Is The Soft Landing Officially Dead?

Fed funds futures assign a 95 percent probability of no change at the next Fed meeting, with the remaining 5 percent priced as a hike rather than a cut. PPI came in at plus 1.4 percent month over month against a consensus of plus 0.05, and plus 6.0 percent year over year, the largest 12-month gain since December 2022, while CPI headline runs at 3.8 percent year over year. One speaker observed almost no fear reaction in markets following the PPI release and expects inflation concern to begin pricing in over the next three to six weeks.

Avi moved from zero percent cash to approximately 30 percent cash over two days and intends to reach roughly 50 percent cash before redeploying on the next major fear-driven selloff. He warns that if inflation reaches 4.5 to 5 percent, rate hikes become likely, which he describes as nuclear for bonds and damaging for companies relying on debt to fund expansion. The Nasdaq rally was described as the sharpest major asset rally in approximately 200 years, with the only comparable instance being the Nasdaq in 1999. Abhi argued that when an asset rises in price without a corresponding doubling of revenues, the rational response is to own less of it. Intel, Micron, AMD, and Nvidia were identified as stocks that have risen more than their revenues, and Abhi said a rise in the federal funds rate from 4.5 to 5 percent would be a serious problem for these positions even if the AI megatrend thesis remains intact.

Micron currently trades at approximately 35 times trailing earnings, though one speaker estimated it trades at less than 15 times on a forward basis if DRAM prices appreciate as projected. A research outfit projected memory prices would rally approximately 46 percent over the next three months, and one speaker projects DRAM prices will quadruple within 18 months or less. SK Hynix operating margins were cited at approximately 72 percent as evidence of the pricing power of leading memory producers. One speaker cautioned against going all in on Micron given recent inflation prints, while another said any dip is a buy because the rally is driven by a demand cycle. Avi says memory stocks roughly tripled from the Iran war period and is now growing nervous as retail participation increases and others begin discussing a memory bubble. Samsung's union announced a strike from May 21 to June 7, cited as a reason Micron and SK Hynix shares moved higher, though one speaker argued the move is not sustainable because LPDDR4X chips from Hynix and Samsung are highly fungible and strike-driven supply disruptions do not persist long enough to shift customer sourcing. One speaker also warned that leverage in the Korean market has roughly doubled, adding approximately 20 billion in leverage, and that a market sneeze could produce a 30 percent drawdown.

A surprise rate hike cycle was described as a scenario where capital for AI companies dries up, data center spending slows, and chip stocks including Micron, Samsung, and SanDisk pull back, causing broader equity contagion. OpenAI and Anthropic were cited as examples of AI companies that remain unprofitable and must raise capital roughly every six months. The speaker still views a rate hike cycle as unlikely but said it is worth monitoring for the first time. The speaker draws a distinction between 2022 and the current environment, arguing that 2022 inflation was driven by supply shocks incorrectly read as demand super trends, while today reflects genuine demand super trends across multiple economic verticals.

Kevin Warsh has been confirmed as the new Fed chair. Avi describes Warsh as frequently changing his stated views and lacking the principled long-term consistency of Jerome Powell, though one speaker noted that willingness to change views quickly could be valuable given a fail-fast approach to markets.

One speaker purchased shares in Illumina, ticker ILMN, a 22 billion dollar genome sequencing company, specifically because it was the smallest company on a list of CEOs traveling with Trump to China. Illumina had been placed on a Chinese do-not-do-business list, and the speaker frames a potential US-China deal as a catalyst that could allow Illumina to re-enter the Chinese market, which the speaker argues is not priced into the stock. One speaker puts the probability of a US-China deal allowing Nvidia H200 chip exports at 15 percent, attributing the low probability primarily to Xi Jinping, whom he describes as having stonewalled US-China detente through extreme paranoia. One speaker argues Xi's pattern across at least 15 years is to foster optimism during summits and then stonewall or trap the counterparty, and contends Xi's geopolitical goals depend on maintaining scarcity under Chinese control. The other speaker counters that Trump treats the US stock market as his approval rating and has a strong short-term incentive to open China as a growth driver, while also arguing Trump would not transfer critical technology to China for another 20 percent short-term rally.

The Strait of Hormuz remains closed, creating a global supply shortfall estimated at 10 to 15 million barrels per day. Visible oil inventories are approaching what one speaker calls the operational stress floor of 6.8 billion barrels, projected to be reached by September at the current draw rate. The speaker said he is betting significant money that the Hormuz situation gets resolved before September and before inventories hit that floor.