Policy Intervention Is Keeping The Bull Market Alive | Weekly Roundup

The Trump administration is deliberately managing market conditions through policy intervention, using a repeating playbook of escalating rhetoric, allowing volatility to spike, and then walking back aggressive stances to generate violent rallies. This sequence has occurred approximately four times recently, and each episode produces a predictable chain where the dollar drops, gold rallies, real rates flatten, AI and high-yield assets rise, and credit spreads tighten. One speaker disclosed being leveraged long futures on the thesis that the administration will continue pumping markets into the midterms, with current policy explicitly prioritizing asset prices over populist economic concerns. Early 2025 populist measures including credit card rate caps and mortgage relief appear to have been abandoned in favor of market-supportive actions.

The vol complex blew out in a way that surprised markets because investors were not hedged going into the selling days. Two weeks before the selloff, implied one-month correlation was at six while VIX was sub-16, pushing systematic and CTA investors into stock-picking and earnings trades to an extreme. The Iran situation and oil spike then triggered a vol spike that unwound the dispersion trade and wiped out retail investors long calls. S&P one-week downside vol rose 12 vol points in five sessions, inverting the vol term structure. Trump walking back aggressive statements caused a violent rally as CTAs bought back in. The high yield bond market was largely unchanged throughout, making this primarily an equity market phenomenon. Scott Bessent was credited with advising on foreign exchange timing, with USDJPY reaching 160 identified as the level that created teetery conditions before the policy reversal, and the speakers predict 160 likely needs to break higher even if authorities attempt to suppress it once more.

The speakers argue maximum asymmetric hawkishness has already been reached and there is no clear path to more tightening. Real wages are decreasing, wage growth is lackluster, and current inflation is characterized as commodity, energy, and supply shock inflation that tends to self-correct through market equilibrium. Two-year break-evens were falling while nominal yields stayed flat, meaning real yields were rising and liquidity was being removed passively, leaving the Fed behind on easing. Two rate hikes are currently priced into the curve over the next year, which the speakers view as wrong. Kevin Warsh is described as being priced in as a turbo hawk, which the speakers say does not match his actual testimony referencing trim mean averages and core inflation measures. The most asymmetric trade identified is long SOFR, which wins whether the Fed cuts due to AI bubble pumping or due to growth deterioration, and if the Fed stays flat, markets will eventually have to price out hikes anyway. Gold long is described as the same reflection of that trade. If the Strait of Hormuz is opened, oil prices could drop sharply and all priced-in hikes would be on the wrong side.

The Mag Seven ETF is down year to date while the Nasdaq excluding Mag Seven is up 12 percent year to date, and Mag Seven underperformance relative to equal weight has been a continuous trend since October. Mag Seven companies are increasing capex, increasing debt and share issuance, and income from investment markups in AI labs like OpenAI and Anthropic will diminish as those companies come to market. The speakers argue a company at six trillion dollars in aggregate should not trade at a growth multiple requiring GDP-beating growth rates because the math becomes physically impossible at that scale. Mag Seven CEOs continuing to issue equity is interpreted as a signal those CEOs do not believe their share prices are undervalued. The preferred AI trade is to buy what hyperscalers are purchasing, funded by the debt and equity they are issuing, with memory stocks cited as up approximately three times over recent months. The next predicted leg is Mag Seven curtailing capex to stop share price decline, which would expose cracks in the broader Nasdaq complex, though the speakers acknowledge this thesis may be two months early.

Equity issuance is turning net positive for the first time after roughly ten to fifteen years of net negative supply driven by debt-funded buybacks. Oracle raised approximately 40 billion dollars, CoreWeave an additional 3.5 billion dollars, and Google approximately 80 billion dollars in equity. Capital raised by these companies flows to other companies' top lines, creating a money multiplier effect. China announced approximately 300 billion dollars of AI infrastructure spending and is described as ahead of the United States on the power side. Data center build-out faces growing political and local opposition including moratoriums in Wyoming and Utah, higher electricity bills, and job loss fears. Bitcoin miners are identified as having real power access while many companies claiming power access do not, and some miners are selling Bitcoin to finance their transition to AI infrastructure.

The speakers criticized Anthropic for releasing a restricted version of Claude with full unrestrained access limited to a short approved list of users, characterizing this as regulatory capture around AI safety. One speaker framed these access restrictions as a form of techno communism where ideological approval gates entrepreneurial opportunity. The broader concern raised is that AI centralization extends existing concentrations of wealth and power to a new extreme.