Positioning Unwinds and the Next Leg of the Melt-Up

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[music] [music] Ladies and gentlemen, welcome to the Capital Flows live stream. We have uh really interesting markets as we're

moving into Friday. More geopolitical

news. We have uh a lot of interesting things to cover. myself and uh James will be breaking down the different research ideas that I've been laying out

on the substack over the last couple of days and dig into specifically today the positioning changes that have taken

place as this credit cycle has begun to get some steam as we have had more news on this geopolitical side that has caused more positioning to unwind and a

lot of really interesting things to cover. As a reminder, if you are here,

cover. As a reminder, if you are here, we're live streaming every single day at 8:30 a.m. Mountain Standard Time. And

8:30 a.m. Mountain Standard Time. And

every single chart, piece of research, model that I share on the live stream will be laid out 100% free at capital flows.com.

flows.com.

So, wherever you're watching this, it'll be, you know, in a link somewhere below or in my bio or whatever. Um, you guys know how to find that stuff. And so the

entire goal of this live stream is number one to map the macro regime so that you understand the different moving parts about what is taking place and

then number two to take large asymmetric bets in markets which at this moment in time are beginning to work out. So we

have a lot of interesting things to cover. James, thanks for hopping on

cover. James, thanks for hopping on today. How are uh how are things going

today. How are uh how are things going in in sunny California?

[sighs] Let me look. Yep. Confirmed.

Uh 68 70 degrees. I don't know. I This

is something we don't even talk about anymore because it's just so standard.

You know, you feel good. You give me some You give me some green markets and some nice weather. H

you know what I mean?

That's living, baby. That's living.

What's going on? Good to see you. Uh, I

I'm hoping everybody out there has been following along and has not been a doomer and has been enjoying a little bit of green out there.

Well, I think it's ironically I think it's it's kind of funny how there's been a couple people that have uh, you know, talked to me in either messages or group chats or stuff like that and uh, you

know, oil is down today and they're shifting this news and they're just like, I can't believe this is happening.

And you're like, what?

Can't believe it. Can't believe it.

You can't believe the S&P is at an all-time high.

You can't believe that crude just went off a cliff. It was supposed to be the end of the world and it just retraced half of the entire $200 oil. $200 oil was supposed to be

$200 oil. $200 oil was supposed to be coming.

Yeah. Yeah. So we were told. So we were told. I think uh you know

told. I think uh you know this goes back to you know if you've been following along with all the research and all of the different

changes that have been taking place my entire view and then I'm and again these are not just like oh well here's the view that I have maybe this works maybe it doesn't entire goal is let's go over

the specific data points and evidence for both sides of the equation and then I'll lay out why exactly the risk reward is skewing in a specific direction. And

the reason I like doing that is because then when you walk away, you can just say, well, I understand the different moving parts so that even if the

situation changes, I have the right context for how things are likely to play out. And you know what we're seeing

play out. And you know what we're seeing today on the day is something I the idea that I've been laying out consistently especially for

paid subscribers is stocks are in the process of melting up because we're having this liquidity impulse. We're

seeing that across ES especially the Russell. The Russell is outperforming

Russell. The Russell is outperforming all of them and you're having a V crush as expected. Bonds are up a little bit

as expected. Bonds are up a little bit but stocks are outperforming bonds.

That's the key thing. You know, when I talked about fading this entire move in the trade expression, my entire view was, well, you probably want to be long stocks and short the dollar as opposed to playing the bond side because you can

see, you know, bonds are still in this range right here and we're actually having the curve steepen on the day because the long bonds are lagging. So,

you can see UB is lagging right here as ZT is bidding a bit more and we're pricing less cuts on the forward curve.

And this is the entire tension I've been laying out with the credit cycle with shortend real rates beginning to fall a

bit and the FX market is pricing that really really well right now which is why we have these FX pairs against the dollar rallying so much right now. And

so you know especially especially Aussie uh you know USD and then also just Aussie yen making you made a new high here as well. And then obviously the peso which is just probably going to

keep melting up in my view. And so you know I think all of these different moving parts have been coming together.

Gold and silver you know again if you were reading the notes you can go back through my tweets. you know, right here, literally right there, almost at the

exact low. We were talking about that or

exact low. We were talking about that or I was laying out the case for why gold and silver are in the process of bottoming. And I want to be long. And

bottoming. And I want to be long. And

the reason why is because we're seeing gold and silver fade the geopolitical risk premium and have more of a sensitivity to the credit cycle. So

people think, oh well, the geopolitical risk premium is dropping, crude is falling. Shouldn't gold be selling off

falling. Shouldn't gold be selling off too since there's less geopolitical risk in the system? And again, it just goes back to well, you have to net out those drivers and why they're taking place and

how it is. And you know, my view is metal beta or just the metals are about to have this massive meltup.

Bitcoin finally on the day is positive.

I know that's Dude, you know the rules.

Finally. Finally, Bitcoin.

The glass You know, maybe maybe this is the time I should actually, you know, maybe maybe this is like the time to really get long, isn't it, James? Maybe

what could I say to fade your view right now? What, you know,

now? What, you know, maybe maybe Bitcoin, you ought to fade my view, you should say, well, we've gone up 11 straight

days when everybody thought it wasn't possible. Bitcoin has, you know, run off

possible. Bitcoin has, you know, run off X amount from the lows. And just like the teeter totter that we've run through in the Trump regime,

going into this weekend when everybody has finally capitulated and said, "Well, I guess risk is back on the table." This

could be the exact moment that Bitcoin does roll over.

This is This point right here is just like this point right here, isn't it?

Exactly. That's [laughter]

it's exactly right. It's is exactly right. So, if you want to play the like

right. So, if you want to play the like fade the uh the whatever whatever the the the aura is out there, that would be the way you could do it right now because I I do now

think the risk is to the downside this weekend.

Look at what I just did. Look at that line.

Oh, squiggles. All right.

Can I don't I don't know if anyone else could have done that. Um,

this is what you get when you subscribe to capitalflows research.com. [laughter]

No, no. You know, it's it's it's funny because um you know, when I see stuff like this, especially with Bitcoin, and you you guys should go on the the Substack, if you go to the educational primer

section, if you go down to the Bitcoin indicator, you can go to this indicator and see how Bitcoin is outperforming or

underperforming the S&P 500. And let me pull up the inputs really fast here.

Let's go to uh let's see here.

Yes.

While you're doing that, I want to give a quick shout out to myself because guys, you know, I went against the grain, against the capital flows grain.

You know, I said, "Hey, you should take a look at AMC."

It's the year of people getting back at the theaters. It's GME going to go up

the theaters. It's GME going to go up this year. And you know what happens

this year. And you know what happens when that where that happens? AMC rips

and we all grab the popcorn. And I said, you know, it's at a nice round number of a dollar, right? We're down from $400 and it's at a dollar. And you know what?

Capital Flow said, you know, I'm not really interested. You know, I don't I

really interested. You know, I don't I don't here. Well, guys, pure

don't here. Well, guys, pure speculative alpha up 80%.

Just nailed it. I mean, wow. Well done.

I mean, this is what now I don't have a subscription. You could

get this type of stuff free by following me on Twitter. [laughter]

[snorts] This is what it's all about. You know,

James bottom James bottom ticked it has been long this entire time. Uh he is Don't mind the fact that he might have been buying this entire time. Let's not

talk about I haven't even looked haven't even looked until it was at a dollar. Okay,

we nailed it.

All right, we nailed it. You know who gets the trigger? You say you wanted to meet up and go see Odyssey and I was like Odyssey? Wow, it's sold out. It

like Odyssey? Wow, it's sold out. It

sold out like a year ago. Hey, maybe

people are start Oh, I remember AMC.

That was a whole fun thing. And then I took a look and we were just sitting at a buck. Here we are. The reason why

a buck. Here we are. The reason why that's a for everyone who doesn't know the reason why that's a fade is I basically like rarely ever watch movies.

And there, [laughter] if I say that I want to go to the theater and watch a movie, it's basically, you know, a market bottom in AMC. [laughter]

AMC. [laughter] That's right. That's right. And you

That's right. That's right. And you

probably wouldn't dare eat popcorn at a at the movie theater either. God,

I'm not eating popcorn at a movie theater.

Oh man, it has to be a decade.

Yeah. This is why you're not, you know, you might claim to be an American, but we don't claim you. You know what I mean? [laughter]

mean? [laughter] It's true. It's true.

It's true. It's true.

Oh, man. Uh well also just now on a more serious note I have to give you your props here because if people have been following along now it's one thing to

join the streams to play along and whatever but for the people who have been following you throughout the past month or two we'll cut it off right here and just say

per and Oracle have played out and it was probably some of the hardest positions to put on because nobody

would have dared touched PER. Nobody

would have dared touched Oracle at these lows when IGV was capitulating. And here

we are both positions you put on in an environment where risk seemed so high and uh they are outperforming probably most people out there. So props to you

on that. And for anybody who um followed

on that. And for anybody who um followed along and kind of, you know, understood what was going on, maybe wasn't just copy trading, really understood what was

happening and why those bets kind of made sense. Um I think it's just worth

made sense. Um I think it's just worth noting that cutting it off right here and seeing the performance, uh regardless of how they do here in the future, I think is it's important to give you your props. So, we'll give you

a little round of applause.

Appreciate it. appreciate it. It's uh

I would exit after I said that everybody I would exit your positions completely [laughter] for sure.

Well, you know, I think it's here here's here's one of the things that we always talk about, but you know, you always want to protect your,

you know, keep your seat at the table, protect your principle and things like that. And you know, I haven't I've been

that. And you know, I haven't I've been long per and Oracle. Um, obviously PER a little bit longer than Oracle. And, you

know, I've been, you know, long long per laying out the entire thesis basically in this entire range for paid subscribers on the substack sub 350.

And, you know, I'm def obviously, you know, on sides now. I think we are up, you know, from these lows 100%.

It's been the largest position I've had.

Uh it's 100% during everything else going down a [ __ ] ton. Let's not forget that.

Yeah. Well, I mean it's it goes back to it's kind of it's kind of funny. I had

some people Well, I don't know. I don't

even really like read these comments any anymore, but like, you know, people were trolling me about, you know, uh not shorting equities and I was like, "But you don't care that I was long per the entire time and it was bidding while

equities were selling." Never mind.

Never mind, you know, it doesn't matter.

[snorts] Um, but I think the the key thing here is I, you know, this goes back to a lot of the mental side and what it means to take risk.

How are you going to deal with success?

Now, how are you going to deal with success? Because, you know, my entire

success? Because, you know, my entire goal is to be able to take large asymmetric bets, but the way that you

make outsiz returns is by holding winners.

And you know, now I'm in a position where I'm on sides and I actually have some cushion against the initial principle I was risking. And so, sure,

people here can take a gain or do whatever. What I love to do in

whatever. What I love to do in situations like this is say, "Okay, I'll protect some of my profits if we start to trade back down or the thesis begins to change on a short time horizon." But

you know these are the moments in my view where you get paid to hold risk because if you put on these types of trades in size I mean per more than

Oracle uh Oracle is still you know onsides but you know I want to see it get a little bit more on sides you know when you're on sides especially in something like this with per this is

the moment where you get paid to hold risk because it's probably become a lot larger position And now it's probably if if you had it as a larger position, which okay, I'm just going to talk for

myself, then it's probably moving your portfolio around a lot every single day, you know, it's up 3%, up 4%, down five, down five, what, you know, whatever it

might be, right?

And those moves in the portfolio, we, you know, James and I have talked about this, you know, those the moves from, you know, one or 100, 100, $200, 1K, 2K

moves, right, are very different than feeling 10K, 20K, 100K, 200K, 500K, you know, all of these other bigger numbers where you look at your portfolio and you

say, "Oh, wow. that's I'm down today the amount that I you know made when you know or whatever during whatever period of time right like it's mass a lot bigger numbers and now you have to you

have to work through and deal with that and people you know that that's a whole new experience for people but that's why you get paid to hold risk because you're going through that mental process so I

think that's really key which is why you know I you know I'm always watching all of James's videos and we're having conversations about this all the time and I think if you want to be, you know,

if you are in a place where you're finally dealing with success, you understand the importance of surrounding your people to be able to have these conversations and process through

how these different changes are taking place and how you're thinking and feeling about them, which is why James does his entire channel and the the community that he has and everything that he's doing. Maybe you can expand on

that a little bit more because I think you're really good at explaining the the significance and importance of of realizing those kind of factors.

Yeah, I think that's a great point you bring up that the downside like working through the conviction and the bet when prices are at the lows, right? to be

able to like pull those triggers involves a lot of conversation, a lot of research, a lot of alignment and confluence and then actually pulling the

trigger. But then

trigger. But then like you said, what if it works, right? Like what if it actually works

right? Like what if it actually works and your whole outlook is asymmetry and you then have to route yourself to

the other side of that and say all right what like start scenario planning right you share that video a lot of that guy saying like all he does is scenario plan right

like so that he doesn't get because we don't we don't want to find ourselves in a situation where well probably it'll happen. Markets have

a funny way of putting you in a blender, but like you want to try to think of a lot of situations to be like, okay, what if I didn't sell any of my position and it went to here or it went to here or

went to this? How does that how does that impact like the waiting in my portfolio? How does that have I ever

portfolio? How does that have I ever experienced this net worth before? Have

I ever dealt with a 20% intraday swing when playing for this amount of money?

have like start saying like, okay, if I went to here and that I had a day where it pulled back 30% over a couple sessions, how would I how would I feel?

What would I do? Would I capitulate? Do

I always tend to capitulate in those moments? Well, if so, maybe I do have to

moments? Well, if so, maybe I do have to peel off some winners on the way up. If

I don't and I have an ability to stomach that, maybe that allows me to hold for that next multiple through that where somebody else couldn't. So, I like to just think think at different moments.

Where am I going to be at? How much is it going to be of my portfolio? How do I think during these spots? Am I Am I I'm not as good at holding risk as

I feel like you are, right? Um I don't have as much of a an income. I want to rely on my trading. So because of that, I'm taking winners along the way to

constantly feed myself belief, self-belief, and confidence that I'm a guy who takes winners. I am a guy who builds profits, right?

I don't need to be the guy who just holds 100% of my position, exit 100% of my position. Whereas some people that's

my position. Whereas some people that's exactly where they thrive.

So I think it's really really good to keep that open book and that's why again conversations are like really underrated. Me and you think a little

underrated. Me and you think a little bit differently so we talk through it and I'm like, "Oh, okay. That's

interesting how he thinks about that. Is

there anything I could take from that?

build on my own personal arsenal, but then still give myself like waiting for how I think about things and all of that back and forth and the scenario planning

and like while the trade is kind of in the background working because most people don't think about this stuff until they're at those inflection points, but you're not you're not going to be able to have the like based

conversations or whatever because you're going to be in a heightened state of emotions, right, at those inflection points, right? So, I think it's good to

points, right? So, I think it's good to just deal with now like you're saying.

Yeah. It's it's honestly in one sense like basic supply and demand. You know,

no one cares about water until they're in the desert, right? And I think the the emotional

clarity that you need in moments of heightened failure or heightened success are the most important moments that you that you

need to make a good decision, right? And

so that's one of the most important things that that I think you can have.

And I think that's why if you're not actively building that, you know, I like to think about how am I building intellectual and emotional capital to be

able to to spend in those moments of time where it's going to mean the most, right? Because I think this goes back to

right? Because I think this goes back to not only recognizing the market environment that we're in, but you putting yourself in a place to capitalize on it. Because I think, you

know, you everyone always everyone always thinks they're going to react better in the moment than they do in reality.

And I think that the entire the entire thing is that if you can if you can have some humility and recognize, you know, you've said this to

me, you know, with with all these trades that you put so much time into it, you have to recognize that like you're probably still you're you're putting all this time and effort into it, you're probably still not going to play it perfectly. You're probably still going

perfectly. You're probably still going to screw it up somehow. So don't think that you're not, which just means like be a little bit more open and mindful and you know set yourself up well to

understand the different moving parts where you're good at things, where you're not as good at things and then just execute in accordance with that.

That's actually a really good way of putting it. Uh the the building of

putting it. Uh the the building of mental and emotional capital when you have the chance. I like that a lot.

Yeah. So everyone, you know, thanks for thanks for joining the live stream today. I think, you know, we'll cover,

today. I think, you know, we'll cover, you know, several key points as it relates to, you know, markets right now.

The place that I want to start though is at capitalflows.com because if you have been a subscriber on

the website in the Substack, uh especially a paid subscriber, you'll go through each one of these breakdowns that I'm sending out every single day.

And every single live stream I do, I'll go over all the slide decks, all the breakdowns of how to think about everything and why it's taking place.

The main thing that I've been talking about is this idea of the credit cycle.

And let me go to this one right here.

You know, I laid out how you want to think about the educational playbook for money and the credit cycle. and all the things that I laid out here. And then I also went through all the reports on the

credit cycle explaining where are we right now in this report. What are the triggers for the current meltup? What

are the largest bets that I'm taking?

And then all the educational primers and playbooks for mapping those from a first principles perspective. You have every

principles perspective. You have every single thing that you need to be able to think through and be successful in this environment.

And my entire goal is to be able to lay all of that out for you. And in these credit cycle playbooks, I've been laying

out how this entire geopolitical shock has injected more inflation into the system. But now we are pricing less

system. But now we are pricing less hikes and that's allowing more liquidity to move out the risk curve. And I'm

going to explain that kind of from a first principles perspective. When we go through, this is just a dashboard that I run all my models on and go through all

the different factors that are taking place. When we go through inflation and

place. When we go through inflation and where we're at with inflation expectations, I want you to notice something really specific right here.

As we came into this year, we, you know, didn't have the high inflationary and again, we're not, we're only having supply side inflation right now. you

know, demand is still not super aggressive yet, but you'll notice that what you know, here is beginning of the year is right here. You know, basically at the lows

here. You know, basically at the lows and inflation swaps and one-year inflation swaps, inflation has moved up pretty significantly during this time in one-year inflation swaps. Same thing

with two-year and fiveyear. But when we move out to 10year and 30-year, the opposite has actually been happening.

Which means that this inflationary impulse is primarily at least the market is pricing it short-term in nature. And

the reason for that is that it's primarily focused in oil as opposed to an injection of capital into the system from fiscal spending or something like that.

So, when you have these short-term inflation shocks, the Federal Reserve has a choice. Are they going to hike rates into higher oil prices, or are

they going to wait and let them just kind of feed through the system? Now,

the Fed doesn't have control over the oil market or oil prices or things like that. And so they have to make a

that. And so they have to make a decision about the tradeoff because there is no perfect scenario for this type of situation. Even if it's supply

side inflation, if more money gets injected into the economy and they don't increase interest rates, liquidity moves into the system because inflation is inflation. It doesn't matter where it

inflation. It doesn't matter where it is. And so you'll notice that one-year

is. And so you'll notice that one-year real interest rates have just been collapsing this entire time, which means that the Fed is

allowing rates to fall relative to inflation expectations on net and especially after the positioning on wine.

This has allowed a lot of money to move into the system. Same thing with two-year inflation or two-year real rates and fiveyear real rates. We had

them spike initially on the inflationary shock and now they have come down pretty significantly and this this spike and then move down is the exact thing I was

waiting for. And then on the longer end,

waiting for. And then on the longer end, it happened as well, but we're still seeing a bit more resilient real rates, which is actually, you know, something I'm watching really closely because on

the short end, we're having liquidity enter the system, which is why the dollar has fallen. But in the longer end, it's come down a little bit, but we're still seeing seeing resilience.

And this is because growth is not collapsing in the system. If growth was collapsing right now because of this inflationary shock, we would have real rates much lower. And so, you know, in

many ways, the fact that you've had uh you know, the let me go to the twos 10 real interest rate curve. You can see

that the curve, the real rate curve has steepened, which just means longer real rates have risen just a little bit relative to short-end real rates. And

that, you know, that really comes down to this entire time horizon question.

How should I think about the time horizon for equities? Well, the way you would want to look at it is as it relates to the yield curve, which is two-year real rates have been brought lower, 10ear real rates have risen

higher, and this time frame is in about a month right now for how we can think about these impulses. Now, as we move forward, that can get keep getting pushed out and we say, "Okay, it's

another month, another month, another month." But right now, you know, in my

month." But right now, you know, in my view, we're likely to have a greater rally and push higher for at least another month in US equities.

And this will connect to how we're thinking about interest rates or excuse me, inflation because here is the most recent inflation print, headline inflation. I don't think we're going to

inflation. I don't think we're going to move this high. But if we had the last inflation print do that again and that persisted for the next 12 months, this

is where we would have inflation right here. That was what we actually had in

here. That was what we actually had in 2021.

But now we're seeing a very different scenario because this is all about where we're going to see core CPI. And core

CPI is what everyone's looking at because it's still in this range with the extrapolations just being constant and maybe even getting to 2% if the

entire crude move mean reverts. If we

look at the inflation swap curve here, we're going to, you know, tick up a little bit, but then we're going to come back down as this is what the forward curve is pricing right now. And then if

we look at Fed funds relative to that, we're probably like going to have a pause and then some type of cuts this year if inflation remains below these

levels. And that's you know showing

levels. And that's you know showing itself in the forward curve. If you look at where we have priced hikes and cuts this year, this is the Z6 sofur contract

which is pricing how many hikes and how many cuts we're going to have this year.

So previously we were pricing 75 bips of cuts. Then we moved up to 50 and then we

cuts. Then we moved up to 50 and then we moved to 25. And as we moved into this crude rally, we priced less cuts. And

then we priced, you know, at this purple line right here, we pric priced a pause.

Then at the capitulation, we actually priced a 25 basis point hike for this year. And I said, "Hey, that's probably

year. And I said, "Hey, that's probably not going to happen." And then we came back down and we're back down at these levels right here.

So this year is pricing 12 bits of cuts.

You can see that right here. 12 bips of cuts which is functionally between a pause and a cut. And then if we look at

the Z7 contract, you can see that we're pricing 25 bips of cuts for next year.

Now that is all right now assuming that crude doesn't go lower. So if we have crude move lower over the next several

weeks and we move back down to these levels right here and whoops and key qualifications. And so if we have crude

qualifications. And so if we have crude move down back to these levels right here, and again, you know, I I'm not going to say that I have some special knowledge about Iran and the situation

taking place over there. I don't think anyone does. It's wild to me how

anyone does. It's wild to me how aggressive people have been in, you know, doing the whole oil trade at the highs and saying, "Oh, well, we have to, you know, because this news is this way,

we're probably just going to, you know, mega bid again." You know, that it's positioning was so extreme, you know.

Let me pull up the chart of positioning for crude because this is still one of the most important

charts to understand for positioning because positioning and the news that happens the underlying situation.

It frames how crude is going to move.

And let me pull up this chart really fast.

OVX too.

Yeah. So, I'm gonna I'm gonna pull up the V for crude right now.

Um All right. So here is the chart for

All right. So here is the chart for volatility in crude.

What you will notice and and again this was all covered on the substack. One of

the things that I actually said in a live stream and covered was that you know well let me walk you through it and then I'll I'll explain the progression of my views and how they took place. We

had in red Col begin to blow out and that began to rise more and more and then V began to blow out as well and

then at these highs we you know pushed up and then we made another high but notice we didn't make a new high in CR

in the V for crude. However, here is the the really interesting thing right here. When crude dropped, you

right here. When crude dropped, you actually had call skew spike again, which was basically when crude dropped right here, all the traders that were

buying calls basically doubled down on their calls, spiked V and the premiums for it and got really aggressive in

buying calls again. And on the live stream, if you were around that day, I basically said, "Listen, everyone just got levered long calls again." And we're probably making a lower high in V. And

so we could just totally flush this positioning. And that's likely. And

positioning. And that's likely. And

that's what we're seeing on the day.

You're seeing V crush and crude get crushed. So those are the types of

crushed. So those are the types of things that you want to be watching every single day incrementally and monitoring the flows of because these V

metrics determine the premiums and discounts in the crude market and they frame you know the fact that you have

more geopolitical risk getting priced out of the market right now and that is you know how can this credit cycle get even further insane basically

is if crude moves down to these levels of 64 and it doesn't transmit into core CPI again

core CPI right here if we don't have core CPI move up so here's the FX swaps or I'm sorry the uh inflation swaps and

the inflation swaps primarily price headline CPI so right now headline CPI is expected to come up a little bit uh hang Um

here headline CPI we already came up and now you know we're expected to go a little bit higher in the next print according to the market in May and then

move back down in headline.

If core doesn't spike significantly and just keeps going along in this range, we could actually see a massive massive

meltup in equities because you just had the biggest risk for inflation in the market decrease because inflation's not feeding into headline uh core CPI

because core, you know, this is this is a really key point. core CPI. Let me see if I can just pull up this chart really fast. Core CPI is all about the elements

fast. Core CPI is all about the elements of the economy that have less volatility in them. And so when we look at core

in them. And so when we look at core CPI, we're always asking how does this connect to the growth side of the economy? Whereas, you know, headline

economy? Whereas, you know, headline CPI, it connects to the growth in the economy, but it also connects to the supply side of things, which is why, you

know, we'll always watch the CPI prints.

as it connects to uh PPI which has a a lot tighter of a connection to the supply side of things.

So, let me pull up this chart right here. And I'll walk you through it right now.

All right. So you can see right here we have headline CPI. We have all of our different components of CPI. CPI is

broken down into several components. You

have the energy component which is right here. Energy, food, core goods, core

here. Energy, food, core goods, core services. Food and energy. Those can

services. Food and energy. Those can

move around a lot because you can have supply shocks. You can have different

supply shocks. You can have different things take place in the world that are not controllable by the Fed because remember the Fed can't impact the supply

side of the economy. They can only impact the demand side of the economy.

And so as a result, you know, you're always looking at how exactly is core inflation playing out relative to headline. And that's why, you know,

headline. And that's why, you know, these PPI prints are very important to watch because when we look at PPI, and I'm pulling up this other chart. When we

look at PPI, that begins to show how how much on the supply side exists versus the demand side. Let me pull up this other chart right here.

Boom. So this is core CPI which is just the [snorts] services goods and services section. So

you can see here headline CPI is in uh let's see headline is in the orange and then also

why am I missing these in blue. So

orange and blue right here is the headline CPI and you can see that food and energy have a 13 and a 6% waiting.

Core CPI has a larger waiting and you can see that they take up a lot of the different changes in inflation.

And when you understand the difference between these, then you can see these types of changes like core goods accelerating. If any of these supply

accelerating. If any of these supply side changes feed into core inflation, it's very likely to be on the core good side. So, I'll be

watching core goods very closely. If

it's only marginal and co and and companies just absorb this entire move and the margins in it then you are probably going to have a pretty

significant repricing in risk because you know again inflation is one of the biggest risks in markets when equity valuations are at

all-time highs and you know when when we go to let me see if I can pull up this chart right here. When

equity valuations price to sales, when equity valuations are at the highest they've ever been in history, then one of the biggest things

that you want to watch for is a contraction in liquidity. Because if you have a contraction in liquidity, that's going to basically unwind all of the

valuation expansion we've had for the last, you know, decade. And you know you the let me pull this up. Here we go.

Here's a chart of equity valuation. So

this is not the price. This is the valuation of the S&P 500 and the NIC just so that you can kind of get an idea that this is not just in the US. This is

a global phenomenon which you know if you watched the live stream yesterday then you understand how global crossber flows are all connected to global

valuations rising this much. By the way everyone if you um I don't have access to this dashboard. This is something I built for myself and I'm running all my

agentic models in it. um I'll be sharing an output from this and a lot of this dashboard with paid subscribers on the Substack. So if you um you know it's not

Substack. So if you um you know it's not ready yet um you know it's still basically in beta and having having things tested but uh you know if you want access to this eventually um in the

analysis from it so this entire thing then um you have to be a paid subscriber on the substack um and again I'm working through you know getting basically a PDF output of every single thing in this in

this thing to you if you were saying oh well I'd love to go through some models right now perfect go to the educational primer section on the website. Scroll

down and go to all the models by my friend Alfie and you can subscribe to his substack. Really good guy. He built

his substack. Really good guy. He built

all these models for free and shared them with everyone. So if you want a lot of those models I put in there, you can have them in Trading View right here.

They're all free. And uh by the way, anyone you hear that is saying, "Oh, I really want to build a following or I want to add value to people or I want to meet someone for a new job or something

like that." If you just start a

like that." If you just start a Substack, start writing high quality research that actually has alpha and building models that you just start giving away for free, I'll totally put

them in here. like, you know, tens of I don't even know what the number is, but you know, tens of thousands of people come and look at this educational primer and you know, if you want your models or

your name in here, I have no issue putting that in there so that people go look at all of your stuff as long as it's a really high value thing. I mean,

Liquidation Nation, I don't even, you know, that's Jared Cuban. I don't have any, he doesn't pay me to do this, right? He doesn't pay me to put his

right? He doesn't pay me to put his website here and I go to his website every single day and I think you should too and it's 100% free. Right? So that's

the entire goal of the different things that we're covering today.

So when we talk about the crude market and these different tensions that we're experiencing, those all connect to liquidity in the market. And I want to

go I want to talk with James a little bit about this because valuations in the market really change the rhythm, speed,

and amount of money in the system or I would say money in the system changes how much valuations we have. And the the fact that it's not that we're at an all-time high for

equities. It's not about the fact that

equities. It's not about the fact that they're alltime high. It's that we're an all-time high in terms of valuation in US history. And then we are also moving

US history. And then we are also moving into the largest IPOs that have ever gone IPO in history starting with SpaceX, then OpenAI, then Anthropic, and

some of these other companies. So, we're

in a period of time where the amount of macro liquidity in the system is so great. And the main thing there there

great. And the main thing there there are two ways that you are going to have liquidity contract when we're at these valuations. Two ways, right? Everyone's

valuations. Two ways, right? Everyone's

trying to talk about all these cycle frameworks or whatever that might be.

You need to think about path dependency.

And I did I did an entire live stream on this. Just go back, watch all the live

this. Just go back, watch all the live streams from this week, read all the summaries of them, start going through them. If you're trying to understand

them. If you're trying to understand these things, I lay out all these educationally every single live stream.

The And if you want the specific one, let me let me just pull it up for you.

in the in the website come down to the meltup trigger the credit the playbook for the credit cycle and

actually it's this one right here I think it is the crossber flows this one crossber flows dollar devaluation and

and in this entire you know breakdown I covered you can go through the slide [snorts] deck from it, how to think

about credit risk, duration risk, and how those move across the equity risk curve. You I mean, every single chart

curve. You I mean, every single chart that I share, you can get it here 100% free. I'm always posting the slide decks

free. I'm always posting the slide decks for everything that I do. And you know, this equity risk curve is what we're always in the process of moving it

across. So when valuations are expanding

across. So when valuations are expanding systematically and mechanically in the system, people have to move out the risk curve. If they don't, they will lose

curve. If they don't, they will lose money in real terms. And you know, people are always going to try to say like, "Oh, well, I you can't force me to buy equities." Well, guess what? Maybe I

buy equities." Well, guess what? Maybe I

can't force an individual to buy equities. But when the entire system of

equities. But when the entire system of people go to their financial advisors or go to the institutions that are running their money or go to hedge funds that

are competing for performance or go to aka all of the largest players in markets and say, "Hey man, I'm losing month money every single month because of inflation. I need more money for my

of inflation. I need more money for my retirement." And they say, "Oh well,

retirement." And they say, "Oh well, we'll have to move some capital out the risk curve." That's exactly the

risk curve." That's exactly the conversation that takes place, especially in the hedge fund space where people say, "Hey, why aren't returns more aggressive? Why aren't they higher?

more aggressive? Why aren't they higher?

Why aren't you outperforming the index?"

And people say like, "Oh, well, you know, if you try to not outperform the index." It's the same thing in financial

index." It's the same thing in financial markets. It's the same thing as being in

markets. It's the same thing as being in the real economy. People say like, "Oh, well, you just shouldn't take out debt as a publicly traded company." And if you're going to say that you shouldn't take out debt as a publicly traded

company, go try to compete against another company who is taking out debt and destroying your market share and you know when you move into a recession, they say, "Oh, we gained so much market

share, we're making so much cash on our balance sheet that we can actually acquire you and they just kick you out of the market." That's a trade-off you're functioning against.

That's why when people say like, "Oh, well, I'm just going to be, you know, like our entire goal is to never take out debt, always be conservative, and never take any risks." There there's a trade-off for every single thing. Your

job is not to suppress risk. It's to

manage it. And to be so good at taking risks that you are able to outpace any other type of variable in the economy and in the market because you are the

differentiating factor. That's the

differentiating factor. That's the entire point of the equity risk curve.

And actually, if you understand this risk curve, it actually allows you to understand the system so much better that you say, you know what, I'm actually going to put more in, you know,

money in out of the money calls in all of these high-risisk stocks, and I'm going to size it less because if it happens, I will have a massive payout on the upside, and I'll bet on this credit

cycle meltup, which will give me more cash to put in if we go into a bare market afterward, which I think is going to happen. My view is that we're going

to happen. My view is that we're going to have a pretty significant meltup.

Well, we already are, but we're going to have an even more significant meltup.

It's going to melt up, be really aggressive, and then it's going to get to a point where it's unsustainable, and we're going to have a bare market.

That's my view.

The way that you can already begin to see that is that equity valuations are at all-time highs. But it's not just about them being at all-time highs because you know saying equity

valuations are on alltime highs. You

know basically like all of this period of time you would have not been long equities if you use that alone as a metric to say this is actually get out get into cash.

The way that you want to think about it is if you understand interest rates, FX and liquidity in the markets, then you can manage this high right here in

liquidity that we are in, which is this danger zone of when equities are at a higher valuation, they're much more sensitive to changes in liquidity. Right

now, liquidity is being injected into the market. As soon as that injection

the market. As soon as that injection stops, equities could stop going up. especially

if that liquidity injection stops and it happens to overlap with these IPOs in the market with SpaceX, OpenAI, Anthropic and all the things like that.

But right now the signals are showing.

If you look at for example IGV yesterday and today we had Anthropic release new models. And what happened every single

models. And what happened every single time Enthropic released new models you had selloffs right here, right here, right here and then you know even right here. Enthropic when they were releasing

here. Enthropic when they were releasing models you had the screen.

Ah you're right. Right here. Thank you.

Right here. You know all this period of time when you had Enthropic releasing new models the software sector sold off.

Then you had this shift where yesterday Anthropic released a new model and what happened? software actually bid, which

happened? software actually bid, which tells you what that the bearish positioning has gone too far and we're likely to begin to start bidding in software, which in my view is going to

take the equity market to a new high since software is such a large uh waiting in the index. And if we go to

I'm going to pull up this other chart of where we're at with equities right now.

Just notice how the software sector is such a large waiting in

the equity market right now. So you can see right here in let me pull this up.

Hang on.

All right. Notice during this period of time right here, this is the weighted average return of each sector. So tech is the largest. I

each sector. So tech is the largest. I

think it's almost a I think it's almost 40%. Let me actually double check this

40%. Let me actually double check this because uh you people will love to get this number exact. Um it

always kind of changes on the margin just a little bit, but let me get the exact number right here.

Yeah. So tech is 35% of the index. So

35% of the S&P 500 is tech. Every single

other sector is a 10 or sub 10% waiting in the index.

So it's tech is weighted three times the amount over three times the amount of any other sector in the S&P 500. Which

is why right here, you know, we're today's the 17th, right? When you look at today, you can say how much is each of these sectors contributing returns.

And over the last several months, tech has contributed negative returns. You

can see tech has contributed 147 basis points of selling pressure. So

tech has dragged the index down pretty significantly. Now on the upside,

significantly. Now on the upside, we're seeing tech contribute aund, you know, almost 200 or 200 bips a

day. Over 200 bips now on the day. Today

day. Over 200 bips now on the day. Today

we're having tech contribute a 5% uh you know basically like a pretty significant five or this is going to be

on a one-mon look back. So the S&P 500 is up 10% over the last month. 5% of that, so half of that has been driven by tech. The

other, you know, 1% of that has been driven or almost 2% has been driven by communication services. And then you

communication services. And then you have consumer discretionary, another 1% financials at 92 BIPS, industrials at 71 BIPS. So the entire idea is that half of

BIPS. So the entire idea is that half of all the returns that have taken place are from tech.

half of the entire technology sector is software. So when you have software

software. So when you have software beginning to rally and set a low, if

software began to actually make these moves up here to $100 and push higher, that would likely cause

this entire number where tech is only contributing 5%. You could have a

contributing 5%. You could have a another month of the S&P going up 10%.

And tech contributes six or 7% returns.

So, it could be even more insane than it is right now. And it's not even that far-fetched because the software sector

is still so suppressed right here. What

happens when everyone begins to realize that all of the data that all these software companies have is a necessity

for the new AI models that are being brought forth and that to be able to make really good high quality decisions, you don't just need the AI model. You

need really high quality data, which by the way, if anyone has tried to build any agents or AI models or anything, especially in financial markets. I mean,

it's pretty challenging to do without a Bloomberg. And so, go try to do it

Bloomberg. And so, go try to do it without a Bloomberg. You can do it. You

can get some APIs and stuff like that, but if you really want to build something high quality, you have to have a Bloomberg, which is, you know, 30K a year, right? So, if you want to be able

year, right? So, if you want to be able to build high quality AI models, you need data. the entire software sector

need data. the entire software sector are the companies that have all of the data for all of these things that are taking place and in all of these market domains. Now, I'm not saying that

domains. Now, I'm not saying that they're going to have the same growth multiples, but I do think that that they have in the past, but I do think that when you have these types of changes and you have all of these names in the

software sector sell off so significantly, I think there are going to be some winners and losers. But

that's why I'm bullish Oracle because they have some of the best data and infrastructure for all this stuff to be deployed in and they're doing all this

capex buildout. So that's so critical to

capex buildout. So that's so critical to understand which is why you can have an unwind in this entire move and why I'm bullish or perr and hyperlquid and all

these different names. So you know those that's the situation that we're in. You

know, can I ask you can I ask you something on this?

Go for it. Yeah. I think this is I think this is all fantastic and going back to where we started about scenario planning like when you go to that attribution of

like the breakdown of the sector attribution um with the with the tech you know it to me like when I see this

it makes me think all right we're at valuations that are high the dollar could break into a lower range risk can

go back on the AI story of software companies could come back where like their network and their sticky or their sticky network and their mo and

their spendability and all that stuff and their multiple expansion because they've gotten rid of all the bloat in their companies. I could see that all

their companies. I could see that all becoming the reason for people to eventually justify the newer higher set of multiples,

right? like the the oh it all makes

right? like the the oh it all makes sense if we had all just thought about the fact that AI was going to be such a productive e economic expansion and

whatever that could I could then see how you have this basically upside capitulation of tech and software and

the index in that meltup now what I'm interested in is when that eventually like Let's

say that plays out when you move into a bare market. How does this sector attri?

bare market. How does this sector attri?

How do you even start to process in your head?

how to change mindsets towards a new sector and which which underexposed sectors still

make sense moving into the future of a bare market where we are still industrializing on our home base. We are

in a little bit of like a geopolitical risk on situation. We may have a higher baseline of inflation. How do we start to think of what

baskets to move into after this potential softwaredriven kind of AIdriven run?

So there are two ways that I think about the potential for a bare market. The

first is if we begin to have all of this capex not realize the returns and we begin to have some layoffs in connection

to it and what begins to occur is you know recessionary conditions in the United States and you begin to have layoffs and you have things like the

Russell underperform because it has such sensitivity to cyclical conditions, industrials underperform and things kind of like along those lines. and then you have some delinquencies and things like

that.

If that happens, then you are going to have a rotation where you're probably going to have some liquidity come out of markets, but you'll have cyclical sectors begin to underperform and lead

the way to the downside. Now that is actually not taking place because if you look at the Russell right now the Russell is actually the index of all the

companies that are getting all the capex spending. So I mean this is a little

spending. So I mean this is a little reductionistic but it's true. All the

mag seven companies are spending almost a trillion dollars in capex and they're [snorts] saying let me take all this money and invest it. Well where are they investing that money? Well they're

saying well I need to build data centers. Well who's going to build those

centers. Well who's going to build those data centers for them? It's going to be the companies in the Russell.

So, the companies in the Russell are receiving the money. Their bags are getting pumped and they're the ones that are creating jobs and doing things in the underlying economy, which why, by the way, is why the Russell is

outperforming the right now. And that's

why I laid out on the substack. I think

that the Russell that's why the Russell actually, you can see it made this the kind of triple low, if you want to call it that, right here. Whereas the S&P during that time, it just went down

because it has more sensitivity to tech, especially the NASDAQ. But the Russell was remaining resilient because of all this capex spending. It's one of the reasons, one of the reasons of the capex

spending. Now it's outperforming to the

spending. Now it's outperforming to the upside. Again, not surprising once

upside. Again, not surprising once liquidity comes back into the market and the geopolitical risk decreases. And so

my view is that you have on one side you have that internal growth growth impulse that right now is pushing equities higher. If that began to deteriorate

higher. If that began to deteriorate then you would see a reversal of this.

We don't have that deterioration on a investable time horizon right now. So I

would not want to bet on that type of deterioration right now. The other way that you could have a significant bare

market is because of a shift in liquidity or inflation andor inflation

in the market. Because if you have crossborder flows shift or any type of trade deal or trade balance shift, which was the entire point of the live stream

I did yesterday and all the reports I've been laying out, if you have that shift, then these equity valuations need to be rerated down. And if liquidity gets

rerated down. And if liquidity gets pulled out of the market, whether that's from inflation or whether it is from changes in crossber flows and FX side of

things, then you could have tech primarily lead the way to the downside because they're the ones that are most exposed to foreign direct direct

investment and macro liquidity because of their waiting in the index because of a lot of other factors. They have the most sensitivity to liquidity conditions. So there's two scenarios

conditions. So there's two scenarios that could play out where we have a bare market and I think one of those are going to eventually happen. I don't know if it's in the back half of this year or

sometime in 2027 or something like that.

The the impulse that we just had this entire stage, you know, if we would didn't have this, we could have probably like chopped along just a little bit higher. But the fact that we had this

higher. But the fact that we had this and we just basically, you know, functionally injected liquidity right here and unwound this is why we're now in a meltup scenario. So, we kind of

just, you know, went down just enough to put enough gas in the car and now we're turbocharging up as opposed to kind of this slow grind. So, we're we're

accelerating now on the upside. And my

view is that once this shifts, it's going to accelerate to the downside. And

I don't think that's in the next month right now. But we'll see how it plays

right now. But we'll see how it plays out because it's all about how liquidity changes, how again what I laid out with core CPI earlier in this video, what I

laid out with real interest rates, what I laid out with FX and some other things and the liquidity kind of breakdowns I've been laying out for paid subscribers on the Substack. So, I think

that it's a very important time to be aware of these factors. I mean, it's just never been so important to to understand why these things are taking place and how to manage your risk around them.

I really like Okay. So, so moving forward, uh, by the way, like what what would be really interesting is seeing like the fractal you just showed there, like, uh,

the the tariff tantrum, uh, also Vbottomed basically off of the the lows and then it drifted up so much like just a a a drift that was like

one of those things where like people couldn't believe it. And I feel like a very similar situation could happen here for y for for months or whatever where people are just like h like you know

whatever. Um but I think this is cool to

whatever. Um but I think this is cool to branch into like okay we have a couple reasons as to why this next larger down

move in the future could happen and figuring out along the way which one is probabilistically more likely as we move

through time. Right. And uh I think

through time. Right. And uh I think that'll be cool to monitor on future streams and stuff like that. Are we

moving towards more of the scenario where the the the capex buildout is not becoming like the fruit that we were planting right that that the expectations are failing, the layoffs

are coming or is it going to be an inflation expectationbased liquidity driven move?

My intuition Yeah, my intuition is that it'll be the latter. I think that the capex buildout,

latter. I think that the capex buildout, even if it is a little aggressive in terms of the returns that we're going to get, even if it is a little aggressive,

um it's I think we're going to see the returns from it because right now there's such an aggressive constraint, right? I think that what's going to

right? I think that what's going to happen is this capex buildout once it comes online we're also and it's already

coming online but we're going to see that really weigh against this token token ROI right because if if I

have you know this is something that Jensen talked about in his recent interview and if I you know I am going to look at my company and say how much am I spending on employees and how much

are they spending on tokens? What's

their ROI on token usage? And tokens are going to become one of the main inputs for how we quantify the riskreward and

the ROI of different things. So, we're

going to retool everything so that it's quantified and denominated. And I don't mean like goods and services. I just

mean productivity and and and business investment and things like that and how we hire people.

It's going to be quantified in how good you are at using tokens.

So if you want to, you know, get really good at using tokens now, it's going to be a massive asset. I mean, it's already such a massive asset right now, uh, but in three months, four months, it's

probably going to be, uh, one of the differentiating factors on a resume, right? If if you know maybe 10 years ago

right? If if you know maybe 10 years ago it was, "Oh, I have a bachelor's degree." Now, if you say that you don't

degree." Now, if you say that you don't know how what your token ROI is, they're just going to laugh you out of the room.

Like, you don't know your token ROI. How

can I even like trust you as a person?

Have you have you been educated or what's I'm sorry.

Sharp ratio.

Yeah. Yeah. What's uh what planet are you from? You know, and it's like, well,

you from? You know, and it's like, well, I have a lot of experience in life.

Yeah. Great, man. What's your token ROI?

Right? Like that's what that's what things are going to get turned into. In

the corporate world, it'll turn into what's your token ROI so I can know what you can do for consulting and KPIs. And

in the entrepreneur world, it's what's your token ROI so I can know how much I'm spending this month on AI spend. So

I can quantify that into whatever the return on investment is for my investors or for the money I'm staking myself with. So, it's not about, oh, there's

with. So, it's not about, oh, there's this new artificial way to virtue signal. It's about how much value can

signal. It's about how much value can you create with token spend, and if you can't create more, you're going to get laid off, period. Like, you're

going to get laid off. There's going to be obviously, you know, I think especially in the corporate world, financial services, you know, all of these service-based businesses,

obviously, I think there is going to be a ton of um opportunity in the physical space of electricians, HVAC, things like

that. That's not going to be disrupted

that. That's not going to be disrupted by AI as much. However, that is going to get so much more efficient. I mean, I already know of guys who have started consulting firms overnight and have come

in and basically said, "Listen, you don't have to pay me at all, but if I save you uh, you know, $50,000 this month in uh by implementing best CA uh

best practices with AI, you just give me 20K, no questions asked, and then we'll figure out a contract." And people go, "Okay, fine. Sure. Sign this, you know,

"Okay, fine. Sure. Sign this, you know, NDA, and we'll start working through this stuff." These guys come in,

this stuff." These guys come in, implement AI in the most basic forms and start saving these, you know, local businesses 50k a month in operating expenses and they say, "Oh, wow. This is

massive." Right? And so you're having all of these service-based businesses.

You already had private equity in the process of rolling them up and making them more efficient with their consulting playbooks and MBA playbooks.

Now AI consultants are coming in and saying, "Hey, you know, you don't even have to pay me anything. We can quantify all of this and we, you know, just pay me based off of

what we do and then we'll figure out a contract later so that there's only upside." So that's really the the the

upside." So that's really the the the change that's taking place and that connects to the capex side of things, which I think is going to have an ROI based on all these changes that are

taking place. And my view is that the

taking place. And my view is that the liquidity side and how it gets unsustainable especially for crossber

flows is going to be the the differentiating factor because there's going to be a moment I did a whole article about this at the end of last year. Um, I still think it's going to

year. Um, I still think it's going to happen and there's going to be a moment where the dollar falls too much. And this is hard for people to comprehend, but you'll

remember in the beginning of last year in 2025, what happened during the tariff tantrum, we

had the DXY and equity sell off at the same time. Now, why is that? Why would

same time. Now, why is that? Why would

equity sell off and the dollar sell off at the same time? And the primary reason is it's foreigners selling their positioning, selling their

equities so that they can get out a and be able to get capital and reshore their balance sheets so that they could shift from this whole tariff exposure that is

requiring them to have more money basically.

And so the idea here is that this is a lot of foreigners that were not hedged in their positioning risk. And o over

the last, you know, several years, none of the positioning for foreigners and foreign direct investment has been hedged and none of the dollar exposure has been hedged, which just means that

you could have another move like this where dollar sells off and equity sell off at the same time. And I think there's going to be a moment where I don't know what the level is, but it'll really depend on the balance sheet and

where we're at with the balance sheet.

It will really, you know, we'll go down in the dollar in my view. And then

there'll be a point whether it's here or here or here or lower or I don't know where it is that a weaker dollar will begin to drag on US equities and create

massive problems for foreigners and investors.

So I think that will be the differentiating factor for this kind of period of time that we're in.

Well, okay. So when I hear you say that, I think that's like the way more interesting one, right? Because the

capex stuff will be fulfilling what it was meant to do. And then if you have a moment where it's all it's all kind of what do you

call it? Threading the needle, if you

call it? Threading the needle, if you will. And then you have the dollar start

will. And then you have the dollar start to drag so much and the equities start to go down just when everything is fulfilling that destiny that makes it

really interesting to me because there just won't be anybody to really comprehend why.

Yep.

Whereas like it's more obvious if like oh there's just no earnings coming in and people are getting laid off and like blah blah blah. Right. So I think the bigger bare market, the bigger opportunity for downside asymmetry lives

in the one where it doesn't make sense.

Totally. Yeah, I agree. I mean that's when most positioning gets off sides because something happens that doesn't expect it and they have to, you know, really, you know, map hedging pressures.

So I think uh or they have to put on a lot more hedges and wall blows out to an extreme. So I definitely think that's

extreme. So I definitely think that's that's a real scenario. Um

yeah also um they they're asking in the chat when exactly will the meltup peak and around what exact time and levels.

Do you want the exact ones or do you want broad ones?

I think you should give them the exact exact moment in time where it'll peak and the exact price level because then at that point they don't have to really kind of watch any of your stuff.

That's true. I should just kind of stop all of this and just post the exact time and levels that it occurs and then I don't even have to do this live stream.

You know, it would kind of be pointless to do the live stream in the first place, you know.

Correct. [laughter]

Um, here's what I would say about this.

Number one, I uh the the uh the financial system does not work based on price levels or

things like that.

um you know the the impulses in the financial system are path dependent and let me explain what that means. Again

this is if you went through this entire report with how I explained crossber flows the dollar and how to quantify all these things with the different models

that I've laid out. Then you can go through all of this and I I laid it all out. you have all the models for knowing

out. you have all the models for knowing how and what signals to look at.

What I would say is that you have all of these different types of impulses that take place on the upside and downside be dependent on how extreme

the events are in the first place. So,

you know, no one in no one in their life is is uh well, I hope no one's doing this. No one in their life is saying,

this. No one in their life is saying, you know what, I have made $5,37629 this month. That means I have that exact

this month. That means I have that exact amount to the penny to spend. Let me

just go start spending it. Right?

There's like so many things that could come up in your life that you could have that would give you more money or take more money away. And there's a lot of volatility in the system. And by the way, you know, we think about this, a

lot of people think about, you know, even their own income as such a stable source of of dependability. But in the real world where you have companies

running business and managing risk, there's always volatility. So if you're an entrepreneur, you know that your income is always changing. So let's

shift from saying, where is this perfect meltup to this perfect level at this perfect time? And we're gonna go boom

perfect time? And we're gonna go boom and then just tap and then just go right down like that's that's you know like that type of outcome where

there it is screenshot 8,000 by uh July I think it was this idea that we're going to go perfectly up and then we're going to get

to the fair value range and then in in uh May of this year we're going to you know go right here tap off this level

and go right down and take out uh take out the co lows, you know, I mean that that idea is just a little, you know, it's not really the the type of

mindset that people use for risk-taking.

What we're doing is we're doing path dependency, which means it's not a fancy way of saying I don't know. It's a fancy way of saying, "Hey, if we don't know the

answer, what's the best way to respond so that we're long on the upside and short on the downside?"

And and the idea here is that we want to watch liquidity and also how aggressively real rates fall because this is more about signals

because if you remember on this dashboard that I shared, we go back to the US side of things.

This is one of the things that I said is real interest rates right now are 55 bips from turning negative. 55 bips. If

we turn negative in the real interest rates on the short end, that is going to take so much capital and push it out the risk curve that

people don't even have a clue how insane it could get. You could have a 2021 type meltup.

We That is really dependent.

Let's go.

That's dependent. I mean, here's negative real rates in 2021. We're 55

bips. We're, you know, 55 bips from them turning negative right now.

The idea is that right now we are in the process of watching how the Fed is going to respond. If the Fed allows real

to respond. If the Fed allows real interest rates to go negative, then yes, we're going to have a larger meltup. If

they moderate their position a little bit more, then it's going to be less of a strong meltup, right? Like there's

scenarios to this that are dependent on things that we don't know the answer to, but we know the signals that we need to watch. So, watching real interest rates,

watch. So, watching real interest rates, watching how it connects to inflation, how it connects to the forward curve, how it connects to all of these different factors is going to be the

differentiating factor. Unfortunately,

differentiating factor. Unfortunately, that probably means you have to work a little bit. I know that someone probably

little bit. I know that someone probably originally promised you that trading was easy, but news flash, this is going to be the most difficult thing that you're

ever going to do in your life, probably.

So, if you want to do things that are not difficult, you probably don't want to be on this stream right now. So,

that's that's what I would say. Those

are the signals you want to be watching.

But that's what I would say for kind of that that framework. Um, real good question here. Can you explain the

question here. Can you explain the difference between real and nominal interest rates? Totally. If you go to

interest rates? Totally. If you go to what real interest rates are about what is the price of money on a when

it's adjusted for inflation. So, if you go down to this section right here and go to the interest rate trading playbook, download that, go through that

yourself, and then also go through the interest rate primers and I explain how to calculate all of it on the bond market primer and interest rate primer.

I explain how to calculate it, how to monitor it, and how to go through all of it. Real interest rates are nominal

it. Real interest rates are nominal rates minus inflation swaps or inflation break evens or whatever you want to call them. And the

them. And the the idea behind it is that there is if you put your money in a money market

fund, you are getting paid let's say 4% a year right now. I think it's maybe three and a half now. 3 and a half% a year. If inflation is running at 4% a

year. If inflation is running at 4% a year or 5% a year, you're getting a return a negative return in real terms. So all you want to do is quantify that

across time and across the risk curve and or the duration curve and say what is the price of money on a nominal and real basis across time and that's all

that real interest rates are.

All right, the peak is clearly the answer is this. Um,

uh, you get 11 and a half% on STRC and there's zero risk. Trust me, bro.

Zero risk. The, uh, the, uh, number one, um, phrase in markets. That is exactly what markets are. There's actually, you know, I don't want to talk about STRC on

the I I don't, just to be clear, I don't endorse STRC. I don't hold any I don't

endorse STRC. I don't hold any I don't want to hold any um I'm not trying to bash on it or anything like that. I

just, you know, we're not gonna we're not going to go down that rabbit [laughter] hole.

You could have a you'll have SA I think eventually you'll have Sailor on on at some point. So, you can't talk trash

some point. So, you can't talk trash about him now. You're gonna have to you're gonna have to say it to his face on stream. That's

on stream. That's Yeah. And then he'll just he'll belittle

Yeah. And then he'll just he'll belittle me on stream. That's fine.

Well, you won't be able to talk.

[laughter] [snorts] Um, cool. Well,

Um, cool. Well, if you are here on the live stream, the entire goal of what I'm doing in markets is mapping the macro regime, quantifying

the moving parts and be able to take large asymmetric bets that function as home run trades. That's my entire goal right now. Those two main bets are PER

right now. Those two main bets are PER and Oracle. Those are the largest

and Oracle. Those are the largest positions that I have right now. If the

situation changes for those, then I will publish a report on the Substack. And if

I open a new trade, I'm working on some newer trades. I can't talk about them

newer trades. I can't talk about them yet, but there are some really interesting things that are coming up that I'm going to be uh that I'm going to be doing and

those will be published on the Substack.

And then, you know, as we move into this weekend, I'll have some other reports for paid subscribers. We're doing this live stream every single day at 8:30 a.m. Mountain Standard Time. Um, I think

a.m. Mountain Standard Time. Um, I think the entire view that I have is there's a credit cycle melt up right now that no one really expects. We already see people thinking, "Oh, well, we just

melted up in equity, so now there's a short-term top. Maybe I should get a

short-term top. Maybe I should get a little less aggressive." And then we have days like this, which if you know this is a credit cycle, you're probably going to have green day, green day, green day over and over and over until

people realize that there's a lot of positioning to unwind. So that's my view right now. Um we're going to keep having

right now. Um we're going to keep having these impulses to the upside until we have a significant change in the liquidity environment. My entire

liquidity environment. My entire strategy in the S&P 500 maps all these moving factors and if it turns neutral or bearish, I'll publish a report on it.

But right now, it remains skewed to the upside and bullish. So, James, what would you say

bullish. So, James, what would you say is kind of a final takeaway talking point for everyone to remember that they need to think about as we move into the weekend just to be intentional in

markets preparation for the way that they're doing research thinking and then also their the mental side of things.

What would you challenge and encourage people to do?

I think it's just like maybe taking account of the last month or two and to really think about like the actions you took. I made a short on this. It's like

took. I made a short on this. It's like

what have you learned about yourself from the last month? You know what I mean? Were you

mean? Were you were you falling prey to being a super reactive executor or thinker to everything that was going on? Were you

ahead of the game? Were you skating to where the puck was going? Were you

highly emotional? Did you make any decisions that might have helped or hurt you a lot? And moving forward, um, you're going to have so many of

those months, whether it's to the upside and being sidelined and not understanding what's going on or to the downside and being bullish and not understanding what's going on. So, I

think it's really important to think back and be like, what did what did I do? Why did I do that? How could I maybe

do? Why did I do that? How could I maybe not mistake and make that mistake moving forward one less time, right? Because I

think the best traders are the people who make the least mistakes over time and just don't blow up their accounts.

It's as simple as that. And then show up for this every day. keep pegging away at

including new tools and thoughts to your arsenal and um be prepared for all sorts of scenarios and um keep that

open mind and keep talking to people all that stuff. Uh the last thing before I

that stuff. Uh the last thing before I just wanted to make sure we touched on because I think it's a good question um that Drew asked. Uh, I think it just could be good to point out your trading

view models and stuff, but you said real rates falling are bullish because growth is steady, but you also said real rates falling with growth weakening is bearish. So, how do we measure growth?

bearish. So, how do we measure growth?

And I would assume you that maybe falls into your regime stuff and some of the models. So, I would say make sure

models. So, I would say make sure you could touch on that and then kind of show everybody where to get those models because as we move forward with what I just said, it's going to be important

that you have those tools to help understand why some of your emotions might have been leading you astray or whatever in those moments.

Yeah. So,

real rates are about the purchasing power of money in the system.

Right? And you want to think about those as two kind of separate axises.

So if you have real rates falling and you have, you know, the the Fed, let's say, cutting rates into inflation, that is allowing more money to flow into

the system in the interest rate and FX and liquidity complex.

This the opposite is true if the the Fed is trying to you know take rates and put them above inflation.

Now what you need to do from there is say how strong are those moves. So you

can quantify that. I mean you can just look at a wall adjusted return or zcore or something like that of real rates.

And then from there what you want to understand is how how much is that offsetting or amplifying growth. So let's say you have

amplifying growth. So let's say you have GDP contract by and it's negative by 1 or 2%. Which is pretty significant. The

or 2%. Which is pretty significant. The

Fed will come in and cut rates to stabilize growth, but we don't know how much growth exists uh or we don't know.

We can always triangulate it, but we don't know if that's going to deteriorate further. Right? So you have

deteriorate further. Right? So you have real rates falling, pushing growth up or helping it stabilize, but the question is how heavy is growth really coming down? So what you need to do is map

down? So what you need to do is map independently real interest rates and the strength between them and growth and the strength of that. And one of the ways that you can do that is one look at

credit spreads and the equity risk curve. Number two, yes, look at economic

curve. Number two, yes, look at economic data and the ranges and projections of it so you can have a clear variance.

Number three, look at how the curve is functioning across nominals, reals, and inflation swaps to get an idea of how long-term growth expectations are

functioning. And then finally,

functioning. And then finally, you want to really connect into how each of the companies in the S&P or in these

sectors are connected to the themes that exist. So, for example, let me pull up a

exist. So, for example, let me pull up a chart really fast, and this will kind of make it tangible for you.

When we think about something like government spending and how that is functioning, government spending is a contributor to GDP.

And when we think about how the government is spending money, let me put this here.

And let's take this here. You want to begin to connect these equity sectors with how each of the government or how each of

the sections of GDP function. So you can see that the fiscal side is beginning to rebound. It's lagging just a little bit

rebound. It's lagging just a little bit because fiscal spending is not as strong as it was uh last year. And you can notice that you know in Germany you have fiscal the fiscal beta beginning to

rally. And so you would want to say,

rally. And so you would want to say, okay, well that's beginning to price in more government spending likely, especially if it's outperforming. And

these are just the Goldman Sachs fiscal baskets for each major country. And so

you want to watch thematic baskets like this as they connect to the economic data and see you know what people will do is we'll take these they'll take

their earnings and say let's run a regression against the economic data build a little bit of a rolling regression and know what the sensitivity is to these different factors and how do we build an index around it and stuff

like that. So you want to begin to

like that. So you want to begin to connect the equity market with the underlying industries and sectors in the economy. So that's how I would begin to

economy. So that's how I would begin to build that. What I would say is if

build that. What I would say is if you're saying, "Oh, well, how do I get all the tools for that?" The educational primers lay out every single thing that you want to understand about growth in

these articles right here. So if you're trying to understand economic data or markets or positioning or like how to research a country and understand the different changes that take place or if

you want to map risk on riskoff regimes or if you want to connect it to how do I map credit risk and duration risk and these alpha primers all of these are

here. If you go through all of these

here. If you go through all of these right, all these educational primers in order and then go through all of the playbooks right here or if you go and

and also if you go through all the book recommendations that will begin to map how everything is taking place and you'll have a good framework for it. If

you're saying, "Oh, well that sounds like a lot of work and building a lot of models sounds like a lot of work." Well,

that's the entire point of being a paid subscriber. If you want to go through

subscriber. If you want to go through and get all of the, you know, breakdowns that I'm writing for paid subscribers, then, you know, that's the entire point of that. It kind of skips all that. I

of that. It kind of skips all that. I

spend all the time pulling all those movie parts together for you so that you have all the data points for it and you know what's taking place right now. So,

that's what I would say about kind of that point. I think it's a great

that point. I think it's a great question.

Yeah. And la last thing I would say, you know, looking through some of these questions today, there there were some fantastic ones, but there's also and I'm I am throwing shade, I guess. There's

also some people that are just you're asking the wrong questions. You know

what I mean? like you're if you're if you're kind of paying attention to what flows is is doing every day. It's more

about you're asking the questions that are going to get you a deeper level of knowledge as we move through this time.

It's if you're asking when is it going to peak uh or what is it here?

Are you what are you thinking about plays regarding the a SpaceX IPO?

Uh I'm sidelined or you know just stuff like that. Uh I think you're missing the

like that. Uh I think you're missing the plot. So, I would say just show up and

plot. So, I would say just show up and and just all the stuff you might be watching and maybe not understanding, ask a question about that because you have this unbelievable

uh wealth of knowledge here that's willing to uh really help you level up.

And if you're just wondering about like should I go long or short the SpaceX IPO u you know, maybe just maybe just re rethink things. So, I'll throw some

rethink things. So, I'll throw some shade for you. You don't have to worry about it. And uh we could do [laughter]

about it. And uh we could do [laughter] No, that is not true.

I know. I'm probably a little bit nicer than you are, but uh [laughter] All right. Well, everyone, thank you so

All right. Well, everyone, thank you so much for joining. I appreciate you guys.

Um again, everything will be let out capital flows.com. I'm going to be

capital flows.com. I'm going to be publishing uh some more um this weekend and also today um for everyone. Um I appreciate all you guys. If you guys are showing up

today or you guys are showing up to the live stream every day, I just want to say I respect all the work that you guys are putting in and I would challenge you. I'm sure there's things in your

you. I'm sure there's things in your life that you could cut out and that you could do without so that you could be more locked in and more disciplined. So,

just remember that the biggest limiting factor is not the guy on the other side of the trade. It's your own focus and dedication. And I know that's hard to

dedication. And I know that's hard to hear sometimes, but the entire goal of all these is I'm going to put in all the work to show up every single day to lay out these live streams, to continue doing these reports, to continue doing

all the work I'm doing in the background to build these models and to help you guys. All I expect of you is to show up

guys. All I expect of you is to show up and be locked in. So, I would challenge you and encourage you, use your weekend wisely. Use Friday wisely and thank you

wisely. Use Friday wisely and thank you for showing up to the live stream. I'll

catch you guys on capitalflowsarchearch.com.

capitalflowsarchearch.com.

Everyone, go to all of the research that James or all the videos that James is doing. I I would really encourage you if

doing. I I would really encourage you if you feel like you haven't done well over the last month. Sure, go through my research and really lock into what things did you get wrong on the intellectual side, but really spend some

time maybe this weekend reflecting and watching some of James's videos on what are the mistakes that I made from a emotional perspective that were 100%

unavoidable, but I kind of felt like a rookie just making a a basic mistake.

Spend some time on that, right? spend

some time and take some responsibility and say, "Okay, I need to I need to really analyze that. I made some mistakes here. It was a really kind of

mistakes here. It was a really kind of like dumb move on my part. I need to put a plan into place to implement some change." So, go through James' stuff.

change." So, go through James' stuff.

It's all in his his bio, all in uh James Rosenthal at YouTube and on Twitter and things like that. It'll be um I'm sure linked below, right? Uh it's YouTube channel. It's just your name, right?

channel. It's just your name, right?

Just just my name there. And by the way guys, like I made some very big blunders in the last year and I'm sure Floss has his own that he thinks about and

regrets, but my ability to reach the end of the stages of grief and think through them and move on, I actually have done pretty well in the last few months

faster than I may have come around to getting back uh back to normal because I look right at

the mistakes and a lot of people don't.

So, I would highly suggest doing that.

Awesome. All right, everyone. Well, we

catch you later. James, thanks for joining and we will catch you guys soon.