Policy Intervention Is Keeping The Bull Market Alive | Weekly Roundup

The Trump administration is described as running a deliberate playbook of stoking fear around geopolitical or currency events and then reversing course, which crushes volatility and triggers a predictable sequence: dollar down, gold rips, real rates flatten, AI and growth assets surge, high yield gets a bid, and credit spreads tighten. This pattern has occurred approximately four times recently and is attributed in part to Treasury Secretary Bessent managing FX timing, particularly around USDJPY, where a level of 160 is identified as the threshold at which markets become unstable. Early afternoon policy announcements are described as strategically timed to exploit leveraged ETF rebalancing flows into the close, with algorithms front-running that flow.

The volatility complex showed extreme stress heading into the selloff, with implied one-month correlation at six while VIX was sub-16, single-stock volatility skyrocketing while index volatility was flat to down. Retail investors were heavily long calls in single stocks and were wiped out when index vol spiked and the dispersion trade unwound. S&P one-week downside vol rose 12 vol points in five sessions according to Goldman Sachs data. Short-dated downside demand then inverted the vol term structure, typically a sign the market is over-hedged to the downside. High yield was largely unchanged during the equity selloff, making the drawdown an equity market phenomenon rather than a credit event.

The rate market has pivoted sharply from pricing multiple cuts before the tariff conflict to now pricing multiple hikes including one priced into 2027. Gold is being sold because markets are pricing in Kevin Warsh as a turbo hawk at his first FOMC meeting. The speaker is fading this hike pricing, arguing current inflation is commodity, energy, and supply shock driven and tends to self-correct through market equilibrium rather than requiring Fed reaction, unlike the 2021 to 2022 wage-price-spiral cycle that produced the fastest rate hiking cycle in history. Real wages are falling and wage growth is lackluster. Two-year break-evens were falling while nominal yields stayed flat, meaning real yields were rising and liquidity was already being removed, suggesting the Fed is behind on easing. The speaker argues Warsh's actual expressed views favor trim mean averages and core inflation measures, and that political pressures in a political year will push the committee away from hiking.

The most asymmetric trades identified are long SOFR and long gold, both of which the speaker argues win whether the Fed cuts due to AI bubble pumping or due to growth deterioration. If the Iran conflict is resolved and oil prices drop sharply, markets would be left with significantly mispriced hike expectations, growth could reaccelerate, and markets could take off again. The 10-year yield fell following de-escalation of the Iran situation and oil prices moved lower, consistent with this thesis.

The Mag Seven ETF is down year to date while NASDAQ ex-Mag Seven is up 12 percent year to date, and Mag Seven underperformance relative to equal weight and the broader market has been continuous since October. For the first time in roughly 10 to 15 years, net equity issuance is turning positive after a prolonged period of net negative supply driven by debt-funded buybacks. Oracle raised approximately 40 billion dollars, CoreWeave raised 3.5 billion dollars, and Google raised approximately 80 billion dollars in equity. The preferred trade is to avoid hyperscalers and instead buy what hyperscalers are purchasing, with memory stocks cited as up roughly three times while Mag Seven is down year to date. The next predicted leg is Mag Seven hyperscalers curtailing capex to arrest share price decline, which would then expose cracks in the broader NASDAQ complex, though the speaker acknowledges this call may be two months early.

Data center build-out faces growing political and local opposition including moratoriums in Wyoming and Utah, and the US is approximately five months from midterm elections, increasing political heat against the AI build-out. Bitcoin miners with cheap power are being approached by AI companies because many claimed power sources lack actual grid-connected capacity, and some miners are selling Bitcoin to finance transitions to AI workloads. Anthropic released a model called Fable described as a safeguarded version of Claude, with full unrestrained access limited to a short approved list of users. David Sacks has been publicly warning that Anthropic is engaging in regulatory capture through its AI safety access controls. Token usage costs at some companies are already exceeding the cost of individual employees, and Uber is cited as a case where excessive AI spending forced a full reset.

Gas prices at the pump have risen approximately 80 percent, which is described as inversely correlated with midterm election success. Small and medium enterprises absorbed the most damage from tariff policy before it was reversed. The administration began 2025 with populist measures including credit card rate caps and mortgage-related policies but has since shifted to purely pumping markets, a move one speaker finds difficult to reconcile with maximizing midterm election odds. Both major parties are described as sharing the same structural incentives toward centralization, and Trump is noted to have adopted the idea of the government taking equity stakes in AI companies, which the speakers argue represents the government picking winners and losers in the sector.