A New Era Is Beginning In Markets | Weekly Roundup

Kevin Warsh's first FOMC meeting as Fed Chair produced a hawkish surprise in which he cut approximately 80 percent of the FOMC statement, ending it with the phrase "the committee will deliver price stability." Warsh did not submit his own dot to the dot plot, leaving the rest of the committee to drive the hawkish narrative. The dot plot showed multiple governors projecting hikes this year followed by cuts within under 12 months, described as very abnormal behavior, with the hawkish dots likely coming from non-voting Fed presidents rather than governors. The market is pricing in two rate hikes by mid-2027, though speakers see no chance of a hike by year-end. Trump, Bessent, and the broader administration still want rate cuts, and the hawkish pivot may have been partly motivated by a desire to lay Fed independence concerns to rest rather than pure data-driven policy.

Speakers argue the Fed is reacting months late to inflation data that astute forecasters already anticipated. Oil is down 30 percent from the Fed's last dot plot when they remained dovish, wages have declined from approximately five percent two years ago to three percent currently, and one-year inflation swaps have returned to where they were when the tariff war started, largely tracking oil lower. Core goods inflation pressure is fading because tariffs have been refunded, resulting in net zero tariffs at the moment. Speakers predict the July CPI print and cooling labor market data will confirm that peak hawkishness has passed and that headline inflation will be significantly lower next month given current oil price levels.

Forward guidance as a Fed tool was introduced by Bernanke to manage the zero lower bound by eliminating rate volatility multiple years into the future, and was used as a volatility stifler for approximately 15 years as Fed communication word counts rose parabolically. Warsh's truncated statement signals a departure from that framework, and speakers predict rate volatility will rise secularly from this point forward. The two-year yield spiked then backed off to around 420 basis points, and the 10-year yield approached 450 before being pushed sharply lower because the hawkish signal itself acts as a pinprick on growth and long-term inflation expectations.

The US twos-to-tens yield curve is flattening, which speakers interpret as potentially coordinated between the Fed and Treasury to allow Bessent to extend debt duration. Approximately 85 percent of US Treasury bond issuance is currently on the front end of the curve, and Bessent is described as manipulating the yield curve to nullify bond short-sellers. Both short-end SOFR positioning and long-end bond positioning show the whole street is short bonds in a record short position from the fund category, and speakers expect the short bond trade to be correct but warn it will test resolve before paying off. Flattening the yield curve is interpreted as an attempt to bring mortgage rates down, enable generational housing turnover, and reduce government interest costs by issuing longer-duration debt. Suppressing the long end has benefited mega cap tech and the AI trade while hurting Main Street, and corporate bonds priced off the longer end support the AI buildout by enabling corporate bond issuance, with SpaceX looking at a twenty million dollar bond issuance at the time of recording.

High-yield credit spreads barely moved throughout recent market volatility, indicating the capex cycle remains intact. JP Morgan data shows data center capex spending growth slowing from roughly 80 percent year-over-year to approximately 45 percent, with dollar figures moving toward 860 billion. Goldman Sachs data shows money rotating out of hyperscalers into broader AI beneficiary stocks, and speakers predict AI bottleneck stocks are likely to keep rising as long as high-yield credit spreads do not blow out. The chain of market stress runs from FX volatility to yield volatility to credit spread widening to price-multiple compression, and speakers identify a potential reverse carry trade triggered by dollar strength as the main macro catalyst to watch. Quadruple witching notional was a record 8.3 trillion dollars, and speakers predict summer seasonality and declining volatility set up a low-volatility grind higher through the summer, with tougher moments more likely in the fall.

The episode frames the current moment as a structural break from the prior era of secular stagnation that began after 2008, during which large-cap companies were essentially high-margin advertising businesses returning capital through buybacks and the Fed operated outside its original mandate. That environment created ideal conditions for Bitcoin and gold because there were no compelling productive alternatives for capital. The shift came when AI generated a genuine productivity boom, redirecting capital toward infrastructure. Bitcoin miners with electrical capacity are now flipping to AI infrastructure because centralized AI is currently more economically attractive than mining, and speakers argue the opportunity cost of holding Bitcoin is now too high given the proliferation of productive investment alternatives.

MicroStrategy's capital structure is described as trading at distressed levels across its equity side, with management continuing to issue shares to buy more Bitcoin rather than building cash to cover liabilities, service debt, and pay preferred dividends. The preferred dividend yield may need to rise to 12 to 13 percent, adding further drag on a business with no operating revenue. Speakers are explicit that MicroStrategy is not bankrupt yet but requires management action it has so far refused to take.