it out might make sense depending on your tax bill, but otherwise, pick which horse to ride. Chip run or be slowly accumulating for the longer-term EM thesis?

China Chips Win

As for the chip story, be aware the Chinese have set fire to the bridges crossed by companies such as Micron when they ditched the consumer market. The Chinese are taking it.

Chinese Memory Starts Entering Global Markets As Corsair DDR5 Modules Spotted With CXMT DRAM

For reasons well beyond being purely hardball business tactics, the Chinese play the market share game. They are going to send memory prices through the floor in a bust to ensure companies like Micron never come back.

The Distorted Political-Economy

Last two items also seen on X highlight an interesting political split that I’ve seen mention in a few different places.

One group will tell you everything is terrible. One group will tell you this is the best economy ever and people who don’t get it are wrong somehow.

For various reasons, my personal view is as follows: this is the peak of an economic expansion and it sucked for the working class, defined as people whose main income is wages and salary versus asset appreciation. Workers who do not own a home are in this category. Workers who do may or may not be included based on the personal situation.

There’s a concrete base to my case. Here’s real GDP with a 10-year CAGR below. Expand if you can’t see, but the current economy is near the peak of its 10-year high. Note 2008 is in this window until 2018. So we have a trough economy

Here’s the 3-year slice. There’s no evidence of a real economic boom yet.

The economy sucked under Obama, it sucked under Trump, it sucked under Biden, it sucks under Trump again. Real GDP CAGR this low was only produced by recessions in the early 1980s, 1990s, 2000s and in 2008, with the lockdowns a political outlier. Real GDP accounts for inflation, but it doesn’t account for the Cantillon Effect.

Inflated money doesn’t flow into everyone’s pockets evenly. Some people get inflated money first and some never get it. Some are semi-permanently or permanently displaced by damage created by inflation, while others benefit temporarily. In the end, most will suffer in the bust.

When people say the economy is doing well, they received money in the higher stages of the Cantillon Effect. They bought a home, crypto, stocks, etc. They are in an industry benefiting from inflation and government deficits. Government debt is someone else’s credit. The current economy is accumulating massive credits as corporate profits and asset values, not wage growth.

By the time the economy improves for the wage earner, they are in a degraded state. Economics is partly relational, particularly in the short-term. People who say things are going well are telling people who feel like they’re 50 percent behind that they’re delusional because they were 52 percent behind last year. The people working for a living, or low on income and assets as a retiree, feel like they’re deep in a hole and not getting out.

Maybe there will be an AI boom, but right now there is no evidence of an AI boom. Look at the CAGR in the 1990s versus now. The dotcom boom helped push real GDP growth to 5 percent over a three year period. The 10-year growth rate was slightly higher in the early 1990s, but that was caused by the window starting at the end of the 1982 recession. The late 1990s growth above 3.5 percent annualized for a decade was much more reflective of growth. The current 10-year window is 2.5 percent growth.

What’s new is the political split.

Who supports Trump these days? It’s Fox News Boomers who support the war against Iran. It’s also Millennial Democrats who are in the asset owning category. Trump is ramping the asset/tech economy that they’re benefiting from. MAGA Cultists and Millennial/Zoomer Democrats who are heavily into tech and finance.

The TDS crowd hate Trump for various reasons we don’t need to get into. They’re a constant. Democrats who liked some aspect of Trump’s 2024 agenda are largely tapped out at this point. Trump’s working class and America First base are not supportive either. Over the weekend, this headline dropped, supposedly based on a leaked telephone call: Trump links Iran peace deal to Arab-Israel recognition:

Reports say the Arabs went silent for so long that Trump asked, “Are they still there?” Either you’re well-versed in foreign policy or not. This doesn’t exactly qualify as treason, but you can’t subvert America’s interest more than this, to wholly subvert U.S. interests for a foreign government’s goals.

I discussed this with someone who has been much more pro-Trump in general, and in particular the Iran war, and their response was merely this, “I don’t think I’d vote for him anymore.” Voters who wanted progress on economic issues are even more furious.

It’s not like there are alternatives though. Trump’s administration has at least stopped the open borders madness and for that reason, he’s still better than all the alternatives to this point. It may be he’s worse because only he could have started the Iran war, but note he’s received very little condemnation from Democrats. There is broad, deep support for the war in the Uniparty.

The political storm that Trump harnessed into a 2016 victory is now more than 10 years in the making, but it hasn’t stopped building. It could become a category 1 hurricane by 2028, and few in the political establishment are doing anything to cut the energy off. Trump has ditched his base, attacked targeted the serious members of the coalition. Democrats want to enact policies that would get the hurricane to category 3 or higher in the ensuing election.

The voters are going to solve this at some point.

If you have capital gains that in your gut you believe you should be taking, but are avoiding because of the tax bill, know that the future will be some combination of substantially smaller paper gains or substantially higher taxes—and maybe both.

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Here is the ratio of the China A Share to B Share Index. The Shanghai Composite (A Share Index) is in blue. Note the B-Shares enjoy a monster relative run from January to May 2007. The market tops five months later.

Korea only recently became accessible via Interactive Brokers. There are many cheap stocks in the market. Also, like Japan and China, and a few other countries around the world, Korea is trying to improve shareholder returns. Anyone familiar with overseas investing knows the kind of shareholder-focused management found in U.S. companies is much rarer overseas. There are companies with massive book values that operate like a hoarder. Finding companies selling below book value, sometimes below cash, is possible. And there’s no catalyst. Management doesn’t care and can’t be budged. Governments and securities regulators started nudging companies with rules changes designed to improve equity market performance.

Individually, there are cheap stocks all over the emerging markets. There are relatively cheap stocks all over the U.S. market too because tech is relatively pricey—assuming the semiconductor industry is still a cyclical one.

There is a Value-up Index in Korea, but it is more levered to chips than the KOSPI. Bulls will say Korea is very cheap because the chip stocks are cheap. If the chips are only starting their run, then the KOPSI can 5x. The market P/E is 8 because of chip earnings. Run the boom for another two years and the current level might be a 24-month forward P/E of 4 or less. Then as the boom keeps going, investors get comfortable and start paying 20x. This is what bulls are thinking whether they realize it or not.

In a market moving like that, capital will leak out of the main stocks. Micro-caps and small companies do not have much liquidity though. Once money starts going in, it will become the new speculator playground.

If someone wants to play this, buy the most liquid assets. Be it the most popular micro-cap, small-cap or an index product. If there are mid-caps or large-caps in this value category, go for those. Then wait for what will be an indiscriminate wave of buying when the retail herd branches into micro- and small-caps. It will be a rapid rerating. There will not be a lot of volume. Stocks will start popping.

This is an easy setup to trade were it to unfold if you remember one extremely important rule: nobody will want these stocks in a bust. Not yet at least. A temporary mania unfolds as capital floods the market. The people buying these stocks are buying hype and they’re not going to check NAV. It will be a flash in the pan. Exit once targets are hit, while liquidity is high. No different than with the junior mining sector in the past year. When the bear comes, you won’t want to be trapped in micro-caps because the liquidity crunch will send them right back to discount levels when the hot money investors can’t escape.

And it will also tell us the broader bull market is in its final stage.

What will top KOSPI first though? Semiconductors. There’s a looming threat for the industry: China. They’re building capacity to flood the world with cheap DRAM. God help the industry if the AI boom is more bubble than not because a wave of cheap memory will crash into the market right when the naturally cyclical semiconductor industry (is it still cyclical?) is well into a bear cycle.

KOSPI ripped 8 percent on Thursday following Nvidia earnings.

With Nvidia earnings out of the way, the main threat for Nasdaq and tech bears of all stripes are the ongoing rally, the SpaceX IPO and the Iran war.

The ongoing rally is merely the trend. Indicators such as implied correlation can go lower, it isn’t at an extreme-extreme that argues for a top within days. There are, however, enough technical indicators pointing to topping action in the overall market.

SpaceX might be a potential magnet or merely keep speculators on the sidelines waiting for it to pass. Does new money coming into the market outweigh rebalancing? Retail wants in, but institutions have to make room. Three weeks and a day until SpaceX’s IPO is in the rearview mirror.

Ending the Iran war should pop the market because it’ll take down oil prices. If Trump ends the war and it triggers a rip, that’s a rip to get short.

Reviving the Iran war will collapse the market. Were the war to heat up, various nightmare scenarios for the global economy will get another airing whether deserved or not. SMH has a gap at $400.

Ending the war is the higher probability outcome because TACO (Trump always chickens out). The war very likely wasn’t his idea. He might have been trying to please his donors. Maybe he was high off the Venezuela success or maybe Israel caused him to act. In any event, he immediately realized he screwed up and since then it’s all been about getting out quickly while saving face. On the Iranian side, the risk/reward from continuing the war starts becoming all risk as their energy production drops. That’s before factoring in resumed kinetic activity that destroys their energy production. It’s in everyone’s interest to make a deal…except for Israel.

The Russia-Ukraine war is something of a parallel, though with the difference being the U.S. will be more like Ukraine in terms of adapting to a new form of warfare. Ukraine became surprisingly strong in drone warfare. In contrast, Iran started the war at an advantage. Iran’s asymmetric advantage will collapse as the war drags on. Their best chance at a good deal is taking advantage of Trump’s desire to get out while a lower-cost exit is still visible. It may only be weeks until that exit is gone.

As for Russia-Ukraine, Peter Turchin discusses the attrition rate for Ukraine. It cannot go on like this, but the day when it stops? Nobody knows. One forecast says September is when the odds spike though.

Cliodynamica by Peter Turchin

Is Ukraine-Russia War Entering the End Game?

The Persian Gulf war of USA/Israel against Iran has largely displaced reporting on the Ukraine-Russia conflict. Reading the news on mainstream media one may think that this war, now in its fifth year, is still in stalemate; or even that the tide is turning against Russia …

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19 days ago · 75 likes · 22 comments · Peter Turchin

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Long-bonds stochastic is oversold on every timeframe. Prior breakdowns occurred in this condition.

Bonds and the dollar crosses aren’t going to move quietly. They could enter breakouts and breakdowns, respectively. Or these are the breaking point for the trend to this point. The former would be the volatile, bearish resolution. The latter could save the bull market for a bit, as the dollar turning down again in March accompanied the market rally to this point.

Bonds are still the cleanest signal if they go. If rates pop, it doesn’t matter if the dollar rallies or sinks when it comes to the implications for equities: the stock market will tumble. It’s possible bonds rally if stocks experience a sharp correction though. This could be the fakeout to a breakout if a disinflationary bear market kicks off.

Bonds down, dollar up, oil up is a toxic combination for the stock market. There are parallels with 2022: “stocks” aka SPX and NDX are above 2021 valuations. Crude already popped and could go higher. The only thing missing is a forewarning of a rate hike cycle by the Fed.

A contrarian here would point out Warsh’s policy ideas lean hawkish. He thinks the balance sheet is more important than the level of interest rates and he wants to cut the balance sheet if he can. In this model, lower rates ease borrowing pressure on households and small business, but the impact from taking liquidity out of the financial system more than offsets the inflationary impact.

Trump’s administration is a mix of MAGA and America First. Main dividing points are economic and foreign policy. MAGA is more Wall Street; America First Main Street. On paper, Warsh leans Main Street. Trump wants, thinks he has a MAGA guy. Both sides want rate cuts, but for different reasons and context matters. Trump wants lower rates, period. America First wants low inflation and low rates for business borrowers. If you press them, they’ll say they’d be worried about lower interest rates increasing home prices, if home prices haven’t dropped already a la 2008. Trump has said he doesn’t want home prices going down.

We do not know what political appointees will do in power. They can diverge wildly from expectations. Technocratic positions such as Fed chair are more reactive and constrained by reality. There are no shortage of fatalists who point to U.S. debt levels, financing needs, rising inflation and so on, and make a credible case for hawkish intentions being dead on arrival. If Warsh is serious about lower rates though, truly serious in the sense of being willing to enact policy that leads to lower rates over the coming decade, then the picture drawn by the fatalists leads to a very different policy mix. In conclusion, maybe Warsh creates room for rate cuts and perhaps Trump isn’t entirely happy about that process.

Final point: the market is all in on the short-term. Policy next year doesn’t matter as much as what Warsh sounds like at the next meeting. If he comes in hot and hawkish, the markets are already over-primed for a pullback.

TLT unadjusted and adjusted for dividends.

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These situations do not hold for long, though one can find them in large topping patterns such as head and shoulders. Those take on a life of their own however, once that pattern forms.

Symmetry will not hold for long for two good reasons. One, it’ll fail. Two, the tech indexes and their fellow travelers such as KOSPI are sitting at or below support of recent topping patterns.

Three, note KOSPI’s pattern and timing. Bear moves tend to be faster and larger when they happen. A mirror move in KOSPI over the next 3 days points to a 10 percent drop.

Four, Nvidia reports earnings on Wednesday after the bell.

SpaceX Spoiler

Scientists are discovering nanoparticles of aluminum oxide created by satellite reentry are a catalyst for chlorine leading to ozone depletion.

The good: it’s not a big problem yet. There are solutions such as building satellites out of wood or other materials.

The bad: this is the current growth rate in satellite launches. Between Starlink, China and other players, it’s theorized the number of satellites could climb beyond one million. Additionally, the particle remain in the atmosphere for a decade or so before drifting down to the level where they interact with chlorine. Meaning, if the current level of launches is bad enough to cause a problem, it won’t start hitting until the 2040s.

Potential Ozone Depletion From Satellite Demise During Atmospheric Reentry in the Era of Mega-Constellations

Burning satellites in the stratosphere: Emerging questions for climate

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Bearish: Are we there yet?

Overdraft credit loans hit 3-yr high amid stock market rally

Brokerages hit jackpot as retail investors borrow more to chase Korea's stock rally

Banks raise deposit rates as stock rally accelerates cash exodus

Korea’s stock surge draws seniors into risky first-time investing

Market is primed for a pullback if the symmetry holds.

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QQQ is way up in the rankings. It doesn’t go much higher except in acute situations. The only times QQQ went higher in ST momentum in recent years was in March 2023 (when financials sank the other indexes) and in June 2024 (Nvidia/Mag 7 melt-up that gave way to the July plunge). It has gone much higher in LT momentum though. To get into another similar setup would require either tech running up along or tech holding up as other sectors such as financials lead a collapse.

Aside from tech, almost all of which is semiconductors and AI funds or proxies of them (South Korea EWY), there are alternative energy and oil funds at the top of ST rankings. Not energy equity. Those shares are already sliding out. On the LT charts, they’re barely hanging on to top-10 spots.

China’s economic data was a broad miss. Retail sales down, fixed asset investment negative, industrial production missed big. How much of that is downstream from the Iran war?

China promised to buy more soybeans and Boeing jets again. A nothingburger economically.

Nothing major about Iran was announced. In a world of resource constraints, China, Russia and the U.S. are all better able to manage thanks to either resources or superior economic efficiency. China’s main concern is stability. They locked the country down for three years to advance Made in China 2025. A global recession they can blame on Trump is another gift for them to implement highly nationalistic policies that cause pain under cover of an external excuse.

Everyone is talking about rates again. I noted on Friday they’re back to where a breakout could be imminent.

Here’s the 10-year yield and crude oil. No college degree required to understand what’s happening. No foreign policy or economic experience needed to understand the decision tree Trump faces.

Markets ran up on hope that Trump only cares about the Dow Jones Industrial Average going up. He did say he sees something like a 25-percent drop in the stock market as worth it though, to keep Iran from having a nuclear weapon. The stock market has largely priced in TACO. Energy and rates are not sure. Formula for disaster: Trump actually believes the downside risk is only 25 percent.

The $670 area looks like a “luck it stopped there” spot for the bulls.

Nvidia earnings are Wednesday, May 20 after hours.

SpaceX has a preliminary date for its IPO: Friday, June 12.

These are the last two big items on deck the could plausibly keep the market from experiencing a major sell-off. A brief plunge is possible though, the pause that refreshes the rally. The market remains in a corrective setup.

The move up screams for a violent reversal, but everyone is looking for one. Rates and oil too are widely discussed. Another round of kinetic action in the Middle East is the worst case scenario for the market since there's no room mitigating factor. Whereas a pullback in tech today is being offset by accumulation in several sectors.

Looming in the background is the gap in SMH near $400 per share, a 25 percent reversal from the $540 level that would mark the start of more downside risk.

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The 30yr30mo is screaming bear market.

Every prior instance with the spread this high came after a major market top. Valuations downgrade heavily the odds of a 1990 or 2020 scenario. I supposed a panic like in 2020 is possible given there’s a war going on, Trump in office…but it would have to be brutal enough to get valuations back in line. The 2020 drop was erased in six months. This time, it would have to be more like 1987, a drop that takes 2 years to come back from.

With the context of the war, energy and rates looming in the background, a continuation points to a 1973-1974 scenario. Or a 1987 redux. That crash took 8 years to recover from in real terms (ignoring dividends). How about a 10 to 12 year real bear market unfolding after a 40-percent one-week crash in SPX (NDX maybe down closer to 60 percent)? The crash is the nominal low, so buying there doesn’t lose money, but it takes until 6 years or so to hit a new all-time high. It took 8 years for SPX capital (not including dividends) to recover from the 1987 crash.

What’s worse if there’s an inflationary era, the 1987 peak only moved the market back to the 1968 real high. It was a 25-year bear market in real terms.

Here’s the 30-year mortgage rate.

Here’s the spread over the 10-year Treasury yield. There isn’t much room to go lower here, which means the 30-year mortgage should absorb most of what happens to the 10-year. It looks like about 50 bps of cushion is all to reasonably expect.

Here’s the 10-year Treasury yield. A breakout from this pattern points to near 7 percent on the 10-year.

There are larger patterns at work though. Once this goes, the 10 percent area is open.

Here’s the SPX dividend yield overlaid.

Buybacks are part of the story, but they’re a bull market story. When the stock market is losing ground year after year in real terms, people aren’t going to see buybacks as a great deal. Corporate boards won’t either if they’re borrowing at 10 percent or more.

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Everyone’s talking about gamma now. What is gamma?

First we need delta.

Apologies for oversimplifying, but we’re not doing quant here.

Delta tells you how much the option price should change for a given move in the stock price. It’s also used as a heuristic for probability of closing in the money (ITM).

Gamma is the derivative of that, how fast the delta changes. It peaks around 50 when the uncertainty is highest.

A 40 delta is a good spot for a directional, short-term options trade.

My bread-and-butter trade is riding a 20 delta up to 80 delta. As stated above, I didn’t discover this from a quant model. It’s merely what I noticed after putting on many put trades and noticing what the big winners had in common. These successful options trades deliver multi-X gains because it moves from a “not gonna happen” event to a “definitely likely to happen event.”

At 20, the option is like a crash put. Nobody thinks it will come into the money. These options tend to be around 6 to 8 percent out of the money when VIX is under 20. The setup is a bearish chart with a target much lower.

A successful trade gets into the money and then goes deep into the money. Gamma surges, then declines again as the stock option starts trading like a synthetic short.

Here’s an example from McDonald’s, which I’ve traded at times because the market tends to price it as a lower volatility stock, but it can get volatile when it gets moving to the downside. Ultimately, the best trades are from mispriced options where the market isn’t charging for the potential risk shown by the setup.

These are July expiries. The $255 put is below 20 delta, $260 is above. With the stock at $275 today (rounding here), these options are 5 and 7 percent out of the money. If MCD was a viable put idea for me, this is where I'm buying. If I don’t think MCD can get this low, I’m not doing the trade at all.

MCD is sitting on the 50-month MA. That’s my bear market line. Above is a bull market. This is measure I use mainly for the major indexes, but often trendlines will line up with this moving average. Stochastics is nearing the oversold zone. That’s the bearish zone where losses can accumulate.

I can draw a plausible trendline under the current price. I just put it on there; this isn’t one I had on the chart.

MCD has been weak, but not seeing a good target area. Maybe $230 area. For the sake of discussion, let’s say that is a high confidence target (it’s not). The $255 and $260 puts would, ignoring time value, be worth $25 and $30 at some point before expiry.

Look back at the options values above, the current options worth $25 and $30, the $300 and $$305 puts, have deltas of 77 and 83. They are worth $30 and $26, rounding down to the bid. The current ones sell for $3.50 and $2.60, so roughly 8x to 10x return if this scenario played out.

About half of the total gain from this theoretical move comes around the delta in the 50-60 range. The multibag is the gamma surge and after that, it’s about a doubling from there. A 5x up to there, then a 2x to make for a 10x total. As I characterize it to myself, that’s the point where you start getting greedy, and by 80 delta you’re stupid for hanging on.

Again, not a pick from me today, but it helps to understand what’s going on in the market these days…in reverse.

Here Come the Gammas

Everyone is talking about gamma the past day.

What I described above for puts has been running in reverse for calls. Same concept, but for rising equities. YOLOs are making the market makers chase the market higher. Passive buyers put a floor in because they buy at whatever the price is today.

There’s also low correlation. When it gets low enough, it’s not a matter of if, but when correlation stops going down and snaps back amid a market pullback.

The last time this happened was either November or December 2021, or both. At minimum, this gives us roughly 6 weeks to a top in an “instant replay” scenario. That’s a long time in the context of the MCD example above. It’s not very long at all if you’re thinking of raising cash. Plain vanilla shorts would make sense once the upward impulse stops, assuming a top started forming from there as in 2021.

Note I dropped a teal dotted line on the bottom to mark the low in 1-month implied correlation at that time.

Here’s implied correlation with that teal line in the same spot. Almost impossible to see without clicking on the image.

Two takeaways. Implied correlation could go far lower in a melt-up scenario. Nvidia earnings are next week. Jensen is in China with the Trump delegation. Strong earnings, a deal with China, take your pick of bullish possibilities. An exit from the current condition isn’t a guarantee. Into July 2024, it was a multiweek even of, to use a technical terms, batshit insane moves. You may recall the Russell 2000 multiday melt-up for instance that was a once-in-forty-year relative move versus the Nasdaq.

Another data point being meme’d: new lows. Layering SPX inverted over that chart, there’d be price drops in SPX correlated with those spikes in new lows. Except for right now. The stock market is marching to news highs day after day as new lows build.

Hussman tweeted out a ChatGPT explanation of a gamma squeeze:

It works in reverse too. Pile into OTM puts and the market makers have to chase lower in a market panic.

Conclusion

Market technicals are such that a top could be hours away. Not a forecast, but a statement of current conditions. A tradable top could emerge as soon as this squeeze terminates. The example from 2021 shows the top could be a multiweek process, though I can tell from experience that there will already be many shorting opportunities as the market deteriorates rapidly under the hood in that scenario. There are also plenty of a catalysts on the horizon, from Nvidia earnings next week tot the SpaceX IPO, that the current conditions could remain extreme for weeks to come.

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If one could time the entry within a two week window, the options payout on a move that takes the Nasdaq down something close to 20 percent creates the possibility for 20x to 40x returns in OTM options. At least for May 29 options as of yesterday. No idea yet when the pop might start, but that type of trade might be snaggable the moment one spots the sand giving way…is it giving way?

Limit down is an extreme scenario that is a real Black Swan type outlier event because by its nature, it has to be unpredictable. One can imagine it, but it’s something that happens more or less out of the blue. A limit down day would be a 20-percent down day that creates a market holiday. Then if futures are limit down again, probably looking at 30-percent or so down by the opening on day two.

South Korea came up with an idea to crack the market, sending shares down 5 percent at one point.

Techno-feudalism will be hardcoded into any society that makes a specific industry tax. The tobacco company settlements are genius in hindsight because it made the tobacco industry a de facto government sector of the economy. But I digress…

The investment boom is already having a real impact in electronics. ASUS motherboard sales are down by a third and that’s not an isolated figure.

Sustained booms are fueled by their own production. Unsustainable booms are inflationary, fueled by credit or printed money and function like an inversion of a panic bust. Companies are paying through the nose for components such that the rest of the economy is starved for supplies.

There is the possibility of an inflationary scenario where prices skyrocket and the rest of the economy catches up. That’s a scenario where oil, bread, and minimum wage start looking like SanDisk. A highly unlikely scenario. The odds that assets such as homes, gold and stocks correct entirely through wage increases is both low probability and the worst possible outcome.

More likely, SanDisk is a $60 stock again. A 96-percent drop from here, a precise parallel of the dotcom bust.

Optimists will argue demand can stay high, but then it has to show up in GDP growth at some point and it’s not there yet because this narrow slice of the economy is being offset by damage elsewhere.

To say nothing of the Iran debacle. There is no deal with Iran yet because the options are all bad for Trump. A quick exit leaves Iran in a better position or damages U.S. prestige. A deal will be worse than Obama’s Iran deal, which would require Trump being humble or at least turning on people powerful enough to force him into this situation in the first place. That’s the best option if he had the political skill and humility to pull it off. If he risks escalation, Iran will not give up and accept foreign domination. There’s risk of permanent economic destruction.

A nightmare scenario is a two-fer where oil flies past $150 per barrel as the AI bubble bursts. There’s no way to place odds on that without knowing what Trump is thinking.

The 30yr3mo is bearish.

The 2s10s is bullish directionally of late moving lower, but rates are not. The 10-year is threatening a breakout.

Final note. Social media is a good sentiment indicator if you have a baseline. It requires knowing your feed to avoid confirmation bias. A top or bottom in sentiment can be seen when there’s a major increase in engagement and/or extreme tone. This one came across my feed yesterday retweeted from a non-financial account. Made me go hmm, but I didn’t think it was spicy enough for top. Definitely was a local top though.

Maybe?

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