Dispersion Is Exploding While Main Street Reaccelerates | Weekly Roundup

The AI capex spending is not going away tomorrow, but the expression is still the same. Sell what they're selling, all of their securities, and buy what they're buying, all of the bottlenecks. It's the people are reaching for real things that have fixed supply constraints.

Whereas for the past two decades, we've all been on one side of the boat, which is like the fintex, the cloud computings, the online retail. The boat's completely flipping right now.

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If you want serious institutional grade view of digital assets in 2026, Digital Asset Summit is where it happens. Use code forward 2000 for $200 off and head to blockworks.co/events for more details.

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All right, what's going on everybody? Welcome back to another roundup edition of Forward Guidance. Happy Thursday. How are you guys? What's new?

Quinn got a freshy. He got a nice high and tight.

I did. There's a little bit of a language I I had to find a new place and there's a bit of a language barrier. So fade got misinterpreted as just just start going.

Dude, that happened to me. I lived in Miami in like 2008 and they used to give me the Hispanic guy haircut. Just I don't care. Just roll with it. shave it, bro.

I know. I was debating and then I was like, "No, I want to keep growing it." But I was like, they got to know some pasty white guy like me does not look as good as them with the super tight fade. Like, you got to cut some slack. Do less, bro. Do less.

Tyler, you're looking like you got really fired up after your rant this week and went to the streets and just took matters into your own hands.

Dude, I got I got a vicious story behind it. I went down, you know, stairs in my house and my kid sitting on the couch. He looks up at me. He's like, "You, you goddamn millennial. You're ruining everything." And then he headbutted me right in the face. Five-year-olds have really hard heads.

But then you didn't punish him because the Dow was above 50K.

Exactly. Exactly. Yeah. No punishment when the Dow is over 50 Yeah. Perfect. Holy [ __ ] That's how you're supposed to.

I'm sure everyone's commenting commenting on it, but Quinn, you had a good roast of that, you know.

Yeah, he has some great tweets about that. I was going off, man. One of them went super viral. I Yeah. Everyone, you're not supposed to go too far into politics, but sometimes you can't help yourself.

I mean, you look at that. It's just like We can talk about it at the end. We'll talk about it.

Okay. Before we get get all fired up here, quick Dash shill. Digital Asset Summit 2026, New York, March 24th, 26th. I have to repeat this because I bet you all just skipped the initial ad of me talking about Dash. So, we're hitting you for a second time.

It's going to be great. We got some really great speakers. I'm going to be doing a fireside chat with Stephen Moran, Fed Governor. We got a whole hot list of of different institutional folks. We have the head of the SEC there.

We're also going to be doing on the third day like a dedicated Ford guidance track which will be awesome. So, we'll have we'll be doing the live roundup and then we have some specific interviews and panels that we're doing with regular Ford Guidance guests. So, if you're a fan of Ford Guidance, it's going to be a really good conference.

If you want a deal, FG200 will get you 200 bucks off the tickets. So, link is in the show notes. Go check it out. Go sign up. Come visit. It's going to be awesome, dude. I'm pumped. We're gonna we're gonna have a sick track for that day.

You think you think there's going to be some breaking news out of Moran? You're going to be talking about new Fed mandates. What do you think?

It's gonna it's going to be a really interesting one because it it all depends on like whether Powell leaves or not, whether Moran stays on as Fed governor. I mean, it could it could end up and it's like this our our fireside chat's like a couple days after the March Fed meeting, so it could potentially be a really exciting one. We'll see what happens, but uh Yeah.

Yeah, if that's really cool because when they when they have their speeches, it has to like go on the Fed website and and all this stuff. So, it'll it'll you know that that's sweet. That's awesome.

Yeah, maybe I'll finally get my name on the Fed website. That'll be kind of cool.

All right. What's going on in the world here? Jaws report this week is is the big one. Lot of interesting data there. So, I'm going to run through a few charts here and then we can riff off how we're thinking about it.

The big one is that this was one of those jobs reports where we get the big CES estimate benchmark revisions. And basically, if you look at 2025, the labor market was quite a bit weaker than even what we thought at that time. So 2025, if you aggregated it, we had about $584,000 in total non-farm payroll jobs. And after the revisions and the tweaks to the birth death revisions, it's more like 181,000, which is very, very low.

And so you can just see this is with the with the revisions in is that this actually really validates a lot of my perspective on what happened in especially the spring of 2025 and liberation day is I feel like we went through a bit of a recession. We we've talked about this before on the show in terms of it, you know, there's the main street recession, but it was being papered over by the heavy AI capex and the top percentile income earners that were just still spending like mad.

And so you can see this is a great tweet. So those last two charts were from Parker Ross, wicked economist, and he says, "The narrative that matters for 2026 isn't the BLS overstated Jaws by 900,000. It's that the labor market quietly absorbed an even more significant slowdown than we could see in real time. It came out the other side. January's $130,000 $130,000 total non-farm job growth print is the first statistically significant month of job growth in a year. not a blowout, but given where we've been, a meaningful inflection.

So, this is a Goldman chart that just tries to isolate away from all these funky seasonal adjustments, benchmark revisions, birth def model, really get to the core of the trend. And I think it's really highlighting what has been my perspective lately, which is that we had a little recession in the spring and now we're coming out, we're actually, I think, early cycle and we're starting to reacelerate now. So you're starting to see that with a more cleaner look from the labor market which is aligning with some other data points.

And so obviously you know monthtomonth is is really noisy. So I think it's always important to look at this is just a three-month smooth trend and you can see like with these revisions in we had pretty substantial negative jobs growth for a few months there in the spring and now we're starting to lift off again. And that just it it aligns with my bias that's for sure and cur about your guys' views of this whole thing.

Yeah, my take is that one just in the same way that we had this recession basically like sort of through 25 and probably started in 2024 uh just how in in during that time the economy does not equal the stock market uh I think that holds true today even on the inverse so you have maybe in your terms Felix early cycle for some of these cyclicals and main street things because they're finally after years seeing capex investment which is correlated then to labor investment but that's not what's in the stock market these days because none of those areas have been invested in so I think this is where there's so much nuance because you know people might think wow job job markets may be getting slightly better you know main street economy might might be doing slightly better. There's some green shoots, but then you look out at the carnage and it and it's kind of madness at and so I think that's two different worlds.

And for me, I I don't I tend to think that this it it probably dead cap bounce before I think it's a lasting recovery until because the Fed is still too restrictive at the at the FFR on the front end. So for me, I'm I'm a bit of a fader of of some really really, you know, booming recovery here from the labor market side. I just think the Fed is too late uh to to correct this and they've they've obviously been suppressing long end yields and there's this huge rebalancing that needs to happen which I think Wars wants to shepherd in.

But um in either case, we're seeing you know quite a big tick down in long-term bond yields today or or you know on this sort of softening data and tomorrow obviously we have CPI. The Fed is still you know there's like a 80% chance of no cut under Paul's term. So I think they're falling behind the the curve here but at the same and and you know growth would suffer because of that. But at the same time, you know, yields are getting into like no no touch zone. Like it is becoming very unattractive when the 10-year is around 4% and the government's still running 5 and a half% fiscal deficits.

So, it's a it's a very very nuanced world out there where every day, every three days, the fair value of of asset prices is is teetering and and hitting extremes, which I I know we'll talk about later, but um it's very difficult, I would say, to take these these characterizations of labor market, economic health, etc. at at face value these days because how those how that correlates to the underlying financial markets and making money off those is like so never been more connected.

Yeah. Yeah. Attached.

Yeah. I got I got one that's kind of goes along with that is 56 Felix. This is the economic surprise index uh from City. Oh, I got a lot of stuff from city to give them a shout out, but um Torstston Slock did this from Apollo, but you can kind of see, you know, things are actually turning up and generally speaking, you see the 10-year yield react to the economic surprises to the upside.

What's interesting now is because I think why it's actually not reacting to the upside is a lot of this AI stuff is becoming somewhat disinflationary or deflationary. And we're we're seeing that in the stock prices, too. So, there's so many things happening like we saw gold detach from the 10-year yield. Things that have, you know, unreal yields, gold have detached. There's a lot of things detaching from their correlations they've had for, you know, 30 years now because there's a lot I if you're in this like productivity boom, there's winners and there's losers now.

And what doesn't work in that and I tweeted this is just over diversification and passive. It seems to be working now because the index isn't doing much but at some point you know that that has you know it's time to pay the piper. So we're in this in between world where people think it's the same but it's it's not at all.

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I I completely agree and it's it was so interesting going through the motions of the jobs report just knowing that there's this ominous thing on the horizon of this potential inflection point from what's going on with with AI and you know so we're seeing it right now with with software and um it's like how how relevant is all of this you know like how do I underwrite these traditional correlations that you're talking about when things can change and the the other thing is that there's there's no historical precedent for for I mean maybe there's some like industrial revolution and that sort of thing. But yeah, overall like it's hard to it's hard to ground yourself in something right now I find.

Go to slide 42, Felix. I I'll ground you in something. So the the this is the US market cap weight percentage of the world. And to my point earlier is is okay if if we're finally being given a reason to allocate capital away from just AI that means that capital should flow into into many other things. So this looks I mean we're talking this looks so toppy you know this is a very long-term chart.

Next slide is the run rate AI hyperscaler supply of US investment grade debt issuance. And you know this is like a tripling in 2025 from previous levels and and might even double again from there. And the next slide is the AI related capex spending was already huge and now recent uh estimates are even larger. So this is why at an aggregate level we avoided recession.

Yeah, but but with this basically peeking out, I mean I mean what is AI capex like? We can't eat AI capbacks for dinner and and I'm going to conjure that but go keep going. Sorry.

Okay, so the next slide is estimated net flows international ETFs. So this basically this is ramping at the time when the first chart I showed was US market cap as a percent of the world. Um and then if you go to the slide 50 a few more down and you see uh this is US market size US equities and then you know US treasuries and then you have oil, gold, copper, silver, oi, platinum, platium. These are these are market sizes.

So, this is basically what we've been talking about for for a while now. And um I I just think that the the job losses that will I basically think we're at the inflection point where add additional AI capex investment andor progress made for corporate margins for every increment improve there or increase there is now have going to have an even more outsized negative impact on labor and the job market and I think politically that is untenable.

If you go to slide 52 just a couple next this this kind of demonstrates that which you know we've we've talked about these slides as well before but the the labor share as a percentage of the total economy is kind of at lowest ever. So what I think we're seeing is is, you know, this this Professor Galloway thing, resist and unsubscribe. You know, the it's it's a campaign against the big tech firms because, you know, they have influenced Trump. You're seeing I I think basically the backs stop to the AI capex boom is not as sturdy in a midterm election year as as people are giving it credit for and as the market is priced for.

Look, I use, you know, code and claude and AI and all these tools and it's unbelievable. But you also have to look at valuations if we're going into a a liquidity constrained new Fed policy environment. You know, that hasn't mattered when the Fed steps in. But if we're getting new Fed leadership that that wants a more, you know, balanced approach to monetary policy, I I do think valuation matters. And and I think that um you know the the rules of the game are are sort of changing and and to me that's sort of the biggest thing here.

Um when you have market concentration at record levels it that stands out to me as most dangerous.

I I actually do agree with that of what you said. I thought you were going to say that the capex can't keep up on the big large cap tech companies. And what I was going to say to that was if you actually look at Oracle bonds, what Oracle did was they raised debt and equity. So they basically like buffered their debt by, you know, essentially tapping the equity markets. And that's exactly what the the Fangs could possibly do. They have so much equity capital that they can tap into. I think they have so much runway.

Yes. they could this out years and years and years, but to your point that might rotate out of the large cap tech and the indices and all the large, you know, market cap weighted stuff out of the US. And I think, you know, eventually your cost of capital goes up when people realize your cash flows aren't keeping up. Or maybe they do, but I don't know.

Well, that this is kind of my point to people is like we can agree have different takes, but we the the thesis the expression of the thesis doesn't change because okay, so for for context for people who don't know, when you're an you know power generation energy business or capex intensive business, you use the debt markets heavily. You might be two, three, four times debt to IBIDA ratios. These companies are like zero one one and below. So, it is natural and right because they have very cheap access to financing. Google can issue a 100red-year bond at like barely above risk-free rate. They should be tapping that all day long.

I was 20x oversubscribed. Well, that that's that's all about like initial price talk. But yeah, but they should be they all should be tapping the debt markets, which is fine. And I don't have any going concern about these companies like they're going to go bankrupt or anything like that. But there is a second order effect where okay they all hit the debt markets cost of capital and spreads have to rise to accommodate all this new issuance. The co cost of capital of the business rises and then your you know longer tail capital capital intensive you know marginal invested dollar MPV is lower.

So over time there is a second order effect to you know everybody running too hard at the same thing cost of capital rising and you can invest less at a profitable margin. So like either way yes the AI capex spending is not going away tomorrow but the the expression is still the same. Sell what they're selling all of their securities and buy what they're buying all of the bottlenecks.

Yeah. And I think that's what's so key is that there's that big bucket you're talking about going on right now and then there's the other one around software and like the tail outcome of there which is that I heard I think a Catrini said it he just put out a good article talking about this whole thing which is that like it's not that software is like an imminent threat from AI like tomorrow and what Claude is doing. It's more so when you're running a 30x multiple industry and that's never been threatened by anything existentially. Even even just the threat of a threat is enough to question those multiples. And that's where the multiples matter. And I think that's where the nexus of those two comes together into how the market is digesting it now.

And I just have a few slides looking like just the the dispersion going on this week as we try to digest that. Like I mentioned this last week about the duck that's on the lake and you know on the top surface it looks very calm which is the indices but underneath the the legs are going crazy and that's just like accelerating this week is this is a good one just looking at the the two-month realized correlation between XLC uh which is communications and XLP which is more consumer uh staples and they have a negative correlation two-month realized for the first time in many many years.

So it this is where I guess your point like passive does not do enough right now. you really have to pick your spots because it's not the situation where it's just all one trade. It's the complete opposite. We're seeing negative correlations now just between long betas like just depending on the sectors.

And then so this is another one just looking at the uh what happens when um these red dots here when 115 or more stocks fell at least 7% in a single day across a rolling 8 day window. And look at the current one. We've we've never had a time where indices top level indices are like a percent or two off all-time highs and yet we're seeing these red dots show up. So there's just car like dispersion rotation carnage happening underneath and then meanwhile the cues are just flat.

This is another one from N Smith great quant ball guy uh talking just about this dispersion further. And he says let me get here the S&P is flat over the past month but the average stock moved 10.8% 20% a dispersion spread at the 99th percentile over 30 years. Crush correlations driven by mass growth, the value rotation.

And you can see this visualization of just these these jaws coming together of the growth factor versus the value factor. And the outcome of that is just these indices are and it's it's about a relative performance game, right? like maybe that's where I don't fully agree with the big short idea of of shorting tech versus just relative outperformance which is like I would just rather go on these these other things. Meanwhile, tech is going to be flat to bleedy down and just I just definitely don't think there's going to be that sort of performance.

But looking at how that expresses itself in these thematic ETFs, this is just looking at returns since November and like you can just see it like it's it's the people are reaching for real things that have like supply constraints whereas for the past two decades we've all been on one side of the boat which is like the fintex, the cloud computings, the online retail stuff like the the boat's completely flipping right now.

And this doesn't show just the disproportional AUM between these two like ETFs. Like nobody owns those top performing pieces. Everybody owns the stuff that is down 20 to 30%.

Yeah, that's what the market's digesting, you know.

Can you hit me with slide 55, too?

So, this is an interesting psychological effect. So, this is from Cityroup. This is the city util retail favorite basket and then retail as a percentage of total stock volume. And you can see what happened last week was a complete wipeout from the retail community. They were all long. We talked about this like they were all long call volume, you know, call options and then just got absolutely punched out in in a lot of the retail favorites.

But one of the funny psychological things in the market is when people win in a certain sector, you keep going back to that sector and everyone's, you know, guilty of this thinking it's the same. Whereas there's an easier pitch, you know, if you go to a different sector that's acting way better and, you know, that's, you know, old school tech, the Dow transports, the the, you know, the the consumer staples companies are working, even though a little stretch in the short term, but that rotation, those things look way better than, you know, this super high implied volume you're playing. You know, these companies don't have revenues. A lot of them they're kind of fake companies, but retail went back to them because last year they were such winners. It was just a it was a giant gamma squeeze in a lot of frontier stuff.

And you know, but now the Fed policy is changing. So you have to kind of switch, you know, now gold stocks and in in a lot of the natural resource stocks are acting a lot better and there's that you're seeing it beneath the hood kind of play out. But I it the retail phenomenon, I'm I'm curious to how long they stay on on some of these like u super techy type software themes. But in the very short term, I do want to go on the record and say that I'm pretty sure we hit some sort of like fever pitch and pessimism and well at least on software and then consumer staples. It feels like we just saw like a year's worth of flow leave software and go into staples. And I bet that mean reverts probably over the next week or somewhere.

I think so too. Like it's this is what's so funny about the modern day and age of markets is these narratives get priced so quickly. You have to like you can you can have this idea a week ago and then it's like four days later you have to completely reset your priors because prices ran on that on that point.

I think about this all the time but it's it's largely because you know I always go back to this. Bill Gurley says regulation favors the incumbent. And now you have very few of these like mega platform hedge funds that like create a narrative and then you know they push it to all their hedge fund buddies at dinners or they talk to each other. It's like it h it happens light light years faster and so you see like you really have to just trade sentiment because like sentiment gets so overdone and then if you look at the skew check out the skew on the QQQ. Now this is slide 60 on NASDAQ.

So this is the amount of put you know this is the puts are really expensive to calls right now. This is like they people have overprotected the downside of one month out you know tech large cap tech now. And it's it's really fascinating because like now everyone's super worried and and what happens is like if you even if you do get like a sell-off and cues, people will monetize those puts, there's now going to be a bid that now there's going to be a seller of volatility because the skew is steep on on the downside and they will monetize their puts, right? Unless this is like, you know, the world is ending and that that's possible and we'll see credit market sees up yada yada yada.

But I don't I don't think that's what it is with, you know, the dispersion going on and and the economic data turning up. But my point being is like these platform funds because there used to be 500,000 hedge funds and now there's mega funds because there's all these regulations around you know to to stay alive the cost to actually stay alive as a hedge fund is so large and then you get incentivized to give money from these giant pension allocators go to the large hedge funds and it's it's a play to not lose money.

And my my whole point is these sectoral things is just these funds just moving it back and forth and trying to like game things. It has nothing to do with long-term investing. And that's the perversion of the whole thing. It's like it has nothing to do with like actual, you know, innovation and creating things. It's just trying to like you're arbing things really fast, but you're arbing things as a $40 billion fund and and like eventually there's no ARB and then then [ __ ] hits the fan. So you can Yeah, it's all the centralization thing playing out. Like eventually they'll cannibalize themselves, but yeah, we're probably seeing part of that. It's that heartbeat thing I was talking about.

Oh, used to be and now it's you know, you can thank the Fed for the misallocation of capital and and how they've conducted monetary policy and now that's reversing so or they're trying to reverse it. So you'd expect to go back to a more normal investing regime.

And Felix, the the slides you showed about this dispersion, what I see in that is that the liquidity situation is not ample uh strong enough. I don't want to use Fed terms here, ample reserves, but the liquidity regime is not strong enough or positive enough to support the whole market doing well. like yeah, we've seen all of the indices hit peaks at different days. Over the last NASDAQ started back in October was the NASDAQ peak. Um and so that dispersion to me obviously earning season has something to do with it, but it's also this like pinned index effect and the liquidity zooming out to these different pockets. that cuz cuz there's not enough to support the whole market and and so that's where GEM kind of talks about these OPEX uh windows is as being super vulnerable. We're not there yet. That's that's next week. Uh we have a holiday long weekend ahead.

So, but Tyler, the other thing um on your point about uh and and Felix as well is this is why I pref have been advocating for this long short approach because when the whole when short there's a there's a chart rotating a circulating the the finit verse after last week which was like you know Friday or Thursday of last week um the most shorted stocks in a day ever, Right. Which obviously cuz the market's the biggest it's ever been. But you know that is in the skew metric you said as well, Tyler, everyone's hedge because everyone's knows there's not great things coming. But but that knowledge is all dampening.

And so that's why you're seeing this boom down, bounce hard, boom down, bounce hard. It's this approach versus the the VIX the V spikes that like go COVID kind of only really happen when there isn't this big put protection right when people sides the yenedon right no one was for the August summer V event because everyone is expecting nothing and the vault to be later in the year and so this is an example where so many people kind of see the writing on the wall here. You know, the qualitative we know is mayhem. The geopolitical is mayhem. The, you know, maybe peak AI, whatever, but everyone's hedged. So, it's it's a m it's a trader market.

That's why like last week I was saying those shorts on the big down days. You monetize the puts and you get the and you re-enter. And it might be like that for like four, six weeks. But that's why you want the long and short because if you're not if you don't have longs those it's hard to keep the shorts on when when there's those vicious bounces and but yeah that like we're still in a secular inflation where nominally prices go up. The government at the end of the day can decide when they want the selling to end because then they start printing. But you see that in your things you can't print like gold and resources etc. So that's just my two cents.

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There's a couple wacky things going on like like that skew thing was just on the cues, but if you look at the actual it was like the short Vega of of the VIX, there was like 50 million short in VIX futures which is actually like I think that's what caused the spike in V today in the VIX higher. So the S&P actually was shorted relative to the Q's where the positioning is which is I mean there's there's just kind of wacky things where it's like when this stuff starts happening as a retail investor you should probably just take a break you know.

Yeah. I mean this is the thing is like when liquidity is pulled back as much it is the marginal movers is all these pod shop guys. It's all these multistrats that are running the same risk parameters. They're all in on the same trades. You know, it's like like last summer, you know, everybody all the pods were that's what hit the Yen McDennon thing is that all the pods were long the cues and short the the Russell 2000 and like they