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The Blue Tsunami, Hedge Fund White Flag and Buying into a Falling Knife Market Crash — Transcript

by Jordi Visser · 11,879 words · 1,842 segments · language en · Watch on YouTube

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0:00to go through a lot of slides. Uh,
0:03I'm going to go through this as quickly
0:06as I can.
0:07The slides will be uploaded for people
0:10who want to go spend time going through
0:12them. But this was an important week
0:16in terms of
0:18hedge fund deleveraging.
0:20I did a couple of videos during the
0:21week. Well, actually three videos during
0:23the week, one on crypto, but the other
0:24two were market updates, and I will keep
0:26doing them because we are at a most
0:29important point now of the correction
0:31that we've seen.
0:33Uh, so again, you're going to There's a
0:34lot of things in here that I haven't
0:37shown before. There's a lot of things
0:38that I look at at the market at times
0:41like this
0:42when we're looking for
0:44a deleveraging climax point.
0:47No mas.
0:49For those of you old enough to
0:52remember Roberto Duran Duran,
0:55this is a reference to
0:57Thurs
0:59Basically the blue wave to me.
1:02Even though it
1:04could have and should have been a
1:05clearing event in some ways, as I go
1:08through this, I'm going to highlight to
1:09you
1:10how all it really did was accelerate the
1:13hedge fund deleveraging. And as of now,
1:15again, it is now spread into
1:18CTAs, which went through it. You hit
1:20retail with leverage ETFs, as I'll go
1:22through.
1:23This was basically a week of forced
1:25selling.
1:28And I
1:30am buying into it. Now,
1:33I can't tell you a time in my
1:3630-year career, including the last two
1:38years of being around here, I did buy
1:40into Liberation Day, but to me, that one
1:43was a little different in one aspect,
1:45which was all that needed to happen was
1:47what did happen, which is the president
1:49turned around and basically realized
1:52that
1:52can't really have the stock market fall
1:55and the bond market fall
1:57uh you've got a deficit of 5 to percent,
2:00which is critical for this thing too,
2:03uh
2:04it's just it wasn't possible. So, that
2:06one was a little different. This one I'm
2:08buying into a knife, so I want to give
2:09you the reasons why. Number one,
2:11again, the AI demand is insatiable, it's
2:13growing, it isn't stopping, the progress
2:16continues, and that is the driving
2:18factor of the concentration in the
2:19market which is being unwound.
2:21This correction needed to happen, and
2:22most importantly,
2:24I talked about it, um I've written about
2:26it. For those of you who are
2:27subscribers, you can go back and read
2:29every piece of work I did from May until
2:33the beginning of July talking about the
2:36need to get rid of the excess, the need
2:38to get rid of the concentration, and
2:40specifically how hedge fund managers
2:44were arguing with me about Micron when I
2:46was selling it, and the opposite of what
2:49was happening a year before when I was
2:52buying it. So, part of this is just me
2:55seeing this. It's gone further than I
2:57would have expected, but at the same
2:58point, number three, I've been writing
3:00about and talking about since July. I
3:03have
3:04said on multiple podcasts, including
3:06this one, that we are at the peak of
3:08leverage forever in hedge funds. So, I
3:10expect a deleveraging. I don't expect
3:13the deleveraging to unwind within a
3:15matter of two months. If it does, then
3:16the market is going much much lower.
3:19Uh but I will go through reasons that I
3:20don't think that's going to happen
3:22either. The midterms to me, believe it
3:24or not, they got rid of the left tail
3:26risk. So, if you asked me the one risk
3:28that I was worried about, it was the
3:30fact that the government was completely
3:31aligned with the people building out AI,
3:34and it was causing complacency. The
3:36bottlenecks and the slowdown in in
3:38memory and things like that were going
3:40to slow it down, but the capital raises
3:42for this year and the trillion and a
3:43half dollars are related to the race.
3:45Something needed to slow the race down.
3:47I think we've gotten rid of the left
3:48tail risk with the midterms because I
3:51don't think the data center build out's
3:52going to stop, but I do think,
3:55which I always did believe, um
3:58that it would cause the issue of slowing
4:00things down, not ending it, and there
4:02hasn't been, there's been more capital
4:04raised. It hasn' even basically gone
4:06through the build-out yet. So, I'm not
4:08worried about the debt. I actually think
4:10this gets rid of the left tail risk.
4:12The leverage is in one side of the
4:14economy. It's just not in the others.
4:16Corporate balance sheets and
4:19household balance sheets, which make up
4:22the majority of the country are fine.
4:23It's concentrated into one. So as long
4:25as I'm comfortable with AI, it's good.
4:27And basically at this point, the data on
4:28the economy, earnings, profit margins,
4:32the the second derivative, everything
4:34still supports the thesis. So I just
4:36think this is again an unwind
4:38based on a time mismatch between the
4:40people that took a lot of concentration
4:42risk thinking they could hold things
4:43till the end, used the first wave which
4:46was situational awareness, then we got
4:47into a lot of other hedge funds that I
4:49mentioned, but now you're seeing it more
4:51and more.
4:52This is something I believe in. I've
4:53seen a bunch of people
4:55talk about this in X. I subscribe to
4:57this 100%. I always believe that prices
5:00move first and fundamentals come second.
5:01Paul Tudor Jones from
5:03Market Wizards. So I believe in that. So
5:05couldn't this mean that what we're
5:08seeing in the market is the unwind? Yes,
5:10we could.
5:11But again, it's isolated at this point
5:14to one area. We made new all-time highs
5:17this week in equal weight S&P. Equal
5:20weight S&P is very very important right
5:23now.
5:24Cap weight S&P is heavily weighted
5:27towards AI. The non-AI stuff continues
5:30to be fine. Their earnings are good.
5:33Everything is still growing
5:35because they're benefiting from the
5:36dollars flowing through and that's going
5:38to continue into 2027. So could we be
5:41making a top in the market
5:44that we never take out? Yeah, I guess
5:46so. We could.
5:48But we just made a new all-time high in
5:50the equal weight S&P on Wednesday.
5:53The white line here is equal weight S&P
5:55year over year. So again, second
5:57derivative.
5:58It's up 15% from where it was a year
6:01ago. The red line here, which it's
6:02extremely correlated to, is the PMI
6:05which made again a new cycle high.
6:10These are the recessions.
6:11Basically equal weight S&P to me will be
6:15negative or at least right
6:18you know just before we go into a
6:20recession like it was here in '09 and
6:22especially the credit related ones. So
6:23I'm not worried about this. Here's the
6:26chart of equal weight S&P.
6:29Here's the chart of SPX X XI.
6:33Not only did it make a high, it has
6:35ripped violently while the hedge funds
6:38have been unwound, which I'll show
6:40later. So the S&P X
6:43AI is fine.
6:45That again suggests that this is a
6:46rotation. Now
6:48I'm bringing up I mentioned this last
6:50week. It's getting more formulated for
6:52those of you who want to use the slides
6:55from this, want to get help with how to
6:57use I realize I put out a lot of content
6:59this week
7:01a lot of content
7:03how to use it for people who are trying
7:05to learn how to go through this. I
7:07highly recommend using these guys. This
7:09is in beta. You can reach out to Mark
7:12Whaling. I've put it up many many times.
7:14I'll I'll reference it later, but this
7:17group already with success, father son
7:19team in Israel working with people to
7:21help them navigate the site using AI. So
7:24for people that have really done this
7:26for their kids or to learn from an
7:28educational basis using my prompts,
7:31using all that, these guys can help and
7:33make it a lot easier for you.
7:35I did an intra week market update. So
7:37again, if you want to use those guys and
7:39go through the the weekly updates, that
7:42one was on Wednesday. No, I did I did
7:46one Wednesday and then one Friday
7:48morning. So after Thursday I did this
7:51one on basically showing signs and
7:54asking the question has the deleveraging
7:56reached the climax. I will show you a
7:58bunch of charts in here
8:00and try to get you to start
8:01understanding from my perspective the
8:03new market structure.
8:05And this is the sign of it.
8:07Um,
8:10this is Justin from who's the I think
8:12he's the head of equities at Citadel.
8:17He gave an interview on Morgan Stanley.
8:19You can go see this on Morgan Stanley's
8:21YouTube channel.
8:23And he talked about things but Jared
8:25Kooban who who has does great work on
8:28factors and just how things are moving.
8:31If Citadel is paying more and more
8:32attention to factor and rotation shocks,
8:35so should you.
8:37Basically in this interview, it's become
8:39the most important thing for them from a
8:41risk management basis. Now Citadel's
8:43hedge fund returns this year, if you saw
8:44them through October, they were
8:46outperforming significantly. They've
8:48been navigating this. So has D. E. Shaw.
8:50So have a lot of the more, I would say
8:53factor significant groups.
8:56This is what I believe. This is the new
8:57market structure. It is far more market
9:00neutral than it was before. Hedge funds
9:02have been forced down this path over the
9:03course of the last 20 years. Yes, 20
9:06years.
9:07Beginning with the great financial
9:08crisis, then happening with
9:10oil and
9:12I hear a lot of people talking about the
9:13fact this will be the end of fundamental
9:15long short with what happened in Lone
9:17Pine which I reported
9:19in terms of being up over 40%, having a
9:21drawdown in gross performance of over 50
9:24to get back down to flat
9:26and then looking like it was down in
9:27October and I'm sure this has not been a
9:29good month. I think it's getting harder
9:31and harder for investors to view
9:34fundamental long short the same way it
9:35has because of the volatility and I
9:38think this is forcing a market which is
9:40more about factor and rotation shocks.
9:42This is something I believed in. It's
9:44something I've studied for a long time.
9:47I'm going to take you through some
9:47charts. So
9:49the other thing is we have agentic
9:52trading. We have X. We have retail as a
9:55huge part of the market. We've seen a
9:57change in zero dated to expiration
10:00options. All of these things have
10:01happened. We've seen gambling markets.
10:03We've seen prediction markets. The
10:05market structure is changing, guys. So
10:07to look at a a deleveraging event and
10:10then translated into an economic event
10:12is a long, long leap.
10:15Uh
10:16that means the government won't do
10:17anything, the Fed won't do anything.
10:18You're really taking a big thing. So
10:20when you're reading people that are
10:21bearish telling you this is the
10:22beginning of the end of the world and
10:24everything is going to unwind, this
10:25happens every single year at some point.
10:28Um I thought it was in particular this
10:30week that the bears, the the permabears,
10:33the ones that have been telling people
10:35that they're that everything's going to
10:36happen in a week where we make all-time
10:38highs in equal weight S&P,
10:40they're pounding their chest, they're
10:41beating on people, they're starting to
10:43be aggressive.
10:44Uh again, this could be they could be
10:46right. This could be the beginning of
10:48something, but I think the market
10:50structure leads to greed on the upside.
10:52This was the beginning part of the year,
10:54and then on the downside you get
10:56deleveraging and liquidity shocks that
10:58can push prices below fundamentals.
11:01And I want you to look at this here and
11:03think of this as software, which has
11:05happened here. That is what I'm looking
11:06more and more where we are,
11:09is that this chart here. So this is
11:12what I did this week.
11:13Um basically my first purchases were
11:15here because this to me when I was
11:18writing about I had gotten out of Micron
11:19in this area,
11:21I wanted time and price to reset towards
11:23the 200-day moving average. So I started
11:25to buy some, nibbling because nothing on
11:28the deleveraging side had reached, in my
11:30opinion, a capitulation. This was
11:32somewhere around
11:33October 27th.
11:35So in this area is when I was buying
11:37some. Then we started to get this. Then
11:39I bought more and then I really bought
11:41more
11:42to average in probably around here. We
11:45could go all the way down here, we could
11:46keep going, but I'm not under the time
11:49and price side. I still believe in AI,
11:51and I do believe that just like software
11:54did, this will overshoot,
11:57and then at some point it'll just run
11:58out of selling. So that is where that
12:02was. In terms of the retracement now,
12:04and this is my concentrated portfolio
12:06with just 10 names,
12:08uh this gave up now 70 you know it hit
12:11down here 70 something percent of it.
12:14So,
12:15as far as I'm concerned, being able to
12:17average in down here,
12:19I'm back to the as big a weight as I had
12:22in the AI trade as probably in here.
12:25Maybe a little bit further back cuz the
12:27Micron position started so around here
12:30is probably when it when it was.
12:32I only bring this up as a rationale in
12:34my head as for why I'm willing to buy a
12:36falling knife. Part of it is market
12:37structure, part of it's the reason that
12:39I mentioned, but there's also going to
12:41be some signs and I think maybe because
12:43I understand hedge fund deleveraging and
12:45have been through enough of these shocks
12:47over the years,
12:48they don't have to be systemic. Most of
12:51the time if they get to the part of
12:53being systemic, that is exactly when the
12:55Fed starts to get involved and we are
12:57not there as of now.
12:59Marvel. So, for those of you, Marvel was
13:03my biggest position here.
13:05It's not my biggest position anymore
13:06because it gave up 40% of the price over
13:11the course of the last seven trading
13:12days. Now, I did a video. This is when
13:14they announced the potential deal.
13:17I was debating when it became real
13:19whether to get out. Then we ended up
13:21when we got the confirmation the deal,
13:22we ended up here.
13:24So, I ended up selling some of the other
13:26optical names that I had bought that
13:28were down for tax purposes to to realize
13:31those losses and then I put money back
13:33into Marvel because now it got back to a
13:35price that I'm comfortable going. I'm
13:36just trying to give you my mindset on
13:40got into the trade here, got out of very
13:42little of it in here, was expecting
13:44this. It was acting extremely well into
13:46October
13:48and then it got the puke. Nothing
13:49changed except they got involved with
13:52a potential deal. Again, unless you
13:54believe this is going to become a
13:55systemic event, which I do not believe
13:57it's going to become a systemic event.
13:59So, I'm willing to buy it back down
14:00here, which is basically where it was in
14:02April after the original
14:05move higher.
14:06So, again, just giving you a mindset and
14:09I just want to remind you this is IGV.
14:12So,
14:14during this, IGV fell looks very
14:16similar, right? Broke down. Now, maybe
14:18in we're only here in it, and we still
14:21have this,
14:22but from here to here, three months
14:23later, I would probably be buying more
14:26AI if it gets down to here because I do
14:28believe this is the way the market
14:29trades now.
14:31The software earnings were fine. Nothing
14:33was bad. There were a few companies that
14:35were bad, but things like Salesforce
14:36that they were still making money, so
14:38they were just getting cheaper and
14:39cheaper. This is the same thing that's
14:41going on right now with inside the AI
14:44trade. And again, June 15th, the AI
14:46mid-cycle slowdown from building
14:47intelligence to applying it. I'm
14:49bringing these up for you guys to go
14:51just go read them on the site. The AI
14:53CAPEX air pocket. All of this stuff has
14:56happened. If you just go read the first
14:58two paragraphs from both of these
14:59reports,
15:02I talk about the fact that it's too
15:03concentrated, that hedge funds need to
15:05be unwound. And this is when the unwind
15:07really started to accelerate. This week,
15:10I wrote about the anti-Minsky moment.
15:13This is what makes me happy about even
15:16the midterms. We are never going to get
15:19rid of this worry that's in the market.
15:21So
15:22Marvin Minsky, the Minsky moment,
15:25is when everybody's involved,
15:27and no one is left out. That's when
15:29bubbles happen. When you're constantly
15:31worried about the same thing that AI is
15:33going to do this, the government's going
15:34to do this,
15:36you're not talking to someone who's
15:37bullish in uh public stocks
15:40past 2030, and the only ones right now
15:42that I think, as I'm going to go through
15:43in the market structure, that I really
15:45like are the agentic compute sides, and
15:47then things like Eli Lilly and some
15:48other ones in there.
15:50This is from July 5th. I showed this
15:52this week. Just as a reminder,
15:55I was talking about, okay, so the AI
15:58mid-cycle slowdown, the AI CAPEX So
16:00what's going to happen? And I said there
16:02are three types of consolidations.
16:04Now, because we had such a huge rip, I
16:07wanted to highlight the three. The
16:09reason I'm highlighting this one When I
16:11started to buy back some of the AI
16:13stuff, that's where I thought we were.
16:15This is exactly what it looked like. A
16:17high volatility range, wide swings
16:19create uncertainty and emotional stress.
16:22Volatility does the shaking out before
16:24the trend finally resolves higher.
16:25Volatility does the shaking out.
16:27Volatility in time is the way that this
16:30gets reset as opposed to these where it
16:32was a fast fall and then we gradually
16:34start to go up. So if this is the case,
16:38this would be the move that I'm looking
16:39for, which is a pretty significant snap
16:42back. The question is, where are we in
16:44here? Are we going down here? I still
16:46believe this is a correction within side
16:47a bull market. I showed you the um the
16:51thematic my thematic portfolio, which is
16:53only from Opus 4.5 until now. The
16:56problem is for a lot of the trades in
16:59AI. The AI trade has been working to
17:01some degree since 2023, mainly with
17:04Nvidia, but also Vertiv, a lot of those
17:06those stocks.
17:07I'm kind of kind of guess that a lot was
17:09shaken out liquidation in Liberation Day
17:11last year.
17:13And the fact that Micron was trading
17:15below $80 and was trading close to 60 at
17:18the lows during the March-April period,
17:20that that's kind of the place maybe May
17:22of last year where it should have
17:23started and we've probably done more
17:25like a 50 to 30 uh 40 to 50% correction.
17:31So far it's okay, but uh this needs to
17:33stop uh pretty soon and I'm looking for
17:36signs. In terms of the 200-day moving
17:37average,
17:40the AI trade, this is where it was. The
17:42average one in my agentic portfolio was
17:4550% over the 200-day moving average when
17:49I was writing those papers.
17:51Now
17:53we are back to where we were in
17:54Liberation Day, meaning the average of
17:55the 100 names is now
17:5816% below the 200-day. We've had the
18:01necessary rate of change, if not more.
18:05Micron
18:07is now 13% below its 200-day moving
18:09average as of the close on Friday.
18:11It was 200% above. So again, price and
18:15time, which is exactly what this thing
18:18integrates,
18:19has been reset.
18:22This thing if we get to the lowest level
18:24that would be a lot more of a fall for
18:26Micron. It would probably take it down
18:28closer to 500 before it bottoms. So
18:31again I'm I I bought more Micron. In
18:33fact the name that I bought the most
18:34this week was Micron. So for those of
18:36you who want to fade what I'm doing,
18:39Micron's the position. I bought some
18:41Marvel and I bought some Nvidia. Those
18:43are the names I've consolidated into
18:45basically three of my concentrated 10
18:48names.
18:49Believe it or not,
18:51the SMH as of Friday's close is up 29%
18:55year to date.
18:57So with everything that's going on with
18:58the correction you're seeing and
18:59everything else,
19:00here are the you know here's the last
19:02decade
19:03and here is where we are right now. Can
19:06this turn into this? Yeah, but
19:08it's amazing that we're still up 29%
19:12The blue tsunami again I'm treating it
19:15as something which is going to be a
19:17headwind now
19:19and I think it's the opposite of this.
19:21So if you ask me what causes a Minsky
19:23moment, what causes people to build too
19:25fast,
19:26it's this. They came to the market and
19:28took out
19:30they're going to take out close to $1.5
19:31trillion this year.
19:33That will cover at least through 27.
19:37The question is do they need any more
19:39there? Anthropic will have enough cash
19:41for at least the next couple years. So
19:43again these guys have raised money to
19:45front load a lot of the buying. I don't
19:47think the building is going to stop in
19:482027.
19:50That doesn't mean we won't see some kind
19:51of an earnings peak. It doesn't mean the
19:53market as a whole won't have trouble
19:54going higher, but I'm not worried about
19:57that part. The market structure I just
19:58want to again I wrote this paper in
20:00December of last year.
20:03You guys can read through all this this
20:05part increased systemic fragility as
20:07many strategies now respond to the same
20:09signals and de-risk simultaneously
20:11during periods of stress.
20:12When momentum ultimately breaks retail
20:15investors are often the last to exit,
20:17but their concentrated exposure in
20:18former leaders accelerates the reversal
20:20turning amplification into liquidation.
20:22The reason I'm bringing this up is we
20:24had a lot of forced selling this week.
20:25That is the main point.
20:27I look for forced selling. The forced
20:29selling is coming from
20:31systematic strategies that are just
20:32purely based on trend following. got the
20:34hedge funds which are done through
20:36drawdown levels for individual portfolio
20:38managers, but then also defending their
20:40P&L on a monthly basis like into the end
20:43of October, but then also as we're into
20:45November right now, a lot of them, as we
20:47learned this week, are either going to
20:48shut down, they're closing businesses,
20:50they're firing people.
20:52There's a lot of signs that this is
20:53going on. Now,
20:55you're going to see more and more of
20:56this from me. I'm writing papers on
20:58this. I spoke about this in a couple of
21:00podcasts this week. I think this is a
21:02brilliant way to think of the market.
21:04Mark Andreessen said this
21:06effectively a year ago or June of '25.
21:09One of the things I've been saying for
21:10years now is the S&P 500 is no longer
21:12the S&P 500. It's like the S&P 492 and
21:15the S&P 8.
21:17What this basically means is 492
21:21names
21:22are now bonds.
21:24When you lose your growth and when you
21:27become just interest rates, which is
21:30what I think is happening to the S&P
21:32500, we're losing the growth. I've
21:34talked about that. I think AI destroys
21:36it. His point was about saying that the
21:40Mag 8 were destroying all businesses in
21:42its path. So think about what Amazon did
21:44to retailers, think about what Google
21:46did to advertising, to TV, to a whole
21:48bunch of different things. You've been
21:49seeing this go on, but these companies,
21:51they're just turning into bonds. They
21:52still have businesses, they just have no
21:55growth anymore. Think Ford, think GM,
21:57think so many companies that are in
21:58there. And then you have eight call
22:00options. The reason these are eight call
22:01options, these companies are leveraging
22:04up based on the future. And right now
22:06they're taking debt. So arguably these
22:08call options to me, like Larry Page
22:10said, I'll bankrupt the company if
22:12necessary to win AGI. I think this has
22:14never been more true and I think AI
22:16destroys all these businesses' growth
22:19opportunity. And that 's where public
22:21stocks to me. This is the new market
22:22structure. You guys can doubt it, you
22:25can disagree with it.
22:27But this is what I think has happened.
22:30This is why I don't think there's any
22:32way to value companies and you break
22:34away from fundamentals because
22:35everything is either a bond where it
22:37goes up or down between 95 cents and a
22:39dollar and 70 cents in a dollar viewed
22:42through PE. So when PE's get to six like
22:45Ford, okay, that means you've knocked
22:47the stock down. Where's the dividend?
22:49I think that's the world. I talk about
22:51it in this week's Pomp. So if you guys
22:54want to hear me expand on it, it's
22:55there. I also talked about this with
22:58Natalie Brunell, which got released this
23:00week. And part of this is also why
23:03digital employees, this is the beginning
23:05of the agentic workflow now. So digital
23:08employees are starting and then you have
23:10to think humanoids combined with
23:12tokenization. They will disrupt stocks.
23:15And so it was a pretty Again, I've
23:16talked about this.
23:18I'm not bearish on earnings. I'm not
23:20bearish on the economy and I think at
23:22this point these companies will continue
23:24to go through what they've gone through,
23:25which is uncertainty, terminal value
23:28changes. This is the new market
23:29structure. It doesn't mean it's a bear
23:31market. It just means what we're seeing
23:33is part of that side. I go back to this.
23:36That is my belief. So all of that is the
23:38reason why or at least the majority of
23:39it why I feel comfortable in trying to
23:42buy into a
23:43falling knife, which is not something in
23:45emerging markets
23:47or in all of the bear markets I traded,
23:49which is a smart thing to do. But
23:51there's reasons for it and it has been
23:53smart at times this year if you're doing
23:56it based on the timing. So again, my
23:59timing is I avoided the AI trade for the
24:01entire summer. I avoided it in
24:02September, little bits and pieces and
24:04things like Nvidia. And then in October,
24:07mid October, over the course of the last
24:09three weeks I've been buying pretty much
24:11every single week with this week being
24:13the biggest week. I might be early. I
24:15might be wrong.
24:17But unfortunately, this is the new
24:18market structure. The way I've said to
24:20people is there is no more you just buy
24:22things and the economy is going to be
24:24good. We have good earnings, we have a
24:26good economy, we have the strongest uh
24:28situation in jobless claims, meaning no
24:31one is out of work, collecting
24:32unemployment insurance. It's at the
24:35the best level in history.
24:38What we've seen right now
24:40is just the beginning of the hedge fund
24:41deleveraging.
24:42Tokenization is going to bring an insane
24:46Nobody's going to be able to handle
24:47this. A lot of the closures in hedge
24:49funds that you're reading about the
24:50firing, they're giving money back
24:51because they can't deal with the
24:54investor side. They can't deal with the
24:56liquidity terms. They can't deal with
24:58this. Now, some of the bigger places,
25:00guess what? They have massive AI risk
25:02management tools, and they have three to
25:04five year lockups. So you're getting a
25:06bifurcation in the hedge fund world.
25:08That's why I'm not too worried because
25:09the mega hedge funds returns have been
25:11fine, and they matter the most because
25:13they're the ones that are running almost
25:15no net leverage. It's the ones that have
25:17the net that is the issue. Of course,
25:19there's pods that shut down during times
25:21like this. So tokenization is going to
25:23bring 24/7 faster and more liquid it's
25:26going to be everywhere, more leverage,
25:29easier leverage for retail, and then
25:31you've got agentic trading. So a lot of
25:33the stuff, again, is going to be done
25:36through non-emotional people who don't
25:38have any of these restrictions you did.
25:40So two weeks ago, the AI bubble didn't
25:43pop, hedge fund leverage did. So I've
25:44been talking about this for a while, and
25:47I highlighted many, many things about
25:50this chart. So I just want to remind
25:52you,
25:53this is the Fred
25:56chart of hedge fund leverage. There's
25:57two things about it. Since ChatGPT,
26:00we had been unchanged in leverage
26:03for effectively five years.
26:05And then all of a sudden, we took lift
26:07off.
26:09Massive lift off.
26:14I showed this, leverage growth just
26:17incredible for both them and the broker
26:20dealers. I showed Lone Pine Lone Pine,
26:22one of the best hedge funds of all time,
26:25and the fact that they gave up 44% gain
26:29in a quarter.
26:31These types of things are important. So,
26:33again, this is why when I was talking
26:35about the hedge fund deleveraging, which
26:36was part of that thing I just showed
26:38you, this story came out on October 9th.
26:41You have to think about how the
26:43deleveraging has been happening. This is
26:45the Morgan Stanley side. 35 to 40% of
26:48long-short hedge funds now delivering
26:49flat or negative returns year-to-date.
26:52Again, if you're down 35 to 40%
26:57year-to-date
26:59and you've now taken off your risk, the
27:00pain trade is actually for the market to
27:02start to go back up um or to keep going
27:05down in a violent fashion where you're
27:06out. Sitting here just doesn't seem like
27:08the most likely scenario, especially
27:10after the size of the unwind. Uh I'm not
27:12going to take you through all this, but
27:13this is the correlation as well. And
27:15this came out this week. For the first
27:17time since tracking data beginning in
27:192016,
27:21both major hedge fund cohorts lost more
27:22than 3% in the same month. So, they're
27:25going through it with fundamental funds
27:27and systematic funds both down more than
27:293%.
27:31Uh this is the part I want to show you.
27:34This is SMH, the green line here,
27:37and this is the SPX
27:39XAI.
27:41This is absolutely positively hedge fund
27:44deleveraging.
27:45So, these things are basically
27:47correlated the entire year, meaning the
27:49names inside the S&P 500 that were not
27:51AI were going up, not as fast, but they
27:53were going up just like the semis were.
27:56Then they went down in August into
27:58September, and then beginning in the
27:59middle of September, something changed.
28:02And what you saw was
28:04a rally in the SMH and a fall
28:09in the SPX AI. And then you had the
28:11opposite. Now, you may forget this time,
28:14but this is when everyone was saying the
28:15world was going to end because of
28:16breath. Breath was breaking down from
28:18here to here. So, pretty much the
28:20majority of companies in the S&P 500.
28:22So, remember when breath was a story?
28:24This was because of rates. This was
28:26because of oil. They were suffering, a
28:27lot of retail, a lot of this. Well, then
28:30all of a sudden we got a trigger point
28:31in the beginning of October, which is
28:33when the first phase of deleveraging.
28:35This is also when the France situation
28:38was starting to be have an impact. We
28:40were seeing carry trades on wind. Then
28:42you got into the middle of the month. We
28:43got CoreWeave
28:45and then we finally got a true long
28:46short equity
28:48So
28:49this
28:50move, this change here to me is the sign
28:53that the hedge fund deleveraging took
28:54off.
28:56The day of the
28:58election, this was probably the thing
29:00that everyone said no mas. So Dan Ives,
29:04who's basically an AI cheerleader, got
29:06on and said chip stocks could fall
29:07another 10 to 12%. So this is the
29:10morning after the
29:13the midterms.
29:15So here's the thing and this is the
29:18thing that I want to make sure. The the
29:19SMH fell 11% that day. So Dan got his
29:23his call in one day.
29:25I did this following that and then I did
29:27this again.
29:29This is where I want to spend the time
29:31for you guys in terms of okay, great
29:33Jordy,
29:34when are we going to have the end of
29:36this hedge fund unwinding? So again,
29:38forced selling occurs when investors are
29:40compelled to sell assets because of
29:41financial contractual risk management
29:43constraints rather than because they
29:44believe the assets are overvalued.
29:47It's because of margin calls that we
29:49definitely saw. Volatility targeting
29:50that we saw. CTA yes. Risk limits and
29:53VAR yes at the hedge fund side. Investor
29:55redemptions not sure we've seen the
29:57redemptions yet,
29:58but I'm sure this is going to be hand
30:01back of meant much much money even if
30:04you don't get the redemptions. Like I
30:05said, some of the most famous hedge
30:06funds of all time have had drawdowns and
30:08they're wealthy enough that they can
30:10just close up most of their businesses
30:11and go back to some small thing. We've
30:13already seen that with some hedge funds.
30:14I'm not going to name the hedge funds
30:16for you guys. You guys can go read the
30:17articles,
30:19but a lot of them are making changes and
30:20then you've got the options side.
30:23This is Oh, that was basically a summary
30:25from
30:27let's see JP Morgan
30:29estimated that trend following funds and
30:31leverage ETFs together cut more than 70
30:34billion of equity exposures within 90
30:37minutes of the open, net selling of SP
30:38futures had reached 11 billion. And
30:40CTA's flipped to net short. That morning
30:43of Thursday is very important. I'll get
30:45into that a little bit. Hedge funds
30:47continued de-risking. Retail investors
30:50had a wave of selling court of Van der
30:51Research. Morgan Stanley as of yesterday
30:54on Friday
30:56US long short hedge fund declined by 5%
30:58day over day, the fifth largest single
30:59decline since 2010. So on Thursday
31:03net leverage went down by 5% the fifth
31:05largest in any day
31:08since 2010. So 16 years, 252 days being
31:13one of five is a big big move. Levered
31:15ETFs had the largest amount to sell on
31:17data going back to 2007.
31:20Okay, that happened on that same day.
31:21Retail selling in the first 90 minutes
31:24based on Morgan Stanley's quantitative
31:26data service group, I don't know.
31:29Derivative strategies QDS quantitative
31:32derivative strategies. Estimates using
31:33public data was the second largest going
31:35back 2016. Equities are now starting to
31:38trade in a more correlated fashion awful
31:40often signaling that the risk reduction
31:42is broadening out. I will show why that
31:44is absolutely the case of what's
31:45happened. Again, the market structure
31:47has changed. These events matter a lot
31:50from a long short factor rotation basis.
31:53They're underweight AI for the first
31:55time since 2023 according to this.
31:57Again, underweight just means they don't
31:59have you could argue I think 50 plus
32:01percent of the S&P is now AI. So
32:05if they only have 30% they're still 30%
32:07they're still very long AI. It's just
32:10they're underweight AI relative to the
32:12benchmarks. Largest degrossing in 15
32:14years positioning divergence from
32:15physical demand.
32:17Okay, Nishant Kumar who covers hedge
32:20funds and has for nearly 16 years. This
32:23is what felt like a fireworks show in
32:25terms of hedge fund deleveraging to me.
32:27I can't remember a day like today.
32:28Here's what happened in the space of
32:29about 10 hours. You guys can read this
32:32on your own, but I don't remember there
32:34being more news on hedge funds and
32:36rumors flying around X than that day.
32:38Goldman Sachs panic gauge reaches
32:40extreme level. It surged to 9.57 out of
32:4410.
32:46It resulted in the biggest ever two-day
32:48swing. The combined two-day swing was
32:49the largest on record, which I think
32:51shows how quickly the market went from
32:52relief to outright panic. Goldman
32:54Traders phones blew up with looking for
32:56answers. Hedge funds dump positions and
32:59cut staff.
33:01Hedge fund Elliot warns of FOGO, a new
33:03one, fear of getting obliterated in the
33:05market. Um, Dan Loeb posted something
33:08looking you know, saying hug your hedge
33:10fund PM today. There's no doubt everyone
33:12felt it in the space.
33:15The good news is as much as the October
33:17numbers are red here for the majority of
33:19hedge funds, the year-to-date numbers
33:21are still up and for the
33:24you know, some of the more important
33:26ones like again, Citadel, DE Shaw, DE
33:29Shaw, you're still dealing with
33:31relatively big numbers. Millennium still
33:34positive. Again, now this is through
33:36October. This doesn't include what's
33:38happened in November, but you can see
33:40where
33:41the beginning of the year was I think a
33:44record beginning to the year for hedge
33:46funds
33:47and now they've given back a sizable
33:49portion in aggregate,
33:51but most likely they're hedged up
33:53significantly from here because they are
33:57good at hedging up the net exposure.
33:59They cannot get the gross down enough
34:01and that's what I think happened this
34:03week is
34:04the gross, that chart I showed you of X
34:08SPX XAI versus SMH.
34:11That trade people have put on now for a
34:14while and to get out of it is hard. If
34:17you guys want live
34:19data on hedge funds, I'm going to take
34:21you through a little trick.
34:24AQR, which is a hedge fund, but
34:27they're also a mutual fund because they
34:30gave up taking performance fees and they
34:32just get management fees. So you can use
34:35their portfolios, their active their
34:37funds which are listed, they're all
34:38quant strategies
34:40to To a real-time assessment of how bad
34:41the situation is. So this is their
34:43long-short fund. This is all these are
34:46seven-day rate of change.
34:49This is the worst in the history of
34:52their performance
34:54outside of COVID when the markets were
34:57shut.
34:58So the last seven days have been
35:01dramatic. This is Liberation Day just to
35:03put it in perspective. So this is their
35:04long-short
35:06fund.
35:08This is their market neutral fund.
35:11This is the last three years seven-day
35:13rate of change again dramatically worse
35:15than any period in here.
35:17This is their manage futures fund.
35:21So again
35:23so far we've had long-short
35:25then we have their market neutral fund.
35:27Now we have the manage futures which
35:30theoretically should be uncorrelated to
35:32those two and that's the whole thing.
35:34All three of them these are all
35:35seven-day rate of change and all of them
35:37I believe lost money all seven days.
35:41This one might be the most important.
35:43This is the one I highly recommend you
35:44pay attention to this QD 6. This is a
35:48diversified strategy. So this is taking
35:50and I don't know the waitings of this
35:52and I didn't go through it but this is
35:54going to be more like a fund of funds or
35:56a multi-strat. It's not just market
35:58neutral for equity. It's not just manage
36:00futures for CTAs. It's a little bit of
36:02everything.
36:03And this is the last
36:05three years. This is the seven-day
36:07performance. So again this is liber this
36:10is the Liberation Day
36:13and it's there. So if you're wondering
36:14how bad this
36:16last seven days was. So this takes you
36:18from August I believe 28th
36:21yeah August 28th to to Friday.
36:24I want to just show you this chart. So
36:27this is what theoretically
36:29let's say a fund of funds chart which
36:31only has
36:33seven to eight strategies and it would
36:35look like. A true fund of funds might
36:37have you know 50 strategies to where or
36:4150 different funds maybe 100 different
36:43funds. So it's a much smoothed out. But
36:46this overall is what you're trying to
36:48replicate.
36:50Um and so, this is a big fall off of a
36:52peak up here. And I again, I think you
36:55go back like this is uh
36:58Liberation Day.
37:00You very seldom see moves of this
37:01magnitude, which is why I showed you
37:03guys that.
37:04None of them turned into major events.
37:06So, again, I believe this is hedge fund
37:09unwinds.
37:10Two weeks ago in that deleveraging
37:12thing, I went through extensive
37:15talk about how this felt like the quant
37:17quake. And guess what, guys? It still
37:18feels like the quant quake. The question
37:20is, do we have any signs that it's
37:22changed, which I'm going to go through.
37:24Here is that long short um this is the
37:27long-term chart of that AQR long short
37:31fun.
37:33This is important because this chart may
37:35remind you of something.
37:38Looks like that one, right?
37:40Oh yeah, it looks a lot like that one.
37:42So, when I talk about the fact that I
37:43believe peak leverage is here, guys, I'm
37:45going to say this again and again, peak
37:47leverage for me, we will never get back
37:49through this high.
37:50Now, this high is interpolated from or
37:54I'm I'm doing this cuz this is when the
37:56data from that Fred uh
37:59chart is to is to this uh
38:02the second part of 26.
38:04This is where that
38:06AQR long short total return index is.
38:08So, you can see A how correlated they
38:10are and B when they really started the
38:12acceleration is after COVID. But this
38:15really continued. So, you've heard a ton
38:18of money's been put in the hedge funds.
38:20I think that is a major mistake
38:22uh especially with yields up at where
38:24they are. I think when you go through
38:26those hedge fund returns and you go back
38:27to them,
38:30if they're going to be this correlated
38:32to each other, you're running into
38:33problems. All right, Citadel put this
38:35out. Their CTA model
38:38looks like the net short is getting
38:40close to Liberation or getting close to
38:42the lows of this year.
38:45Uh the Goldman Sachs risk appetite
38:47chart, This is through November 3rd.
38:49This is before the Thursday. I'm sure we
38:51extended further down. Uh
38:53this is the VIX. So these are all signs
38:56to me of
38:57why you want to be paying attention and
38:59why I'm actually buying things here. I
39:01don't know if we can pick I Well, I know
39:03I can't pick the end date, but I look
39:05for things to suggest where we are. It
39:07doesn't mean that we can't get an
39:09extension. This is absolutely the type
39:11of time where you get a Monday that is
39:12just
39:13shockingly bad. Uh but regardless, let's
39:17go through the data that suggests that
39:19panic set in. This is the VIX percent
39:21move.
39:23Not many days higher over the course of
39:25the last 25 years. It was number three
39:27on the list.
39:29Here it is in sigma terms. Uh again,
39:32third on the list or eighth on the list
39:34in terms of sigma moves. You guys can go
39:36through this. This is all the way back
39:37again to 25 years.
39:39Uh the V VIX, the VIX VIX vol. So the
39:43vol of vol
39:46highest level in 20 years.
39:51That was a percentage move, not the
39:53highest level. Percentage jump in one
39:55day. Put call ratio was the highest uh
39:58since I believe March. Yeah, it was the
40:00highest since March.
40:02So we got put call up.
40:05This is the total put call. The last one
40:07was the equity put call. The total one
40:09was higher than any day this year.
40:12Uh in terms of the S&P futures, another
40:14sign of the panic has reached an
40:16extreme. The volume was insane on
40:19Thursday. And I'm going to go through
40:20different ways to measure this. Uh this
40:22is the uh the E-mini futures contract.
40:26Uh this is the Nasdaq futures contract.
40:30The thing I want you to pay attention to
40:31here is this is
40:33the 120-minute chart. So this is the
40:352hour chart.
40:37And this is only from the hours of 8:00
40:39to 11:00 in the morning. I just wanted
40:41to highlight this chart, which is the
40:43volume that traded
40:46from the hours of 8:00 in the morning
40:48before the market opened, to 10:00.
40:50Okay?
40:52This was before the market opened.
40:54That's how violent this was in terms of
40:57the orders coming in before the market
40:59opened.
41:02This is the SMH volume for the day.
41:05Didn't take out the
41:07uh the day that Ken Griffin bought
41:09Situational Awareness, if you remember
41:11this one. But aside from that day, it
41:13was the biggest day in the last 5 years.
41:16Uh XLK had its worst performance outside
41:19of COVID in the since the Great
41:20Financial Crisis. Uh XLK to XLB, the
41:24last 25 days, which takes us back to
41:26that chart I showed with the difference
41:28uh basically inverting between XAI or
41:32SPXXAI
41:33and SMH. So this is XLK over the XLP,
41:37the 25-day rate of change.
41:40We got nothing to compare it to going
41:41back over the last 25 years.
41:43Um
41:44all right, some positive divergences,
41:47albeit small. The VIX spiked higher,
41:50but CDX did not take out the highs that
41:52it made uh during the Core Wave week.
41:56This is going to show up again, but
41:58you're looking for signs that maybe
42:02we've run through the worst of this and
42:04people don't need hedges anymore.
42:05Clearly the equity side, we did. The S&P
42:09is always the last hedge to go because
42:11it is the most liquid in terms of the
42:13vol side. And when we finally got the
42:17unwind of what had been high single-name
42:19equity vol, low index vol, and we
42:21finally saw the catch up, maybe that was
42:24the end. I don't know.
42:26Um back to that Nasdaq situation in
42:29terms of the 200-hour volume.
42:31This is important. So this is where the
42:34Nasdaq futures
42:36uh
42:37basically
42:39It's about where they ended up on
42:40Friday. What I want to show you is this
42:43is the volume. This is the VWAP. So this
42:45is taking volume at price. So this shows
42:47me where the volume was trading.
42:51Effectively, we closed on right around
42:54this level. So, take this as about the
42:56close 27,150 which puts you about right
42:59here.
43:00This is the volume that occurred
43:04basically on Thursday.
43:07All of that volume is underwater, which
43:09is an amazing thing. So, anyone that
43:11sold futures on Thursday during that
43:132-hour side, we opened up and stayed up
43:18all day on Friday
43:20and all of these trades are underwater.
43:23So, again, I I these types of signs,
43:26like if this was truly continuation of
43:28deleveraging, like I heard a lot of
43:30people say that this was a dead cat
43:33bounce. I'm going to get more into this
43:34because it was such a small bounce.
43:37Futures traded down here and we rallied.
43:39So, if you use it from overnight and
43:41where things traded,
43:43we ended up here.
43:45So, all of this volume that happened on
43:48Thursday were sales made below where the
43:51current price is.
43:53I again, I'm looking for a little
43:55nuances, but I want to show you how much
43:57granular I get into things when I start
43:59looking for potentials of turns. People
44:02that have worked for me over the years,
44:04they know I love digging down deep into
44:06the tick trading and all of this stuff.
44:09So, for those of you, you will get this
44:10during the week. This is the most
44:12important thing right now is to know
44:14when this thing is going to run into the
44:17exhaustion. I'm going to show you more
44:18signs. Here's the VWAP and the Q's. So,
44:21this was Thursday and this is the reason
44:23why I only bought small. I was looking
44:26to see. So, all that volume here again
44:29was up until about this point.
44:32We closed on the lows, but we didn't
44:34really move from that point. All of the
44:36movement and the volume happened at the
44:38beginning. This is the VWAP. We never
44:40went back above the VWAP, which
44:42suggested to me that there was a seller
44:44that was still VWAPing. So, for those of
44:46you don't know,
44:48go take the slides, go take my video,
44:50ask an LLM what a VWAP is. But volume
44:53weighted at price attaches the volume
44:56traded to the price at that point.
44:59So, this thing here is very important
45:02when people are liquidating funds
45:04because there's no way they're calling
45:05it's not like situational awareness
45:07where they call Ken Griffin. When people
45:08are taking off billions of dollars,
45:12most of the time it's done
45:13electronically or at least a lot of the
45:14volume is, and that means that when you
45:16run up to this line, this was the line
45:18that it did. So, I was doing my tax
45:19selling in the bounce, and then I was
45:22doing buying into the names like Marvell
45:25that I wanted to have some.
45:26So,
45:28this is the following day.
45:30You can see how quiet it was overall.
45:32Now, there's no buying going on, but the
45:34VWAP stayed very much in line. We went
45:36above it, went below it. So, again,
45:38stayed below the whole day. This is just
45:39something for you guys to look at.
45:41In terms of the last 20 days, so I'm
45:44also looking at when the highs and the
45:46lows are made. So, again, bull markets,
45:49the highs happen low in the or the lows
45:51happen low uh
45:52early in the day and the highs happen
45:54late in the day.
45:55Well, basically we've been making the
45:57high before 10:30 for the last 30 days,
46:0067% of the time.
46:03Have there been any days where the lows
46:05of the day
46:06were after 10:30 and the highs after
46:083:30? So, I'm looking for that type of
46:10day to signal that we just ran out of
46:13selling and all of a sudden now the
46:14buying pressure is picking up the other
46:16direction.
46:17Just one day out of 30. So, this is one
46:20of the pattern shifts I'm looking for
46:21is, do we make a low
46:24after 10:30 and do we make a high near
46:26the end of the day?
46:28This is the thematic portfolio again.
46:31This is what I'm basically looking into.
46:33This is how bad the chart is.
46:36But again, if I say that this is when
46:40ChatGPT started, and if I go back to
46:42here Liberation Day and I said this is
46:43the point to me where this trade
46:45started, we're probably about 50% the
46:47way down. Here's the S&P chart.
46:51Doesn't look that bad. I mean, it's not
46:53good at this point because you broke out
46:55to new highs and then you immediately
46:57sold back off and this is pretty much
46:58what's gone on with the hedge fund
46:59deleveraging. So I can see where people
47:02can be bearish. I get it. This is the
47:05SPX XAI again.
47:09Made new all-time highs this week.
47:11All right. So let's go through some of
47:13the things that did happen this week
47:14that you may have missed because every
47:15focus has been on tick by tick.
47:18The Anthropic IPO.
47:21The October results came out. They're
47:23actually better than what was expected,
47:26meaning they saw a pick back up in the
47:28growth rate month over month.
47:31But people are skeptical as they should
47:33be. So here's the AR went up. Their IPO
47:37price as of this morning on Saturday was
47:39down now at 1.6 trillion. Wall Street
47:42Journal was saying 1.5. People on X are
47:44saying it's going to have to come closer
47:46to 1.3.
47:47I think the fact that OpenAI was able to
47:49raise money, I believe at 1.2.
47:52Whatever. Just keep your eyes on that.
47:54Liquidity headwinds. This is one of the
47:56most important things in my opinion to
47:57watch if you agree with me that you're
47:59looking for signs of a turnaround. And
48:02what happened this week that is positive
48:04for the liquidity headwinds?
48:06Real yields started to turn down. Fed
48:08rate hike fears have lessened.
48:10Inflation. If you believe that the AI
48:12trade
48:13is now unwinding and there won't be as
48:15much capital because the DEM suite will
48:17create more
48:18risk, then all of these things start to
48:20matter more and these were all negatives
48:21and headwinds this year.
48:23Again, I think this was a very dangerous
48:26photo in terms of
48:29the chance of a bubble. So not the fact
48:32that the government's still going to be
48:33involved with AI for the next two years,
48:34but if you were looking for fears of a
48:37bubble, I think now a lot of these guys
48:39are going to have to start making sure
48:41they're becoming friends with the
48:42Democrats because they're going to be
48:44under attack.
48:45Here's 10-year rates. We had a better
48:47than expected payroll number on Friday
48:50and rates went lower. The good thing is
48:52for all the bears, when rates start
48:53going lower, they can go, well this is
48:55just the unwind that's happening. So
48:56bonds are going to rally while stocks
48:58fall. And that has been the case over
49:00the, you know, since then.
49:02Um, but
49:03from a if we don't have a bubble side,
49:06I believe that that was the peak in bond
49:09yields because the capital needs that
49:11were driving it are now gone.
49:13I don't think we will have another round
49:15of capital in that type of, let's say
49:18reckless way
49:20for a while. I think things have to be
49:22quiet for some time.
49:24Uh, I think they're going to be finding
49:25other ways to raise the money,
49:28but I don't think this is going to put
49:29pressure on the bond yields the way it
49:31did this year, especially when you get
49:34some of the other changes. So, the MOVE
49:36Index, again, it made a low.
49:40I if there was a problem in credit
49:41spreads, if this was something really
49:44fundamentally driven,
49:46this wouldn't be getting better, trust
49:48me.
49:50You got good news out of the US and
49:53their quarterly refunding. They tweaked
49:55the debt sale guidance spurring auction
49:57forecast changes.
49:59They dropped just two words. Doesn't
50:01sound like a big deal. The idea is to
50:03sell more shorter-term debt and possibly
50:05cut back on 20 30 year bonds. This is
50:07now a
50:08tool they have to say to the market, we
50:11are focused on making sure the market is
50:13steady.
50:14Um, on August 5th,
50:16they made a subtle change to the wording
50:20and then two weeks later we got the debt
50:22buyback announcement. So, don't be
50:23surprised if they don't start alluding
50:25to that change.
50:27We also got a change which I highlighted
50:29in my intra-week update that I didn't
50:32hear people talk about. So, oil rallies
50:34all the way into the election
50:36mysteriously, and then all of a sudden
50:39on Monday, Iran, for the first time that
50:41I can remember, is the one that leads a
50:43fall in oil prices by saying they're
50:45willing to talk.
50:47And it comes from
50:49Khomeini. So, the only reason I bring
50:51this up is every time that we tried to
50:54get oil prices to fall since
50:56the Strait of Hormuz uh became an issue,
50:59it was by Donald Trump. This time it was
51:01by the Iranians and I think the fact
51:03that we had
51:04for the sixth contract of Brent crude,
51:07the only time we've seen larger drops in
51:10a week
51:11were when the economy was shut during
51:12COVID and at the worst of the great
51:14financial crisis when there was no trade
51:16finance. This is a big drop in oil
51:18prices in a week and it does not get a
51:20lot of press. Gas at the pump, which has
51:22been I mean, this is highly correlated
51:25to inflation, to CPI. Uh
51:28we're going to start having negative CPI
51:29prints, at least one big negative one.
51:32So you got to start factoring in that
51:34what I showed you, and maybe I didn't
51:36show it on the weekly, but DRAM prices
51:38year over year are going to start to hit
51:39their base effect. Everything's going to
51:40start hitting base effects
51:42in the beginning of next year. So you
51:44think about this from the bond
51:45perspective and what's happened. Gas at
51:48the pump, which is now down I think this
51:50morning 404
51:52this is implying about 385. This is the
51:55unleaded gas futures. So we haven't even
51:57got into it. This is the Goldman Sachs
51:59forecast on how much you're going to see
52:01a drop in PCE next year. So everyone's
52:03talking about PCE coming in higher than
52:06expected for the next two months. That's
52:08not going to matter anymore with oil
52:09coming down and it's certainly not going
52:11to matter with the AI trade now being
52:13under check because this is the impact
52:15that the AI trade has had, big one. This
52:18is the impact the tariff effect, which
52:20is already rolling off because the base
52:21effects are kicking in and now you're
52:22going to get the base effects from
52:23energy.
52:25This is important and I showed on one of
52:27the weekly videos how much lower PCE
52:29core on my stuff is when you use all of
52:33the other inflation measures. So
52:35it's big and the inflation swaps reacted
52:38dramatically to it. So here's 10-year
52:41yields, which have been ignoring. First
52:43they followed everything up into here,
52:46but then starting in June as the capital
52:49raises became intense, we had SpaceX.
52:51Most of the money that started to impact
52:53the market in my opinion happened in
52:55here. Google came out with their
52:56announcement in here. This AI trade
52:58drove it up. Well now for saying the AI
53:00trade is stuck in the mud, then rates
53:03are going to come down and unless this
53:04turns into a bigger event, which I don't
53:06think is going to happen from an
53:08economic basis,
53:09I think yields could easily move lower,
53:12and CTAs are already taking off
53:13positions. But inflation swaps, one year
53:16and two year,
53:17I mean, they're now at lower than they
53:19were to start the year, and they're
53:21approaching the lows of the entire move
53:23since 2022.
53:27So here's France, Germany.
53:30Again, another indication that maybe
53:31we've run out of some of the contagion
53:33and the sound.
53:35Bank stocks in Europe. If there was
53:37really a credit problem would bank
53:38stocks in Europe have their best week
53:40since June.
53:42This one is really important. This is
53:44the Morgan Stanley leverage loan equity
53:47index.
53:49This is a massive rip.
53:52This says to me that people were using
53:54this type of stuff, these names as
53:56hedges to the AI trade. This is when the
53:58AI trade peaked.
54:00This is follows the same path. We just
54:02got a major rip in this stuff, which
54:04says to me that hedges are coming off or
54:08you don't fade this. This is a very
54:10strong move. This is an incredibly
54:12powerful weekly move.
54:15The China Semiconductor Index last week
54:18had its best move since September.
54:21Gold, reacting to the liquidity
54:24headwinds coming down,
54:25had a big week, and a lot of people
54:27didn't understand why.
54:30Silver, big week.
54:32Platinum, big week. Palladium, big week.
54:37Bitcoin,
54:38quiet week, still consolidating, still,
54:41as I showed this week on the crypto
54:42video, which for you crypto people,
54:44that's all the crypto stuff pretty much
54:46for for this week. I have a I have a few
54:48slides towards the end, but if you want
54:49to get a deep dive on the technicals and
54:51the liquidity side, I'd go watch the
54:53video that I posted this week. Uh
54:55Bitcoin hanging in there still around
54:57support in that 75-76 area and above the
54:5920-day moving average. Again, the market
55:01structure,
55:03the Jared Cuban thing from Citadel in
55:05terms of factor rotation. So here's why
55:07I'm going to you some stuff that you're
55:08just not going to see anywhere else.
55:10This is this is my world that I've
55:13always done stuff on.
55:15Uh just trying to make sure you guys can
55:16see everything you need to see.
55:22quality index,
55:24quality factor index. So this is market
55:26neutral. What I want to show you
55:28is that the S&P so this is what you want
55:31to follow for the S&P.
55:34It's correlated to it obviously, but it
55:36led on the way up, meaning when we were
55:39breaking away like we are now from
55:41fundamentals
55:43during Iran and this was selling off,
55:46the quality side just continued
55:49to be fine.
55:51Now what I mean is
55:52this is the inverted quality. So this is
55:54basically
55:56when when people are investing uh in
55:58beta or the least quality, the S&P is
56:01normally going with it. You only do that
56:04when you believe the economy is fine.
56:07Well, beginning in June, they started
56:09reaching for quality.
56:11So
56:12the S&P ran into mud.
56:15And this was the issue. It's still
56:17correlated. The S&P is not going higher
56:20this entire time
56:21as people are only looking for quality
56:25as a factor.
56:26But you notice something
56:28is changing here.
56:30So it led on the way up here. It led on
56:32the way down here.
56:34It is now unchanged over the last two
56:36weeks.
56:37And this matches up with that Morgan
56:39Stanley leverage loan index.
56:42This is an important thing. So when
56:43people say this is a dead cat bounce
56:45because it didn't move that much, under
56:47the hood, we made back 60% of the fall
56:51that happened that day.
56:54This is important to me, okay? And
56:56again, most people won't see this, but
56:58this is important. Now
57:01this is quality versus beta.
57:03So this is again now this is going the
57:05other way. This is quality versus beta
57:07which went up and you'll notice the same
57:10Friday was actually a huge unwind day,
57:13and this says to me the pressure
57:15ended.
57:17If we go back up, which we could, that's
57:20what I'd be watching. So I will have to
57:22do these during the week if anything big
57:24is going on, and I will, but that's what
57:26I'm watching at this point, which I
57:28think is critical. Here is the
57:29correlation between that and the
57:32thematic AI trade, and this is one of
57:34the reasons why I felt comfortable even
57:35buying more
57:38or the most on Friday. So here's the
57:41correlation between, again,
57:44the inverted quality versus beta, or say
57:47beta over quality, you drip
57:51for beta over quality while the AI trade
57:54did not budge. They've been correlated
57:56the entire way. So I want to see how
57:58this plays out, but my history is that
58:01quality versus beta is the most
58:02important thing to look at. I've been
58:04using this for so many different things
58:06for such a long time. Here are the
58:08divergences. So I talked about the fact
58:10that we're back in this move for the
58:13quality side.
58:14So again, move to quality, I'm scared.
58:17Up, nope, I'm willing to take a little
58:18beta risk. Here's divergence in RSIs
58:23versus divergence in price. Love those
58:25types of charts.
58:27Here is the overlay of that MS XXXLLR,
58:31which is the leverage loan side. Again,
58:34rallying before and you're getting
58:36confirmation at this point.
58:39I like where it's showing
58:40for a signal. The reason this is so
58:42important, this is
58:4517 years of quality versus beta.
58:49Again, this is inverted. So when when
58:51people are investing in quality, it's
58:53going down. This is when people are
58:55worried about the economy. This is PMIs.
58:58So you can just see how correlated PMIs
59:01are. PMIs are very correlated to top
59:04line revenue and to earnings. So when
59:07PMIs are going higher and they're making
59:09highs, cycle highs, you expect to see
59:12the white line doing well. Now it's come
59:14down now, but it was done here to some
59:16degree. I I don't really care about the
59:18level, the overlay. I care about the
59:20correlation.
59:22But it's now coming down while PMIs are
59:23staying higher. So if I believe that
59:25PMIs were going to come down
59:27significantly, then I'd be more worried.
59:29Do I think there's a chance with now the
59:31Democrats that people could get a little
59:33more negative? Sure, but I don't think
59:34that's a bad thing. For the week, the
59:36S&P down 2.7%. Sure it feels worse than
59:39that.
59:40IWMs only down two.
59:43RSP, which is the equal weight S&P, was
59:45down 1%.
59:48The Dow Dow Industrials down 94 bips.
59:50Here's where the panic was and this why
59:52everyone's so worried because the
59:53bubble's unwinding. QQQ's down 5%.
59:56SMH down 11%. Like I said,
1:00:00this is how big it was this year. All
1:00:02we've done is give back returns that
1:00:04were massively positive, still up 29%
1:00:06year to date. And the thematic portfolio
1:00:09was down 11.
1:00:11Here are the earnings.
1:00:13Again, we can we've got plenty of times
1:00:16where we've broken broken away, but
1:00:18because the earnings haven't changed, we
1:00:20just go higher. I don't think the
1:00:21earnings are going to get negative.
1:00:23Revenue,
1:00:24top line revenue 14.3%
1:00:26still massive and you guys can go
1:00:29through how many of them are up in that
1:00:30level.
1:00:31Here's what's happened in terms of
1:00:33forward earnings. So forward earnings
1:00:38just continue to move higher while price
1:00:39goes down, but more importantly,
1:00:42price is now the same level as it was
1:00:44here, but earnings forecast are up $60
1:00:47since then. So again,
1:00:49that's what's led to this, an
1:00:51unprecedented time.
1:00:5395 was the only time that we saw
1:00:56something like this where you could have
1:00:58these going down. Now again, what ended
1:01:01up happening here
1:01:02was you started to see
1:01:06the year over year you started to see a
1:01:08change in terms in in terms of what went
1:01:11on. So for the PEs to be down this much,
1:01:15again, it's a
1:01:16bear market, which I agree with. Here's
1:01:18the economy, the jobless claims, which I
1:01:19said
1:01:21near tights. I'm going to quickly go
1:01:23through these. I'm not going to
1:01:24highlight anything. If you guys want to
1:01:25read uh go get some comments from Brad
1:01:28Gerstner and data centers and all this
1:01:30stuff um
1:01:322027
1:01:34you guys can go figure it out on your
1:01:36own, but I think there's confusion on
1:01:37what people think is going to happen. Uh
1:01:39I would also go read this from
1:01:41SemiAnalysis. They have a completely
1:01:42different view from from Brad. You can
1:01:45go read their work on how important
1:01:48SpaceX is in terms of what they're
1:01:49building.
1:01:51Data Centers 2070 year of acceleration
1:01:5350 in a single year. This was obviously
1:01:55before the midterms, but you can go read
1:01:58what it is. Um and then go talk to uh go
1:02:02listen to BG 2 again to go through Brad
1:02:04and Jensen talking about the forecast
1:02:06for SemiAnalysis and what how they
1:02:09differ in their viewpoints
1:02:11and how much of the demand is going to
1:02:13be happening outside of the US.
1:02:15Hyperscalers for the week. With all the
1:02:17AI trade unwinding, the hyperscalers
1:02:19were up 3%.
1:02:22Okay, final parts. Crypto video. I did
1:02:25this this week again. Uh for those of
1:02:28you
1:02:29I will be in Miami February 4th to the
1:02:327th. For those of you looking to talk uh
1:02:35about tokenization, I will be there. I
1:02:38will be doing a presentation. Um
1:02:41there's going to be a lot of people
1:02:42there with Michael Sailor, Natalie who I
1:02:44just showed. I did an interview with
1:02:45Jeff Booth who's kind of the doctor of
1:02:48uh
1:02:49a innovation is deflationary and where
1:02:51Bitcoin fits into the whole thing.
1:02:54I'm trying to give you guys more next
1:02:56year as I go to these events. I know
1:02:57more of you are going to be focused on
1:02:58crypto just because it's going to go on.
1:03:00Again, the AI Masters, you guys can
1:03:02reach out. You can get some help on the
1:03:04work. I know I put up a lot of stuff,
1:03:07but these guys can help out especially
1:03:09for teaching you how to use the tools.
1:03:12If we are in some kind of a market that
1:03:15is difficult to to money, I highly
1:03:17recommend people focusing on how to use
1:03:19AI. You can reach out to Michael Saylor,
1:03:22especially for the RIAs, the FAs. If you
1:03:25guys need this type of content on a
1:03:27regular basis, meaning weekly videos,
1:03:29things on what's happening, I don't know
1:03:32of another person that will give you a
1:03:34video during the week of all of the
1:03:35things, quality versus beta, what's
1:03:37happening internally, what's happening
1:03:39day to day.
1:03:40These counter punch moves are going to
1:03:41become more important and for you
1:03:43traders thinking you could just jump
1:03:45into something and buy it,
1:03:47there's no way to make money that way in
1:03:49the long run. We are going to have
1:03:50violent moves away from fundamentals.
1:03:53Catching turns is going to be important
1:03:55and looking for the signals that I
1:03:57highlighted in this video are very tough
1:03:59to find. And just remember, liquidity
1:04:01headwinds are down. So for crypto,
1:04:04if that's the case, gold matters and the
1:04:06reason gold matters, this is the
1:04:07correlation between Bitcoin and gold
1:04:11since March, and I did it since March
1:04:13cuz that is when the Iran stuff started
1:04:15to have an impact on the Fed. It started
1:04:18to have an impact on real yields.
1:04:20Real yields, if we are if I'm right and
1:04:22the inflation fears have peaked, the oil
1:04:25has peaked, rates have peaked, and the
1:04:27hedge fund capital scourge has peaked,
1:04:31and we're near the end of the
1:04:32deleveraging.
1:04:33This is where my positivity comes in
1:04:35Bitcoin and in in silver and all of
1:04:38these other places. This is why it's so
1:04:39important to be on top of this. Again, I
1:04:42will be writing a paper on this, but
1:04:43this is where the 492
1:04:46dead companies who no longer have growth
1:04:48and then eight call options and call
1:04:50options are basically companies fighting
1:04:52for their life to still survive. That's
1:04:55what the Mag 7 are doing now.
1:04:57This is what Michael Saylor did.
1:05:00So when you think about what went on for
1:05:02those of you who don't know the story
1:05:03about why this Bitcoin thing even
1:05:06exists,
1:05:07we were on a 500 million melting ice
1:05:10cube. So he had to make a decision.
1:05:12Forget what you think about him, forget
1:05:14the scam parts, forget anything. If you
1:05:16really done the work and looked at where
1:05:19MicroStrategy as a company was. He had
1:05:21two choices, be non-existent
1:05:24and melt away 500 millions of capital
1:05:26that he had fighting Microsoft in the
1:05:28Mag Seven,
1:05:30or
1:05:32go do Bitcoin. And if you know his
1:05:34return since he made that decision, it's
1:05:3650% a year. And then from the period of
1:05:382006 to 2020, 0% returns for the
1:05:43company. So regardless of what you think
1:05:46about what he's done,
1:05:47it ended up being the right decision.
1:05:49That's it for this week. Hopefully that
1:05:51was close to an hour. I think it was. Uh
1:05:53I will see you guys next week. For
1:05:55subscribers, you will see, I'm sure, a
1:05:57lot of me during the week. I will write
1:06:00less this week and I will focus more on
1:06:02giving you videos to highlight the
1:06:04things that are happening while I
1:06:05continue to write the 492 bonds versus a
1:06:08call option, stock market structure. For
1:06:11those of you on the institutional side
1:06:13that want to have um meetings,
1:06:16reach out to Mark or reach out to 22V.
1:06:19See you guys.

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Use the transcript to take notes, quote the speaker, build a study guide, generate a summary with ChatGPT or Claude via the YouTube Summary tool, or export it as a timed subtitle file with YouTube to SRT. You can also re-open it in the transcriber to choose a caption track available on the video.

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YouTube2Text is a free YouTube transcript generator — no signup, no daily limit. Paste any YouTube link and get the full transcript instantly, with timestamps, click-to-jump, caption language selection, AI prompts for ChatGPT, Claude, and Gemini, and exports to TXT, SRT, VTT, or Markdown.