The Fed Is Background Noise While Markets Reprice Reality | Weekly Roundup

I think the Fed nonsense of dual mandates is completely worthless right now because this is the World Series in Macro relative to it.

The metals are telling me the market's either going to go blow off and like a bullish parabolic move or completely implode.

Silver ETF volume on par with spy ETF. Like that's just absurd to think about when you compare the two market sizes, trillions to billions. So clearly we're at some sort of mania.

We're seeing the like good aspects of run it hot thus far in the market where you know retail can go speculate on metals and everything goes up in a straight line. There's no downside ball. Stocks are at all-time highs.

But there's a really bad side of run it hot too which is this episode is brought to you by Grayscale your trusted gateway to more than 30 different crypto investment products. You'll hear more about them later in the episode.

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All right, everybody. Welcome back to another roundup edition of Ford Guidance. We're recording here Thursday, January 29th, the day after the Fed meeting. What I felt like was one of the most boring Fed meetings in a long time.

Maybe just because like the first third of the press conference was reporters trying to get gossip on what Pal's going to do and the whole fight with Trump and all that and he was just stonewalling them. Like generational stonewalling and that was the third of the press conference and pretty pretty quiet.

Didn't cut rates which was what expected. Didn't really give a whole lot in terms of anything. So sleepy week.

Before we get into that, can we make a comment on Felix's flow here? Look at that hair. Did you get a haircut?

I got a haircut yesterday. Thanks for noticing. John Stamos hair. Look at that flow. Jesus.

You'll notice I had to wear a hat last week because I was getting really embarrassed about my hair situation and now it's a bit better.

At least you got some. Dude, what what happened to the Matise paintings, too? You got They're in a bathroom now.

Yeah. Slowly. I actually got a comment about I recorded an interview earlier this week and somebody was like, "The room's nicely coming along, Felix." And it's just like once a month I'll add one more new thing and then just like the laziest person of all time.

Classic. Looks great. Yeah. Exactly. Yeah, we're getting there. Yeah.

What was your guys' read of the Fed meeting?

I don't know. Seems sleepy. Quinn, you put out a tweet. I think that you thought it was doubish.

Yeah, I just marginally I mean it I had the same views going in. I was like I I don't know really how they would surprise in either direction, but particularly like it wouldn't be hawkish necessarily.

He was just avoiding conflict. And I I thought it was interesting that he sort of emphasized in some points the the inflation expectations falling and the sort of like healthy pass through of of tariffs or or as they expect you know tariffs to be worked through as we progress through the year.

So like it's hard I mean we'll see what happens March April. the Waller descent was, you know, interesting to to keep his name in the ring of of potential Fed governors, but other than that, yeah, there's there was no dot plot and, you know, we we need more data.

But I I still stand by the belief that, you know, Feb and March, the next two inflation prints, should should continue dampening and the labor market just sucks and there's no really signs of it improving.

So, I lean towards more cuts than the market has priced in at the moment. Not not that it's like, you know, equities are priced per for perfection. So, I don't know if it matters that much for them, but that's that's my view on on that.

The the Waller one was funny. The descent. Check out what happened to his odds for next Fed chair. You can just see it's just like Yeah, just pure signaling. It's just like descent and then now your odds rise.

And it really tells you about the state of things right now. I mean the labor market like if they believe those numbers it's with the with the re revisions it's it's a negative labor market.

So I do think there's a case to be made for cutting. And if you look at the inflation data, the second that POW turned most hawkish in October was when inflation peaked and it and it's been sort of coming down even outside of just like if you believe the BLS data is rigged.

Other a lot of other indicators even from some of the regional Feds uh data themselves show inflation coming down. So I do think there's a reasonable case. I don't know if there's a case for 150 bips maybe or like if that's what Moran's still uh you know calling for. I don't I don't know his latest views but I do think there's a case to be made.

I I think this is all shenanigans relative to this giant generational short squeeze on metals, which Powell commented, I'm not really concerned about the precious metals move, which is like how how are you not concerned that your your your sacred institutions footing is getting pulled out from under you?

Like to me this this metals squeeze is like way bigger geopolitical issue where you're calling BS on what is reserve collateral. What what is it?

And then and on top of that what I've been thinking about is clearly Bitcoin we didn't talk much about Bitcoin. It's got completely detached from any other risk asset.

And this is my read is it's just a giant, you know, it's a G2 world. China's pressing us on backing their currency with gold and and metals and silver and they're I don't know if they're doing it overtly, but there's clear mysterious forces selling and the uh the incentive to hold Bitcoin is dropping relative to to other assets.

And I think that that's the the big game here where I think the Fed nonsense of dual mandates is completely worthless right now because this is the World Series in macro relative to it.

And it's like it's fun to talk about the dual mandates, but like when something goes parabolic, when things start going parabolic like this, you there's something happening globally that is so different. it's so outside any sort of norm that they should be addressing it rather than saying I'm not too worried about it.

I could I I couldn't agree more. Like and honestly the only I I I had that feeling too while listening to the press conference. I was like man this just feels so irrelevant to everything that's going on right now.

And even like in the press conferences the only interesting things that they could talk about Powell just didn't have an answer for. They're like what's what are your thoughts on what's happening with the dollar? And they're like well we don't comment on the dollar. like cool well why am I listening to you right now and then they're like what do you think's going on with metals we don't talk about that as and it's just like it it's becoming it it feels almost like tying in this whole forth turning thing this semantics press conference thing I feel like the jig is up a little bit in terms of like what's meaningful versus what's actually moving right now in the world yeah it's it's like they're it's it's sort of the drift of the institution where one he's just trying to not say anything that like ruffles in any direction.

I mean, at the same time, they can't really say like he couldn't come out and say, "Yeah, actually, I'm scared shitless because that means crisis is here and we've completely lost control." I mean, you know, like the this game of central banking has always been about lying to, you know, to to smooth over they they can't speak the truth. It's just they they just can't. So, and then into it. Yeah.

The only source of truth are like stuff like metals right now and that's where it's really starting to show. I might just pull up a couple charts here to contextualize but this is commodities monthto date and you can just see how bonkers this short squeeze has been and just this move.

I mean it's a short squeeze. There's also a lot of other things like it's there's a lot of inflows coming in from China. I think it is really much like ground zero. This is an interesting tweet actually from Eric Balcunes or Baltunes. I don't know how to pronounce his last name but he's at Bloomberg. Um great guy.

China has only one silver fund and the demand is so rampant it had to shut off subscriptions. So now it's at a 42% premium and this was just mind-blowing to me as a signal because I've had this feeling that a lot of the metals move is I I think it's it's somewhat correlated to what's going on in the US but it's also this geopolitical situation and I think the marginal buyer is is China and so to see this this basically this fund that's up on a 42% premium right now is just mind-blowing to me.

It reminded me a lot of the the Grayscale trade for Bitcoin in 2020 2021 where there was just so much demand and no easy ways to access it that people were willing to, you know, buy 30% 40% premiums handover fist. And I think this is just a huge signal of of what's going on here.

Go to slide 36 and 37 quick. I have two other charts that are are pretty wild. Um, this one, silver ETF volume on par with spy ETF. Like, that's just absurd to think about when you compare the two market sizes, trillions to billions. So, clearly we're we're at some sort of mania.

I I'm after our recording last week, I I kind of reflected and was like, we just closed this thing talking about the periodic table and I started d-risking. then Tyler's video over the weekend. So, I was out on Monday thinking that's the top, but then I was like I went to bed Monday. I was like or Tuesday or whatever it was where every single person on Twitter was calling the top and I was like, you know, that's not really how tops are made.

So, yeah. So, I was like, maybe I was selling too early. I go I go back on this is I I even thought I top ticked it with my like you know that dance thing Twitter I put on posted on Twitter of uh you know Yeah. which is awesome.

But what's fascinating is if you think about this from like a macro game, there's 40 years of petro dollar recycling and export dollar recycling that went into like bonds and treasuries. And if there is a crisis of like what is a what is debt? What is a bond? Then this thing could go on way longer than we think. I mean granted 100% you have insane VA. could pull back.

But when you when you think about the real bubble is the bond market that has been in a secular like everyone's tried to short it. We even we're diluting the hell out of the currency and no one's called BS on it because all of our institutions are basically like mandated to funnel money back into the bond market.

But now our biggest trade partners are not recycling that money into the bond market. And you know, we we could see something completely wonky because boomers don't even like I have to say like boomers just took this stuff all for granted for years and years and years and I don't even think they realize what's going on. Like there's very little bond volatility. There's there's not but but on a relative basis like this can spiral.

And check check this chart that validates what you're saying. This is stocks that share financial assets. And you can see everybody owns anybody owns financial assets but they don't own gold. Like this is the whole thing we were talking about last week about how positioning was very overweight.

And I think it it keeps whipsawing in both directions. The positioning resets, but like we said that the fundamental story is so absurd when you look at a chart like this of just how much runway there is. And you just need to manage your your position. I I'm I'm all bought in. I've I I've been really bullish gold since late 2022 is like one of my first Substack articles I wrote and I continue to believe in it secularly. I don't think we're done.

I do struggle with these like these statistics like these things don't go up in a straight line and um if if you do believe that thesis about gold sort of becoming this alternative reserve, I don't I mean you shouldn't really have to own gold. It's like it's a currency as I view it.

But the thing that's so interesting to me is gold volatility is only is at the same level. It's only reached twice in the last 30 years. 2008 and 2020. Like volatility cannot be transmuted. You can't you stifle the bond of volatility. It finds its way. It finds its way. the the but those those are those are generational crises that that the volatility is is matching.

And so I I'm just super interested in like you know you can only read through that data point into its effects on other asset classes so much right because like you know everything history rhymes but you know never repeats so it is can be different but I look at that and it's like yeah it's like kind of crisis levels for some parts of the market but there's other parts that aren't and but there's just interesting extrapolations because like if you bought say oil the last two times gold fall spiked to this level, you made a boatload of money in a few years.

If you bought Bitcoin, every time gold spiked to these levels, you made a boatload of money in a year's time. Um, copper, like I just throwing off all historical correlations. Maybe we don't know how the next six to 12 plays out, but there's a lot of just different different regimes.

Yeah, it's it's just a different secular inflation type of regime that, you know, we're we're definitely going to have these rolling commodity bubbles for for multiple years. And so I'm I've been white knuckling the metals trade for a number of months and kind of happy to be done with like out of it for now. And maybe I have to get back in next week.

And this is like I I sold too early, but I I'm sort of looking elsewhere. And obviously oil's run a bit. You know, there's probably some geopolitical premium around the Iran stuff. Um but but definitely I think the commodities area is where where time is best spent.

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Yeah, I think the way to think about it is the distinction between yeah the rarest and precious metals versus cyclical commodity upside. Like that's where I think there's still quite a bit of opportunity.

This was actually a good tweet I saw this week about I think one boring but underrated reason behind the weakness in the dollar and strength in metals and international stocks is that we're in the middle of a cyclical reaceleration.

So I think this is this is something that as all the other components we talked about are all kind of coming together right now. But I think this is this cyclical reaceleration globally is is in its early stages and I think there's a lot more room.

So you know things like like copper like oil um cyclicals I think have have more room versus just how technically rich some of these precious metals are right now in rare earth metals. But I'm curious how you guys think about balancing those two components.

Yeah, I agree. I my personal take is that gold is frontr running the pending liquidity injections effectively. I mean, as Tyler said, when you when you suppress bond yields, as they've been doing, um, this is what you get.

and and the Fed continues to favor this balance sheet accommodation policy over helping front end the real economy because when they announced you know the the R&P and QE like balance sheet expansion I'll call it restarting but refuse to cut rates uh that's that's just a continuation of their balance sheet accommodation at the expense of of front-end borrowers and That's why I actually think you're seeing a little bit of of a pullback in in small caps versus big tech because the the signs are pointing towards just continued manipulation of yields rather than kind of letting things price fairly and the yield curve steepen to where it fair value is.

Um, and so I I I do think though there's going to come a point this year where Trump's polling numbers aren't where they need to be to to have any odds of success. And that's going to ring a more more and more desperate tone in terms of policy measures, i.e. stimulus that's going to have to continue to get rolled out to try and buy votes.

And I think it just we're seeing the like good aspects of run it hot thus far in the market where you know retail can go speculate on metals and everything goes up in a straight line. There's no downside ball. Uh stocks are at alltime highs. Everything you buy.

But there's a really bad side of run it hot too, which is when they they start chasing the long end around uh like a dog on a leash and inflation comes back and stocks are at 20 plus pees that don't have any upside and so their policies are just sort of negative for for multiples.

So I I do think, you know, bond vigilantes are nowhere to be found after four years of consolidation since 2021-22, but that game's not over. Like you can't just keep igniting this accelerant fire without yields being priced like if nominal GDP gets to 7% this year or something like you'll see it in the bond market.

Yeah, I'm I'm with you. one one of the biggest you know we are seeing a massive rotation in capital on a macro basis like if you look at EM you know if you look at Brazil even Brazil had a massive breakout relative to the S&P you look pretty much at the Dow transports but mainly what I think it's driven from is you go to slide 45 this is the software ETF relative to the spy high and I this could be telling us a couple things it which is okay maybe we're heading into a secularly inflationary environment and that's bad for software multiples or it could also be telling us we're heading into a massive productivity boom where claude and AI are actually decimating software companies and one of it's it's we're really at a bipolar distribution because we could see the metals are telling me the market's either going to go blow off in a like a bullish parabolic move or completely implode.

It's like the the distributions on what's going on here is it's I think it's the endgame of what uh diversification has done for about 40 years, which is you can't diversify. There's winners and losers eventually. And I think that's what's sort of going on here is you're you're all this money passively piled into software for what 15 years and now it's coming out like lightning fast and moving into real things like Yeah. Yeah.

Here's here's another one to add on to that from earnings this week of these software companies. They're not being treated very nicely this week. It's like it's it's insane. And I think I think it's I think you're right. Like I think there's there's a lot of what you talked about there, but then also this when it's so fascinating to contrast suddenly we just have you know there's there's zero marginal cost for software now to to to create it at the same time that you have all these metal surging. It's like everybody's trying to reach for something scarce because they just suddenly realize that the marginal software engineer is not a scarce asset anymore.

So suddenly all these software companies are no longer scarce and it's just like it's a complete mind [ __ ] It's very interesting to look at that huge rotation in the market that you're talking about. It everybody's just trying to grab for something real and scarce right now.

Scarce. Scarce. You know what this reminds me? I I said this on a different podcast if people actually listen to me, but you know, Steve Bannon talks about flooding the zone with [ __ ] which is like uh you know, you you basically like create so much supply that you don't know what's real.

And you know one of the things that killed mainstream media is the supply of podcasts and and better content. So like if you think about it similarly, you know, the barrier to access to creating software just went to zero, just like the barrier of access to creating, you know, media went to zero. And clowns like us can now be on podcasts.

And theoretically, we're we're better experts than some like, you know, 22-year-old NYU kid that has no idea what he's talking about writing. You know, it's why it's why media sucks now is because no one's act no one's actually the mainstream media, no one's actually an expert. they they were just recanting from experts. Now you have like that are a little bit more expertise.

But anyway, my point being is I think that same phenomenon is happening to the software sector where like we're seeing the beginnings of it where this this AI stuff is having massive productivity and like you see the layoffs, right? Amazon cutting cutting employees and then here's to put it in uh perspective go to slide 46. This is the draw down of IGV from a historical basis. You can see how drastic it's been.

Dude, it's happening. I mean, there's lots this this week. We got we got labor uh so we got unit labor cost numbers and productivity numbers and like two quarters in a row of negative unit labor costs and huge upside surprises in productivity. I was looking like we haven't had two quarters in a row of of such big surprises on both sides in a very long time.

Um maybe you can make the argument that's due to labor market weakness and just trying to get more bang for your buck from each employee. I think it's I think it's a bit of both. Like there is there is a lot of of useful things you can do with AI now. It's I think a lot of people got oneshotted by just how crappy it was two years ago or even a year ago versus what's going on right now.

And actually that brings up a little a little workshop I was working on this morning that I want to I want to present um to your point about podcasters who now now it's now there's no cost for us to record and now there's no cost for us to be traiy analysts. So this is you know you can't replace you can't replace that that hair. You can't replace that. This is given talent gener you can't AI that buddy. Um, meta earnings came out this week, yesterday, and I been messing around with claude in Excel and I just asked it, I was like, "Hey, like I'm interested to hear about the guidance that was associated with your capex with their capex AI numbers. Um, run a whole analysis and create some charts and it did this in like five minutes." It was really, really impressive.

So, this is the first one that was interesting looking at street consensus versus actual for for AI capex. And the big surprise is even though they had lofty expectations in terms of how much capex they're going to run, still came above board at like 135 billion over the next year, which is just insane numbers.

And when you compare that, I think this is I'm actually curious on your take on this in a in a second, Tyler, but buybacks are disappearing for Mag 7. Like we've reached the maximum amount of free cash flow that they can reinvest and now they're tapped out, but capex is still increasing, meaning for all these AI data centers. So like next year they they me met Meta doesn't plan to do like any buybacks at all. It's all going into capex and that's okay because they're unlevered. They're there's very little leverage and there's a lot of runway and there's a lot of hope for that revenue to fall to trickle through into AI. But this is like a pretty big change to market structure. What like what's your read on that Tyler?

we just see like suddenly no buybacks from Meta that's I think this is way bigger than we think it is because you know trillion dollars of buybacks per year plus was taken that float was getting taken out of the market and now you have you know basically the opposite where say they they don't have good earnings the the rate of change goes down people sell like that's probably why we're seeing part of this rotation Um, and you know, if you're the other more interesting thing to me is to spend this amount of money, this technology must be existential to your business model. It's like and so I see I just saw a headline that said Amazon's gonna invest 50 billion into open AI and and these numbers are just I mean they're staggering to the point where it's like chasing the freaking ring from Lord of the Rings is is what I think they're all doing and I don't see you know this is how blowoff tops kind of are made and in my opinion in large cap tech is we could see if if AI turns turns out to be what it is and they're spending ungodly amounts of money to do it. This might be the end of the the giant large cap mag seven bubble.

Yeah, it's it's a make it or break it situation. Um here's a couple other charts again that like Claude literally made all this for me in like 30 seconds off one product. It's insane. And it is like I I double checked it. It's pretty good. Um this is how their funding sources are changing over the next year or so. So you can see most of it was just being funded from from operating cash flow. They started to do some new debt issuance, but now it's like we're ripping we're ripping new corporate bond issuance. We're doing, you know, private credit financing. They had this like $27 billion private financing offbalance sheet deal that they did for AI data center. They're they're drawing down on their cash reserves. Like this is just a I can't say this enough. I know we've had these rants before on the show, but like these mag seven darlings of just like free cash flow machines are not like that anymore. They're changing right now. And I think yes, you know, Meta is up 10% after that's because of earnings just surprised by the upside, but I think that the forward guidance guidance here for 2026 onward is just a very fundamental shift in their business models and yeah, there's still demand for so this is their bond issue. It's like there's a lot of runway. This thing was four times overs subscribed. Um but again, their free cash flow margin is compressing. It's like they had a 30 plus percent free class can't speak free cash flow margin and now it's going down to nothing and their long-term debt is just surging. Like this is crazy.

The premium the premium is going to get smooshed right even and and that's I don't see what changes that in a world where if AI works like god it's kind of wacky to think about. Not only that but I don't know if you noticed this. I'm just this I'm not even a big social media user, but I the when you think about the ramifications of like AI on social media, people are just going to turn it off. Like I if I know that that person's not real and you can kind of tell in my opinion maybe maybe it gets better and better but like there's like I don't know if you people you'll see on a Twitter people respond to you now and it's clearly some AI agent be like hey hit me back with a follow I I just followed you. It's all these like you can kind of tell if you're a human if you're smart but maybe that changes eventually. But I think that's the problem with all these platforms is that AI can disrupt everybody and I think everyone's going to just turn it off. I think that's the endgame on all this social media nonsense.

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I I do think there's a growing trend. There's actually these products called like basic phones or like dumb phones where they're it's it's like what phones used to be and they're people are buying them or there's these actual devices where you lock your phone up and you can't get it out and like people buy these things because it's so impossible to put your phone down.

Um the thing I I this triggers in my mind is um Felix Warren PI's uh you know like work around why the S&P 500 is cheap or fair valued because of the composition of of companies. And I put something out on Twitter and he he responded. We were kind of talking about it. But my my biggest like uh you know maybe disagreement with that view is that you know in the 70s there's a point in the 807s or 80s where you know the S&P was MAGE7 was was oil companies and and you at that time could also say well the constituency mix is oil companies and the multiples are justified because there's a higher but that constituency mix has always changed and mar uh price to earnings multiples over many many years through every single technological boom, railroads, internet, electricity, everything have reached a a maxima because profits get competed away.

And when you think about that constituency mix, these businesses are fundamentally changing from what they were. So saying that like the PE is cheap of a company of a meta that had no capex and 80% margins operating margins and was purely capital light tech business software is one PE multiple but a company that has no free cash flow after capital expenditures and is a cap capheavy uh you know hard infrastructure business that's levered now is a PV multiple. So you can't look at charts and be like it's the same company is the the the valuation is equally warranted.

Yeah. So the the you go through from a growth industry to just you know you become a utility. Yeah. Yeah. So it's a completely different and and and just by that metric, right? Like just fast forward this because they're all increasing these. So these numbers are only going to worsen, right? they're not improving from a from a cash flow perspective. So play that forward to 26 or 27. We're in 26 27 to 28 the multiple just on that fact alone becomes harder to justify at a marketwide mag 7 wide 25 to 30 PE.

And if you go to chart 39, um I thought this was really interesting because everyone talks about like mags, you know, the the S&P versus the rest, but equal weight's also at all-time high multiples. And now the Russell with this Russell's recent move, it's at 2024 Trump election PE highs and and book value, you know, price to book highs. So nothing in the market that's cheap. maybe some energy, maybe some, you know, specific sectors. But if you look at the right, there's pretty much nothing in equity world that's cheap.

To play contra to that though, what happens if there is some like currency crisis with the dollar and this like you do get a wear Germany type money printing event or yield curve control then well, we're seeing it with gold. That's what happens. That's why people are going for scarcity because suddenly we've realized all these software things, they're no longer scarce, scarce, whatever. So