The Great AI Rotation Has Begun: A Trader's Guide to the Next Phase | Brent Donnelly
Summary
Market Rotation: The guest sees a rotation out of zero-revenue and debt-heavy AI names (e.g., Oracle, CoreWeave) and “crypto treasury” plays, framing it as repricing rather than panic.
AI Narrative: Meta’s earnings marked an inflection where markets stopped rewarding mega AI CapEx, with concerns about commoditized LLMs and OpenAI’s financing credibility.
Opportunities in Quality: Bullish on Google (GOOGL) and Netflix (NFLX) as high free-cash-flow businesses less exposed to AI CapEx risks; Berkshire’s interest in Google adds confidence.
Crypto: After a severe unwind and froth reduction, the guest is now more constructive on select crypto exposure as liquidity returns.
US Equities: Believes the correction has mostly played out and expects index-level strength into year-end supported by improving liquidity and fiscal pickup.
Valuation Risks: Notes Nvidia’s (NVDA) lofty valuation and potential competition from AMD/Intel, and flags Oracle’s (ORCL) reliance on OpenAI and debt as a watchpoint.
Survey & Sentiment: Investors view AI as a bubble but not yet topped; sentiment turned cautious, setting up potential opportunities as extremes normalize.
Macro Backdrop: Post-shutdown data distortions muddy near-term Fed read-throughs, with a bigger regime shift likely in 2026 for rates, fiscal, and AI-driven buildout.
Transcript
To me, this has been like a mega, mega rotation trade out of all the retail junk. The unwind of that is another symptom of the same thing, right? It's just retail money flowing into garbage. Hi, I'm Ed D'Agostino from Mauldin Economics, and today the always interesting Brent Donnelly joins us to talk about the stock market, AI and FX. Thanks for joining us here at Global Macro Update. Brent Donnelly, it's good to see you, my friend. Thank you for taking some time. Hi, Ed. Yeah, it's been a little while. You're looking very healthy and relaxed. This is all, despite what the market's been doing this week. so, you know, I do my best. You get to a point where you just realize it's like the Alfred e Newman. What me worry? Yeah, exactly. You've been there before. A little bit of a resemblance. I can see it if you, if you dropped a couple of teeth. Black that one out. You had a cover from Cracked in, in one of your, uh, recent additions too, which I, I appreciate it. Yeah. That's a real throwback. You've been busy. You did a, you did a survey, an investor survey, and, uh, the results were, were really interesting, uh, talking about our, our investors, bearish or bullish, uh, particularly about AI and. Right after I read the results, I jumped on CNN's website to look up the Fear and Greed Index. And the Fear and Greed index. At one point this morning was nine out of a hundred. Like ex extreme. Fear isn't even a strong enough word for or phrase for, for how scared a certain segment of investors are. But you didn't find that in your survey? No, not exactly. So I think what's going on is that. It's, this is my view, and obviously I could be wrong, but what I see is more of a rotation than like an outright panic trade. So you had all summer people were piling into, uh, the most unprofitable, the most shorted, essentially, like the worst companies in the world, you could argue, um, were the ones that were rallying the most things that have no revenue, even like, um oh. And Retti and things like that, which eventually could be good companies that make a lot of money, but in the meantime, it's, it's very difficult to value them. So it's pretty easy for something like Retti to go from five to 50 because there's no anchor. It, it doesn't even have revenue, so you can't even look at revenue. So all those stocks rallied, um, throughout the summer, and along with that was also companies like Core Weave and Oracle, which were a little bit on the sketchier side of the AI trade, just because they're more relying on debt as opposed to companies that are relying on free cash flow. So I think he had a big pivot on October 29th when Meta's earnings came out. So looking back to July, they essentially said the exact same thing as they said on October 29th, which is, expenses are gonna be a lot higher because we're doing a lot of AI CapEx. And in July the stock ripped on that because that's what people wanted to hear. But in October, the stock went down on that and that was a huge red flag to me because. A lot of times people are looking for like, you know, Jensen Wong to say the AI CapEx cycle's over or whatever. But a lot of times the tops are more made by the, by the price itself, by the human reactions to the news, not the news itself, if you will. So now going to the survey, um, essentially the questions all kind of revolved around the current state of AI and what people think, whether it's a bubble and. The majority of people do think it's a bubble, but also the majority of people do not think it's topped. So, and I think that's probably reasonable given that what we're seeing is, like I said, the, the super debt heavy companies like Oracle and Core Weave selling off. But does that really have a read through to something like Google or Netflix? I, I don't really think so. I think the concern that the market has is that the companies are spending so much. That there may or may not be a payoff. But then on the other side of the ledger, companies like Amazon and Google are benefiting from the AI CapEx because they're earning revenue from that. So like the linchpin of the whole thing is open ai, and I think we kind of went from like, this is ridiculous, but I, I will allow it to, this is ridiculous and I'm not gonna allow it, is kind of how the market turned because OpenAI is making so many commitments. It almost feels like it's not credible to some people and I, to me, it kind of seems a little bit hard to believe. And then you had the interviews with Sam Altman, where he was kind of saying, you know, you don't like it. Then short our stock, well, first of all, there is no stock to short, but second of all, you know that kind of defensive reaction. Isn't really what you want to hear as a capital markets kind of person. So one of the questions in my survey was, uh, on a three-year time horizon, would you rather be long or short open AI at a 500 billion valuation? And, uh, 65% said short. So I think the interesting thing is that you can have a correction in all those names, like I said, but it doesn't mean the actual entire stock market has to go down. I think what people are looking at is, especially with open ai, and this is my opinion too, is that you, you look back to two to 1999, 2000, you know, the leader in search in 1999 or in 1998 was Alta Vista, 1999 was Yahoo and a OL and you know, MSN network and all that. And in the end the winner was Google. But Google didn't take over till 2003. And as an avid user of like Open AI, cloud, perplexity, Gemini, I use all those things. They're very similar. Like there's obviously differences and some have different strengths, but it's quite commoditized. You know, they're all 20 bucks a month. You put the same query into four of them, and a lot of times you get the same response and then you've got deep seek doing the same thing with a lot less compute. So. I think people are justifiably worried about anything that is relying on financing from open ai. And so, like I said, that's what I see is, is a rotation out of, you know, the, the zero revenue companies and the more indebted companies, and that's a little bit of a baby with the bath water situation where everything's selling off. Because tech is such a heavy weight in the indices. Um, and then there's some, some legitimate concerns with Nvidia too on their chips are mostly, you know, absolutely necessary for training, but they're a little bit less necessary for inference. And so the question becomes like, can a MD produce a chip that's almost as good, or can Gemini internally create a chip that's almost as good? And so at $5 trillion valuation, you know, NVIDIA's gotta thread the needle pretty well to, to justify that valuation, like as a percentage of the stock market. That's like an insane valuation, you know, by any metric Now. Price to sales isn't that high. But anyways, there's plenty of things to worry about in that area, but I think it's more of like an endogenous repricing of all of these baskets and less of a like, we're going into recession and the world is ending. And then one thing just, sorry, one last thing on top of all that. When all that was going on, fed pricing went from a hundred percent cut in December to 50 50, so. You know, obviously that doesn't help either. So you mentioned the business model of AI and how it's become commoditized. What do you think the end game is here? A lot of people are, are talking about how, look, these numbers can never work if you're going to charge $20 a month or $30 a month, or whatever it is for your service. Um, and, and you're, and you're, uh, offering up a large language model that is essentially a commodity. You're, you know, op open AI's, market share's gonna continue to shrink. What you pointed out recently. But I question whether that's really the business model is, is the business model trying to get more people to pay me $20 a month, or is the business model trying to get more and more and more people, a huge swath of humanity to tell you. Your deepest, darkest secrets, right? Like everything about yourself and everything about your business and all of the things that you're researching so that they can then flip that around and, and monetize it and order of magnitude that, that Google, uh, would be able to mo monetize. Is that the business model? I think that makes sense. I will say I'm not an expert on technology. Uh, but I mean, obviously I'm in the weeds just because I'm a trader and I'm following everything, and to me, like sadly, I think the business model's probably like advertising and pay to pay to click and paid pay to play, so that when you ask chat GPT, what's a good mattress? It'll probably spit out a sponsored link. I mean, excuse me, go. If you follow the Google model or the Google trajectory, that's essentially what they were, right? It was this super clean interface. Where you got a, all these beautiful results that were unbiased and then slowly, slowly, it's pay to play. And so, I mean, I think what you described makes sense. It's just user acquisition and then you kind of figure out how to monetize those users later. But the problem's gonna be that there's just a lot of platforms all acquiring these users at the same time. I don't know. I guess I'm, I'm quite skeptical of OpenAI in general, and I think one thing that will be a huge market moment, and I'm not predicting this around the corner, but at some point in the next, say, like 18 months would be if OpenAI did a down round. Because at some point people might just be like, okay, how much money do we really want to put in here? Like the, the problem with IPOs in general now is. They're IPOing at a point in the business where all the juice has already been squeezed out. Like if you look at all the IPOs, like whatever you wanna fig, fly, figma, you know, bullish, whatever, just look at like the, all the, this so-called hot IPOs. They mostly go straight. They have mostly gone straight down because they're IPOing very late stage in the process. Like, it's not like they're raising money. To invest, which is the old IPO model they're using, they're looking for retail exit liquidity so that insiders can, you know, all the VCs and everyone that's invested and took a lot of risk to invest in these companies, but it's a monetization, um, you know, it's a monetization point. Now, it's not a, a fundraising exercise, so it, you know, same thing with OpenAI, if you're. Finally getting in at a $500 billion valuation. Like what are you looking for? Maybe two XI guess like a trillion dollar IPOI mean that's probably your most dreamlike scenario at this point. So, um, yeah, I think that will be a big moment. If, if OpenAI ever has a down round, I think that would probably be a super scary moment. Um, especially for, I'm sure everyone's seen those. Crazy or Boros charts of all the interconnected things. So if you look at like, who's most reliant, uh, you know, Oracle obviously stands out, um, at, you know, that will be a bad day for Oracle. There's so many. What I call circular deals being announced, you know, like Nvidia investing x billion dollars in this company, uh, which essentially is like, we're gonna give you our chips instead of sending you an invoice. Right. It is kind of eye-opening for sure. And one thing I will say though is that, like specifically I keep picking on Oracle, like that's been a subject of conversation since like, I would say probably the 10th of October the CDS started widening. And so I would say I'm actually much less bearish now than I was like mid-October on those stocks. Just simply because now you're getting investment bank downgrades of Oracle and like it's become a little bit obvious at this point that like, okay, they're, they, they do stick out as a company that's much more reliant on, on open AI and debt financing. But at the same time, you know, the, none of this is really like. News anymore? It, it, I think I actually am somewhat bullish into year end, just generally at the index level because I feel like a lot, a lot of froth has come off of the market. So if you look at something like I, like I said at the, at the start, like something like Google or Netflix, which is not really in the like AI spender basket in my opinion. Like I see Google more as like a VC with unlimited cash flow and Netflix is like a turning into an ad business at some point. And it's like another FCF kind of just mega cash flow business. Those businesses aren't really necessarily vulnerable, um, to a repricing of the AI story. So, uh, to me this has been like a mega, mega rotation trade out of all the retail junk. And I would say like the crypto treasury scam, I would call it, but whatever you want to call it, crypto treasury bubble or whatever. Um, the unwind of that is another symptom of the same thing, right? It's just. Retail money flowing into garbage, and now it flew, it flowed out of the garbage. And most of those crypto treasury stocks that we're trading two, three times NAV are like 1.02. Some of them, I mean, the, some of them are trading at 60 cents on the dollar now, so. I feel like that again is another indication that the froth has come out significantly. And so now we kind of have like a healthier, a more anti-fragile, um, kind of stock market than we had, you know, in the middle of October. You're not in the correction is imminent camp? No, I feel like, so I'm more in the, like the correction already happened camp or like we're in the eighth inning maybe, but, um, yeah, I, I feel like. People are gonna, once things stabilize, which I think is probably around now, I guess, you know, risky thing to say on a recorded podcast. But I do think that we're probably in the, like the later innings and then when things stabilize, people will start to look ahead to 2026. And people generally feel more optimistic going into the new year. You've got fiscal now gonna start picking up again. You know, liquidity's gonna pick up now that the shutdowns over. And so some of the factors that have been hurting liquidity. Um, you know, tightness in funding markets and all that stuff will be relieved. And so I, I'm much more optimistic, although I'm so, I'm more concentrated, like I said, Google and Netflix look good and then I actually don't mind some of the crypto stuff now. It's just everything on Twitter is victory lapsed by the haters. And, you know, we've come a decent way. You know, people are declaring Michael Saylor dead for the 25th time and. You know, in the end those things are just, are just liquidity sponges. Like crypto's just a liquidity sponge, like, you know, like TTI or whatever other, you know, risky asset you wanna look at. I guess you could say crypto has become the risky asset layer of the US dollar system. Um, interestingly because it was supposed to be an anti dollar, but actually it's more of like just another layer on the dollar system in my opinion. 'cause every stable coin is denominated in dollars. So to me, I, I, I think that most of the froth is out and I, yeah. So I'm more constructive. What do you make of, uh, of, of Berkshire Hathaway and Warren Buffett investing in Google? A lot of people were surprised. Yeah, it's interesting. It's, it's very, I guess people are arguing it's out of character or it's like off brand because it's not a value stock. But then if you look at historically, like so much of Buffett's money was made in Apple and Geico. Which were not really value stocks, like they were more growth businesses. I mean, I, I guess obviously it matters when you get in and all that, and Google does feel like you're getting in kind of late relative. Even Apple was kind of hated when Buffett got in. But at the same time, I don't think it's that out of character, you know, it's, it's a business that has a lot of pretty cool, understandable businesses like Robax and stuff like that inside it, and. It seems to be the fear of the search engine business getting killed by perplexity or whatever has dissipated. So, I mean, it's interesting, like it's fun to to, to pick it apart, but I mean, in the end, you know, whether it's him or someone working for him, you know, it's still rel I mean, I have to think it's smart money and big money being. You know, going in the right direction. So to me it's, it's bullish, but I don't know, it doesn't change my view. Like I, it doesn't, doesn't make me bullish. I was bullish anyways, but it doesn't make me not stay bullish or it doesn't make me less bullish. If anything, it makes me a tiny bit more bullish, I guess, at the margin. It wasn't long ago that I would describe you as fairly bearish. So I, I like the intellectual flexibility. Yeah. So that's one thing I guess that's important for your, for the listeners to know is my time horizon tends to be like between one week and three months, depending on, you know, like what's going on. What I'm trying to do is kind of ride the narrative or the, the second derivative, or the first derivative of the narrative. So like when the story's changing. As it was in October with, with ai, you know, there were some, uh, and, and the crypto treasury trade. Um, there were some really great bearish trades there, but I don't think those are good trades anymore. So now, if anything, I feel like sentiment is quite bearish, actually. Like, I feel like even going into NVIDIA's earnings, I, most people that I talk to are set up for a bearish outcome. Um, so I feel like we've gone from. Pretty much like stupid, like max stupid. There's a guy on Twitter calls it that. Uh, we went from max stupid to, you know, pretty conservative allocations. I think in terms of some of the stuff that, that has sold off significantly. I always find the whole like, narrative thing interesting, right? Because sometimes an investor will look at the narrative that's happening as a signal to go in one direction, and sometimes they'll look at it. As a contrary indicator to go in the opposite. Right. So how, how do you discern between the two? That's a great question. So to me, it's similar to positioning indicators, which is most of the time you want to go with the trend or with the narrative. Like I, I think a lot of times you can say the narrative and the trend are kind of synonymous, and what you're looking for is the inflection points when it gets stupid in either direction or it gets extreme in either direction. Or the other thing is if you've had one narrative, like so you had one narrative basically since chat, GBT came out, and to me the narrative kind of flipped on META'S earnings because the market was no longer rewarding. Um, mega CapEx. So sometimes you'll have like a long, long running narrative trend and, and a price trend along with it, and then you get a crack in in the behavior. Um, and actually that's an interesting thing that I've been realizing lately. So I'm writing a new book. And one of the things that kind of, it's interesting when, when I write the book, sometimes I learn stuff just by the sort of process of, you know, processing my thoughts and, and writing them down. But I'm, I realize that one of my, so people a lot of times ask me like, where do you get your trade ideas? And they're kind of expecting an answer. Like, I go through screeners and filters and whatever. But it's tends to be more by osmosis, by like just consuming a lot of information and reading a lot of stuff, talking to a lot of people. And I realized while writing this book that one of the big signals for me is when something weird is happening. Like when. Uh, so you have sort of like all these patterns that you expect, you know, like good earnings, earnings in a beat, the stock should go up if it goes down. That's, you know, a pretty obvious tell of like good news, bad price. You know, that's a known setup, but there's a lot of setups like that where essentially what's happening is the thing that should be happening in the market is not. That's a massive tell because it's revealing that, you know, either the buyers are exhausted or there's a massive seller coming in with a different time horizon, or you know, people's belief systems have changed and they no longer wanna respond to price in the same way or whatever. And so for me, I'm looking for like trend exhaustion, narrative exhaustion. Ideally with like an extreme point marked by a change of behavior in the market. And like, I know it's all, sounds like a little bit like reading the tea leaves in, in, in the palm of your hand or whatever, but a lot of times I feel like you're just sitting there and you're, you say, wow, this is really strange. What's going on? Like this doesn't make any sense. And then you start to unpack it and underneath there's a pretty good trade idea there a lot of times is what I find. Um, and like the really simple, more data driven explanation is that when you get to like three standard deviations on any positioning or momentum indicator, it always kind of lights up in my mind, like, okay, something interesting could be happening here. Or another way of of doing it is you calculate the rolling sharp ratio of an asset. And if that, you know, a lot of times that sharp ratio will, will be in a range. If you look back 10 years, like the sharp of that thing will never go above three or whatever. Because a couple of things like first of all just trees don't grow to the sky. But then also high sharp ratios attract more money. So generally like as say something like the Brazilian royale with super high carry. You know, perfect trend. The longer that goes on, the more money gets sucked in by it. Like fomo, but also systematic money and all that. So if I'm doing something more data driven, that's what I'm looking for is like. If I had a, you know, Ben Hunt's narrative data analysis system, it'd be the same thing. I'm looking for like three standard deviation extremes in any narrative. And then I would say, okay, it doesn't necessarily mean you just fight like fade, every single one of those, but like that's where the trade ideas come from is like. The price action doesn't make sense or the, you know, price action is extreme to the point of it's like multi standard deviation or positioning is multi standard deviation. So that's kind of like, those are the kind of things I'm looking for. Um, and then like, just one simple, like, I'm sort of like the, the magazine cover indicator guy, um, for better or for worse cover. The economist type thing. Yeah. So the cover of the Economist is a good example of that because. The Economist is not really a markets magazine. It's more about like geopolitics, economics and, and global macro and stuff. So if anything related to the markets gets on the cover of The Economist, that's like a three standard deviation event, right? Like if they're talking about the US dollar on the cover of The Economist, that's like once every year that's gonna happen. And by definition the, you know, in that case, the dollar has been in the narrative for a long time and it's a huge story that literally everyone's talking about. And that's when it lands on the cover of the Economist. And so that's why if you back test, if you go against the cover of the Economist, you make money like a crazy amount of the time. Um, and just just a little caveat, if, if you can't do that with market oriented things like Barron's, because they're more coincident, they're more just telling everything that's going on all the time in markets. So like they're gonna be covering the thing every week. Um, the Economist is unique in that they're not constantly looking at markets. So if something from the markets lands on the cover of the Economist, that's also like an eye-opener of like, okay, this narrative is. Super, super well known and super mainstream. 'cause now it's on the cover of the Economist. So, so one of the things that, that I noticed that kind of made me pause and wonder what's, what is the implication of this is? And, and our, our mutual friend Jared Dian, uh, also identified this Andrew Ross Sorkin coming out with a book called 1929. Right? And the weirdest, I thought this was so strange. That they let him ring the, the bell to open the stock market with this book about the stock market crash in his hand. And I thought this is the bizarrest image. Yeah, it's bizarre. And a lot of the book is about market manipulation and like unethical behavior by Wall Street bankers and you know, the guy that ran Citibank and stuff like that. So there is a lot of irony in, in that ringing of the bell for sure. Uh, you know, I was wondering that too, that. If you read the book, uh, it does echo a lot. I mean, all the eras echo somewhat. Um, but I was almost wondering if, you know, that's the number one business book on Amazon, if that's actually screwing with people's minds a little bit. Because if, you know, thousands of market professionals are reading that book right now and going, Hmm, this sounds a lot like. You know, 2025, uh, you know, maybe I better lighten up my 401k. Uh, you know, stranger things have happened. Yeah, I, I think it is, I mean, it just, it just feels like in the mainstream and financial media that there really is a pretty loud drumbeat right now of, of negativity and comparisons to 29 and certainly to, uh, the late nineties, uh, before the tech crash. Do you care about that sort of thing at all? Uh, or do or are you more short term oriented and, and if you do care about it, how, how are we d how is it different today? So the, there, there's a few ways of looking at it. It's funny because everything has changed now. So like I was trading in 98, 99, and there was essentially two groups of people. There was like the believers. And the haters and like so people that just thought it was a bubble and were short all the way up and went bankrupt. And people that were long all the way up and then wrote it all the way back down and went bankrupt. And so that, I mean, that's on the trading side, you know, in the day trading world, that's what it looked like essentially. And so the big lesson from that, and I was always kind of agnostic, I think it's just more my personality. So the lesson from that was, I think that just being agnostic is the best way. There's this kind of like bullshit common knowledge now that if, because, because Soros and, and Druck and Miller have said this, but they don't actually trade this way. Um, but they've said like, if I see a bubble, all I wanna do is be long the bubble. And, you know, obviously that that can work to some extent, but that's assuming that you are a smarter fool than the the greatest fool that's gonna buy at the last second. And nobody, nobody is really that good. So the way I look at it is just like, I don't know the future, and I'd much, much rather be looking at like the, the sort of like one to three month time horizon. And like I will do things like. Palantir, for example, because of the price to sales and the market cap combination is like the most overvalued stock in the history of the US in my opinion. So like I will eliminate that from my investments. Just like remove the, remove the super overvalued things. But I, it doesn't mean I'm gonna sit here short Palantir every day because like, like Tesla, you know, like sometimes these extreme belief things, they turn into more like meme coins than. Then, you know, company stock, you know, like people have spent 10 years comparing Volkswagen's market cap to Tesla looking at relative car sales or whatever. Like Tesla's just a meme coin at this point. Um, you know, so, so I will never just sit there short. I'll be happy to be long or short, I will eliminate extremely overvalued things from my personal. Like from my pa from from my investments. Um, but in terms of like how do I view it or like, what's the end game? There's so many similarities. It's easier to find the similarities. But I think also there are a lot of differences. Like these companies make insane amounts of money, um, which wasn't really true in 2000, like even Cisco and those companies, yeah, they made money, but they weren't making money at the scale that these companies are. And I think something like Nvidia, you can argue CapEx has always been mean reverting, and it, it never continues forever. Then something like Microsoft, like sales, you know, selling digit, you know, pixels to, or, or ones and zeros to people. I mean, Microsoft was the biggest stock in the world in 2000, and it was again in 2021 or whatever. So there's nothing to say that like all the stocks have to go to zero. It's, it's more like what I want to do is more find the inflection points and like if I'm good enough, maybe I can both be long and short some of these stocks at different times. Make money. And that's kind of my goal is to, to not pick a side and be willing to say like, okay, maybe Nvidia goes to 10 trillion, or literally maybe it goes to 500 billion because, you know, people don't need Nvidia chips anymore 'cause a MD and Intel out compete them. You know, like, I think honestly both of those are possible. Open AI is probably like the most binary business in the history of the world, right? It's, they're just basically going all in with. I don't know, ten nine suited or something and saying, we're gonna spend $1 trillion that we don't have on 20 billion of revenue. But you know, maybe they'll do it, you know, or maybe it's Sam part two, you know, the, there was another SAM that, that sounded similarly ambitious and didn't work out very well. So, honestly, like, I feel like the, it's, a lot of these things are pretty binary. So there's no point like being deterministic and saying, I know what's gonna happen in 2028. I'd rather, you know, react more than predict. There's definitely a Pied Piper aspect to Altman. I don't want to say too much, like be too negative, but some of the interviews that open AI has given in the last two or three weeks, not just Sam Altman, but just overall definitely. Make the question marks pop up above your head, that's for sure. You're probably best known for currency for, for, for currency trading. Uh, what's it been like trading currencies, uh, with a government shutdown? Pretty horrible. I would say. So this, the first half of this year was probably one of the best times ever to trade fx like we had. This raging dollar bull market with Trump elected and then people completely flipped and said like, he's the worst thing ever for the dollar. So the dollar, you know, cratered in 2025. Um, but after May or so things stabilized and then everyone was short dollars. It was super consensus and there wasn't really a catalyst to go long dollars, but the dollar just stopped going down. But then the shutdown has been really bad for fixed income and currency trading because. Those two markets, we really rely a lot on US data as like the real compass of where are things going? Like the dollar. People love to talk about structural stuff with the dollar like deficits and you know, Trump is bad or D dollarization and Russia sanctions, all that. Almost none of that is tradable. It's the dollar is just a cyclical currency over the, like since 1975. If you look at the economic cycles and this, this sort of like broader global cycle compared to the us, that's generally what the dollar has done. And give or take, there was the Plaza accord and some things in there. But generally, like I'm a big seller of structural themes and I'm, I'm much more. Into the cyclical, you know, stories that drive, drive fx. So it's hard to have a cyclical story when you don't have data. So we've been stuck in, in ranges in fx, and I think we were discussing this a little bit before, before you hit record, but the annoying thing now is we're gonna get a bunch of data, but it's all gonna be polluted by the shutdown. So we're really not gonna get any clean data. I don't know really till 2026. And then by then, you know, you're gonna be looking at a different fiscal backdrop and you're gonna be looking at a, a different Federal Reserve composition essentially, you know, starting in, in early to, and then May, 2026. So, I don't know, this excitement about, you know, December fed pricing going from a hundred percent to 50%. I have trouble getting too excited about it because. The real Fed story is gonna be determined by like who's the new who? Who's the new head of the Fed, of course, is a huge question. What happens to Lisa Cook and then how much fiscal, and also the thing that people don't talk about that much is. All this ai CapEx, like, feels like, just like digital pie in the sky, kind of crazy talk with all these numbers. But the reality is like there is actually gonna be physical buildings and infrastructure being built in 2026, and that may create a lot of jobs, like, uh, and it may create wage pressure and, and labor shortages or whatever. We don't know. So I feel like slicing and dicing the data. In 2025 is kind of gonna be like necessary 'cause that's what we do. But I think it'll end up being a waste of time because we're gonna essentially have a completely different regime. Uh, FOMC, fiscal and, you know, broader economy in 2026. So that's gonna make FX tough, I think, until we get a, a little bit more clarity on what, what the US economy is doing. This is gonna sound like a weird question, um, and it probably is a weird question, but, you know, FX is, FX is insider baseball to the max. Right. Like if you, if you go to a, an a cocktail party that with doesn't have anyone in the world of finance and you bring up the stock market, uh, you know, at least half the people are gonna perk up and wanna talk about it. Uh, uh, you bring up bonds and, you know, half, half the crowd will fall asleep. But there, you know, there's some people will talk. Nobody knows anything about fx. Outside of a little world. I started in 1995 and my family still thinks I'm like trade stocks. They still ask me like, oh, what's a good stock to buy? I'm like, dude, I, I trade currencies. I, I, um, so yeah, it's, it's kind of like this funny thing. It's very macro. I think that's what I like about it, is that there's always like, you know, you got the G 10 C, you got 10 major countries and then a whole bunch of emerging markets, countries. And you know, each currency can be enumerator or a denominator. And then you have different stories in all those countries so you can mix and match and there's always like a story in New Zealand or Canada or wherever. So I don't know. I've always found it fun, but it's, yeah, it's funny 'cause it kind of is like. It's in the weeds and it's definitely like inside baseball or whatever, but it's kind of the one of the more accessible markets too, if you wanna study it, because really it's, it's mostly about global macroeconomics and, you know, relative economics of two countries and all publicly available information and, you know, there's no insider trading and FX or anything like that. Um, so I mean, I don't know. I've always found it interesting, but, and, and it's also very liquid and high volume, and you can get a lot of leverage. There's, you know, it's a huge market, right? Yeah. I mean's, yeah. It's, it's gigantic. Yeah. So, so, so what, what do you say to the person at the cocktail party that says, okay, but what, what purpose does it serve? Well, I mean, I guess the question, that's the existential question I ask myself every day, but I'm sorry. Well, I will say though that currencies are a good rebalancing mechanism. Whether, you know when when one economy gets hot, their currency goes up, it makes things more expensive to buy from that country. It reduces demand, import demand, or export demand from that country. It is a little bit of an automatic stabilizer, especially like as a Canadian, you know, if Dollar Canada goes to one. You know, cross border travel changes, online shopping changes. People start buying cars in one country instead of the other one, and it's like this automatic stabilizer. So I feel like just in general, prices are like the transmission mechanism of information around the world. If you believe in capitalism, you need prices. And, you know, prices are set by speculators to some degree. So like, that's kind of like the defensive answer as a trader. Um, but in, you know, in the real world. FX is actually probably the, the market that has the most real world flows of just like exporters coming in. You know, Toyota needs to sell dollar again 'cause they receive a lot of dollars from us customers or, or whatever. You know, there's, there's a lot of real flows going on every day. Um, or mergers and acquisitions, cross border m and a. Um, so a lot of it is actually real. I think a lot less of it is really speculative. Uh, obviously the speculators are operating on the margin, but I think in fx, the speculators are like the little pilot fish around the shark. And the shark is like terms of trade and like the real world. So I, I think FX is probably one of the most real. Markets in terms of like most of the flows are actually genuine business transactions, not, not speculation. Yeah. Agreed. And that was a fabulous answer. Thank you. Hopefully I wasn't too defensive there. I can't sue his careers at this point. Speaking with you about markets is, it's always fun. Thank you. Your, your command is, uh, is just unrivaled. How do people learn more about you and what you do? Sure, so the easiest thing is just to go to spectra markets.com, so S-P-E-C-T-R-A. markets.com and everything's there, or people can follow me on Twitter. Usually I'm updating whatever, whatever I'm thinking on there as well. Brent, good to see you. I hope you come back soon. All right. Thanks for having me. Before you go, please be sure to subscribe to the channel. Leave us a comment and check out Brent's website. There's a link in the description below. We'll be back next week with Michael Howell. Until then, thanks for joining us.
The Great AI Rotation Has Begun: A Trader's Guide to the Next Phase | Brent Donnelly
Summary
Transcript
To me, this has been like a mega, mega rotation trade out of all the retail junk. The unwind of that is another symptom of the same thing, right? It's just retail money flowing into garbage. Hi, I'm Ed D'Agostino from Mauldin Economics, and today the always interesting Brent Donnelly joins us to talk about the stock market, AI and FX. Thanks for joining us here at Global Macro Update. Brent Donnelly, it's good to see you, my friend. Thank you for taking some time. Hi, Ed. Yeah, it's been a little while. You're looking very healthy and relaxed. This is all, despite what the market's been doing this week. so, you know, I do my best. You get to a point where you just realize it's like the Alfred e Newman. What me worry? Yeah, exactly. You've been there before. A little bit of a resemblance. I can see it if you, if you dropped a couple of teeth. Black that one out. You had a cover from Cracked in, in one of your, uh, recent additions too, which I, I appreciate it. Yeah. That's a real throwback. You've been busy. You did a, you did a survey, an investor survey, and, uh, the results were, were really interesting, uh, talking about our, our investors, bearish or bullish, uh, particularly about AI and. Right after I read the results, I jumped on CNN's website to look up the Fear and Greed Index. And the Fear and Greed index. At one point this morning was nine out of a hundred. Like ex extreme. Fear isn't even a strong enough word for or phrase for, for how scared a certain segment of investors are. But you didn't find that in your survey? No, not exactly. So I think what's going on is that. It's, this is my view, and obviously I could be wrong, but what I see is more of a rotation than like an outright panic trade. So you had all summer people were piling into, uh, the most unprofitable, the most shorted, essentially, like the worst companies in the world, you could argue, um, were the ones that were rallying the most things that have no revenue, even like, um oh. And Retti and things like that, which eventually could be good companies that make a lot of money, but in the meantime, it's, it's very difficult to value them. So it's pretty easy for something like Retti to go from five to 50 because there's no anchor. It, it doesn't even have revenue, so you can't even look at revenue. So all those stocks rallied, um, throughout the summer, and along with that was also companies like Core Weave and Oracle, which were a little bit on the sketchier side of the AI trade, just because they're more relying on debt as opposed to companies that are relying on free cash flow. So I think he had a big pivot on October 29th when Meta's earnings came out. So looking back to July, they essentially said the exact same thing as they said on October 29th, which is, expenses are gonna be a lot higher because we're doing a lot of AI CapEx. And in July the stock ripped on that because that's what people wanted to hear. But in October, the stock went down on that and that was a huge red flag to me because. A lot of times people are looking for like, you know, Jensen Wong to say the AI CapEx cycle's over or whatever. But a lot of times the tops are more made by the, by the price itself, by the human reactions to the news, not the news itself, if you will. So now going to the survey, um, essentially the questions all kind of revolved around the current state of AI and what people think, whether it's a bubble and. The majority of people do think it's a bubble, but also the majority of people do not think it's topped. So, and I think that's probably reasonable given that what we're seeing is, like I said, the, the super debt heavy companies like Oracle and Core Weave selling off. But does that really have a read through to something like Google or Netflix? I, I don't really think so. I think the concern that the market has is that the companies are spending so much. That there may or may not be a payoff. But then on the other side of the ledger, companies like Amazon and Google are benefiting from the AI CapEx because they're earning revenue from that. So like the linchpin of the whole thing is open ai, and I think we kind of went from like, this is ridiculous, but I, I will allow it to, this is ridiculous and I'm not gonna allow it, is kind of how the market turned because OpenAI is making so many commitments. It almost feels like it's not credible to some people and I, to me, it kind of seems a little bit hard to believe. And then you had the interviews with Sam Altman, where he was kind of saying, you know, you don't like it. Then short our stock, well, first of all, there is no stock to short, but second of all, you know that kind of defensive reaction. Isn't really what you want to hear as a capital markets kind of person. So one of the questions in my survey was, uh, on a three-year time horizon, would you rather be long or short open AI at a 500 billion valuation? And, uh, 65% said short. So I think the interesting thing is that you can have a correction in all those names, like I said, but it doesn't mean the actual entire stock market has to go down. I think what people are looking at is, especially with open ai, and this is my opinion too, is that you, you look back to two to 1999, 2000, you know, the leader in search in 1999 or in 1998 was Alta Vista, 1999 was Yahoo and a OL and you know, MSN network and all that. And in the end the winner was Google. But Google didn't take over till 2003. And as an avid user of like Open AI, cloud, perplexity, Gemini, I use all those things. They're very similar. Like there's obviously differences and some have different strengths, but it's quite commoditized. You know, they're all 20 bucks a month. You put the same query into four of them, and a lot of times you get the same response and then you've got deep seek doing the same thing with a lot less compute. So. I think people are justifiably worried about anything that is relying on financing from open ai. And so, like I said, that's what I see is, is a rotation out of, you know, the, the zero revenue companies and the more indebted companies, and that's a little bit of a baby with the bath water situation where everything's selling off. Because tech is such a heavy weight in the indices. Um, and then there's some, some legitimate concerns with Nvidia too on their chips are mostly, you know, absolutely necessary for training, but they're a little bit less necessary for inference. And so the question becomes like, can a MD produce a chip that's almost as good, or can Gemini internally create a chip that's almost as good? And so at $5 trillion valuation, you know, NVIDIA's gotta thread the needle pretty well to, to justify that valuation, like as a percentage of the stock market. That's like an insane valuation, you know, by any metric Now. Price to sales isn't that high. But anyways, there's plenty of things to worry about in that area, but I think it's more of like an endogenous repricing of all of these baskets and less of a like, we're going into recession and the world is ending. And then one thing just, sorry, one last thing on top of all that. When all that was going on, fed pricing went from a hundred percent cut in December to 50 50, so. You know, obviously that doesn't help either. So you mentioned the business model of AI and how it's become commoditized. What do you think the end game is here? A lot of people are, are talking about how, look, these numbers can never work if you're going to charge $20 a month or $30 a month, or whatever it is for your service. Um, and, and you're, and you're, uh, offering up a large language model that is essentially a commodity. You're, you know, op open AI's, market share's gonna continue to shrink. What you pointed out recently. But I question whether that's really the business model is, is the business model trying to get more people to pay me $20 a month, or is the business model trying to get more and more and more people, a huge swath of humanity to tell you. Your deepest, darkest secrets, right? Like everything about yourself and everything about your business and all of the things that you're researching so that they can then flip that around and, and monetize it and order of magnitude that, that Google, uh, would be able to mo monetize. Is that the business model? I think that makes sense. I will say I'm not an expert on technology. Uh, but I mean, obviously I'm in the weeds just because I'm a trader and I'm following everything, and to me, like sadly, I think the business model's probably like advertising and pay to pay to click and paid pay to play, so that when you ask chat GPT, what's a good mattress? It'll probably spit out a sponsored link. I mean, excuse me, go. If you follow the Google model or the Google trajectory, that's essentially what they were, right? It was this super clean interface. Where you got a, all these beautiful results that were unbiased and then slowly, slowly, it's pay to play. And so, I mean, I think what you described makes sense. It's just user acquisition and then you kind of figure out how to monetize those users later. But the problem's gonna be that there's just a lot of platforms all acquiring these users at the same time. I don't know. I guess I'm, I'm quite skeptical of OpenAI in general, and I think one thing that will be a huge market moment, and I'm not predicting this around the corner, but at some point in the next, say, like 18 months would be if OpenAI did a down round. Because at some point people might just be like, okay, how much money do we really want to put in here? Like the, the problem with IPOs in general now is. They're IPOing at a point in the business where all the juice has already been squeezed out. Like if you look at all the IPOs, like whatever you wanna fig, fly, figma, you know, bullish, whatever, just look at like the, all the, this so-called hot IPOs. They mostly go straight. They have mostly gone straight down because they're IPOing very late stage in the process. Like, it's not like they're raising money. To invest, which is the old IPO model they're using, they're looking for retail exit liquidity so that insiders can, you know, all the VCs and everyone that's invested and took a lot of risk to invest in these companies, but it's a monetization, um, you know, it's a monetization point. Now, it's not a, a fundraising exercise, so it, you know, same thing with OpenAI, if you're. Finally getting in at a $500 billion valuation. Like what are you looking for? Maybe two XI guess like a trillion dollar IPOI mean that's probably your most dreamlike scenario at this point. So, um, yeah, I think that will be a big moment. If, if OpenAI ever has a down round, I think that would probably be a super scary moment. Um, especially for, I'm sure everyone's seen those. Crazy or Boros charts of all the interconnected things. So if you look at like, who's most reliant, uh, you know, Oracle obviously stands out, um, at, you know, that will be a bad day for Oracle. There's so many. What I call circular deals being announced, you know, like Nvidia investing x billion dollars in this company, uh, which essentially is like, we're gonna give you our chips instead of sending you an invoice. Right. It is kind of eye-opening for sure. And one thing I will say though is that, like specifically I keep picking on Oracle, like that's been a subject of conversation since like, I would say probably the 10th of October the CDS started widening. And so I would say I'm actually much less bearish now than I was like mid-October on those stocks. Just simply because now you're getting investment bank downgrades of Oracle and like it's become a little bit obvious at this point that like, okay, they're, they, they do stick out as a company that's much more reliant on, on open AI and debt financing. But at the same time, you know, the, none of this is really like. News anymore? It, it, I think I actually am somewhat bullish into year end, just generally at the index level because I feel like a lot, a lot of froth has come off of the market. So if you look at something like I, like I said at the, at the start, like something like Google or Netflix, which is not really in the like AI spender basket in my opinion. Like I see Google more as like a VC with unlimited cash flow and Netflix is like a turning into an ad business at some point. And it's like another FCF kind of just mega cash flow business. Those businesses aren't really necessarily vulnerable, um, to a repricing of the AI story. So, uh, to me this has been like a mega, mega rotation trade out of all the retail junk. And I would say like the crypto treasury scam, I would call it, but whatever you want to call it, crypto treasury bubble or whatever. Um, the unwind of that is another symptom of the same thing, right? It's just. Retail money flowing into garbage, and now it flew, it flowed out of the garbage. And most of those crypto treasury stocks that we're trading two, three times NAV are like 1.02. Some of them, I mean, the, some of them are trading at 60 cents on the dollar now, so. I feel like that again is another indication that the froth has come out significantly. And so now we kind of have like a healthier, a more anti-fragile, um, kind of stock market than we had, you know, in the middle of October. You're not in the correction is imminent camp? No, I feel like, so I'm more in the, like the correction already happened camp or like we're in the eighth inning maybe, but, um, yeah, I, I feel like. People are gonna, once things stabilize, which I think is probably around now, I guess, you know, risky thing to say on a recorded podcast. But I do think that we're probably in the, like the later innings and then when things stabilize, people will start to look ahead to 2026. And people generally feel more optimistic going into the new year. You've got fiscal now gonna start picking up again. You know, liquidity's gonna pick up now that the shutdowns over. And so some of the factors that have been hurting liquidity. Um, you know, tightness in funding markets and all that stuff will be relieved. And so I, I'm much more optimistic, although I'm so, I'm more concentrated, like I said, Google and Netflix look good and then I actually don't mind some of the crypto stuff now. It's just everything on Twitter is victory lapsed by the haters. And, you know, we've come a decent way. You know, people are declaring Michael Saylor dead for the 25th time and. You know, in the end those things are just, are just liquidity sponges. Like crypto's just a liquidity sponge, like, you know, like TTI or whatever other, you know, risky asset you wanna look at. I guess you could say crypto has become the risky asset layer of the US dollar system. Um, interestingly because it was supposed to be an anti dollar, but actually it's more of like just another layer on the dollar system in my opinion. 'cause every stable coin is denominated in dollars. So to me, I, I, I think that most of the froth is out and I, yeah. So I'm more constructive. What do you make of, uh, of, of Berkshire Hathaway and Warren Buffett investing in Google? A lot of people were surprised. Yeah, it's interesting. It's, it's very, I guess people are arguing it's out of character or it's like off brand because it's not a value stock. But then if you look at historically, like so much of Buffett's money was made in Apple and Geico. Which were not really value stocks, like they were more growth businesses. I mean, I, I guess obviously it matters when you get in and all that, and Google does feel like you're getting in kind of late relative. Even Apple was kind of hated when Buffett got in. But at the same time, I don't think it's that out of character, you know, it's, it's a business that has a lot of pretty cool, understandable businesses like Robax and stuff like that inside it, and. It seems to be the fear of the search engine business getting killed by perplexity or whatever has dissipated. So, I mean, it's interesting, like it's fun to to, to pick it apart, but I mean, in the end, you know, whether it's him or someone working for him, you know, it's still rel I mean, I have to think it's smart money and big money being. You know, going in the right direction. So to me it's, it's bullish, but I don't know, it doesn't change my view. Like I, it doesn't, doesn't make me bullish. I was bullish anyways, but it doesn't make me not stay bullish or it doesn't make me less bullish. If anything, it makes me a tiny bit more bullish, I guess, at the margin. It wasn't long ago that I would describe you as fairly bearish. So I, I like the intellectual flexibility. Yeah. So that's one thing I guess that's important for your, for the listeners to know is my time horizon tends to be like between one week and three months, depending on, you know, like what's going on. What I'm trying to do is kind of ride the narrative or the, the second derivative, or the first derivative of the narrative. So like when the story's changing. As it was in October with, with ai, you know, there were some, uh, and, and the crypto treasury trade. Um, there were some really great bearish trades there, but I don't think those are good trades anymore. So now, if anything, I feel like sentiment is quite bearish, actually. Like, I feel like even going into NVIDIA's earnings, I, most people that I talk to are set up for a bearish outcome. Um, so I feel like we've gone from. Pretty much like stupid, like max stupid. There's a guy on Twitter calls it that. Uh, we went from max stupid to, you know, pretty conservative allocations. I think in terms of some of the stuff that, that has sold off significantly. I always find the whole like, narrative thing interesting, right? Because sometimes an investor will look at the narrative that's happening as a signal to go in one direction, and sometimes they'll look at it. As a contrary indicator to go in the opposite. Right. So how, how do you discern between the two? That's a great question. So to me, it's similar to positioning indicators, which is most of the time you want to go with the trend or with the narrative. Like I, I think a lot of times you can say the narrative and the trend are kind of synonymous, and what you're looking for is the inflection points when it gets stupid in either direction or it gets extreme in either direction. Or the other thing is if you've had one narrative, like so you had one narrative basically since chat, GBT came out, and to me the narrative kind of flipped on META'S earnings because the market was no longer rewarding. Um, mega CapEx. So sometimes you'll have like a long, long running narrative trend and, and a price trend along with it, and then you get a crack in in the behavior. Um, and actually that's an interesting thing that I've been realizing lately. So I'm writing a new book. And one of the things that kind of, it's interesting when, when I write the book, sometimes I learn stuff just by the sort of process of, you know, processing my thoughts and, and writing them down. But I'm, I realize that one of my, so people a lot of times ask me like, where do you get your trade ideas? And they're kind of expecting an answer. Like, I go through screeners and filters and whatever. But it's tends to be more by osmosis, by like just consuming a lot of information and reading a lot of stuff, talking to a lot of people. And I realized while writing this book that one of the big signals for me is when something weird is happening. Like when. Uh, so you have sort of like all these patterns that you expect, you know, like good earnings, earnings in a beat, the stock should go up if it goes down. That's, you know, a pretty obvious tell of like good news, bad price. You know, that's a known setup, but there's a lot of setups like that where essentially what's happening is the thing that should be happening in the market is not. That's a massive tell because it's revealing that, you know, either the buyers are exhausted or there's a massive seller coming in with a different time horizon, or you know, people's belief systems have changed and they no longer wanna respond to price in the same way or whatever. And so for me, I'm looking for like trend exhaustion, narrative exhaustion. Ideally with like an extreme point marked by a change of behavior in the market. And like, I know it's all, sounds like a little bit like reading the tea leaves in, in, in the palm of your hand or whatever, but a lot of times I feel like you're just sitting there and you're, you say, wow, this is really strange. What's going on? Like this doesn't make any sense. And then you start to unpack it and underneath there's a pretty good trade idea there a lot of times is what I find. Um, and like the really simple, more data driven explanation is that when you get to like three standard deviations on any positioning or momentum indicator, it always kind of lights up in my mind, like, okay, something interesting could be happening here. Or another way of of doing it is you calculate the rolling sharp ratio of an asset. And if that, you know, a lot of times that sharp ratio will, will be in a range. If you look back 10 years, like the sharp of that thing will never go above three or whatever. Because a couple of things like first of all just trees don't grow to the sky. But then also high sharp ratios attract more money. So generally like as say something like the Brazilian royale with super high carry. You know, perfect trend. The longer that goes on, the more money gets sucked in by it. Like fomo, but also systematic money and all that. So if I'm doing something more data driven, that's what I'm looking for is like. If I had a, you know, Ben Hunt's narrative data analysis system, it'd be the same thing. I'm looking for like three standard deviation extremes in any narrative. And then I would say, okay, it doesn't necessarily mean you just fight like fade, every single one of those, but like that's where the trade ideas come from is like. The price action doesn't make sense or the, you know, price action is extreme to the point of it's like multi standard deviation or positioning is multi standard deviation. So that's kind of like, those are the kind of things I'm looking for. Um, and then like, just one simple, like, I'm sort of like the, the magazine cover indicator guy, um, for better or for worse cover. The economist type thing. Yeah. So the cover of the Economist is a good example of that because. The Economist is not really a markets magazine. It's more about like geopolitics, economics and, and global macro and stuff. So if anything related to the markets gets on the cover of The Economist, that's like a three standard deviation event, right? Like if they're talking about the US dollar on the cover of The Economist, that's like once every year that's gonna happen. And by definition the, you know, in that case, the dollar has been in the narrative for a long time and it's a huge story that literally everyone's talking about. And that's when it lands on the cover of the Economist. And so that's why if you back test, if you go against the cover of the Economist, you make money like a crazy amount of the time. Um, and just just a little caveat, if, if you can't do that with market oriented things like Barron's, because they're more coincident, they're more just telling everything that's going on all the time in markets. So like they're gonna be covering the thing every week. Um, the Economist is unique in that they're not constantly looking at markets. So if something from the markets lands on the cover of the Economist, that's also like an eye-opener of like, okay, this narrative is. Super, super well known and super mainstream. 'cause now it's on the cover of the Economist. So, so one of the things that, that I noticed that kind of made me pause and wonder what's, what is the implication of this is? And, and our, our mutual friend Jared Dian, uh, also identified this Andrew Ross Sorkin coming out with a book called 1929. Right? And the weirdest, I thought this was so strange. That they let him ring the, the bell to open the stock market with this book about the stock market crash in his hand. And I thought this is the bizarrest image. Yeah, it's bizarre. And a lot of the book is about market manipulation and like unethical behavior by Wall Street bankers and you know, the guy that ran Citibank and stuff like that. So there is a lot of irony in, in that ringing of the bell for sure. Uh, you know, I was wondering that too, that. If you read the book, uh, it does echo a lot. I mean, all the eras echo somewhat. Um, but I was almost wondering if, you know, that's the number one business book on Amazon, if that's actually screwing with people's minds a little bit. Because if, you know, thousands of market professionals are reading that book right now and going, Hmm, this sounds a lot like. You know, 2025, uh, you know, maybe I better lighten up my 401k. Uh, you know, stranger things have happened. Yeah, I, I think it is, I mean, it just, it just feels like in the mainstream and financial media that there really is a pretty loud drumbeat right now of, of negativity and comparisons to 29 and certainly to, uh, the late nineties, uh, before the tech crash. Do you care about that sort of thing at all? Uh, or do or are you more short term oriented and, and if you do care about it, how, how are we d how is it different today? So the, there, there's a few ways of looking at it. It's funny because everything has changed now. So like I was trading in 98, 99, and there was essentially two groups of people. There was like the believers. And the haters and like so people that just thought it was a bubble and were short all the way up and went bankrupt. And people that were long all the way up and then wrote it all the way back down and went bankrupt. And so that, I mean, that's on the trading side, you know, in the day trading world, that's what it looked like essentially. And so the big lesson from that, and I was always kind of agnostic, I think it's just more my personality. So the lesson from that was, I think that just being agnostic is the best way. There's this kind of like bullshit common knowledge now that if, because, because Soros and, and Druck and Miller have said this, but they don't actually trade this way. Um, but they've said like, if I see a bubble, all I wanna do is be long the bubble. And, you know, obviously that that can work to some extent, but that's assuming that you are a smarter fool than the the greatest fool that's gonna buy at the last second. And nobody, nobody is really that good. So the way I look at it is just like, I don't know the future, and I'd much, much rather be looking at like the, the sort of like one to three month time horizon. And like I will do things like. Palantir, for example, because of the price to sales and the market cap combination is like the most overvalued stock in the history of the US in my opinion. So like I will eliminate that from my investments. Just like remove the, remove the super overvalued things. But I, it doesn't mean I'm gonna sit here short Palantir every day because like, like Tesla, you know, like sometimes these extreme belief things, they turn into more like meme coins than. Then, you know, company stock, you know, like people have spent 10 years comparing Volkswagen's market cap to Tesla looking at relative car sales or whatever. Like Tesla's just a meme coin at this point. Um, you know, so, so I will never just sit there short. I'll be happy to be long or short, I will eliminate extremely overvalued things from my personal. Like from my pa from from my investments. Um, but in terms of like how do I view it or like, what's the end game? There's so many similarities. It's easier to find the similarities. But I think also there are a lot of differences. Like these companies make insane amounts of money, um, which wasn't really true in 2000, like even Cisco and those companies, yeah, they made money, but they weren't making money at the scale that these companies are. And I think something like Nvidia, you can argue CapEx has always been mean reverting, and it, it never continues forever. Then something like Microsoft, like sales, you know, selling digit, you know, pixels to, or, or ones and zeros to people. I mean, Microsoft was the biggest stock in the world in 2000, and it was again in 2021 or whatever. So there's nothing to say that like all the stocks have to go to zero. It's, it's more like what I want to do is more find the inflection points and like if I'm good enough, maybe I can both be long and short some of these stocks at different times. Make money. And that's kind of my goal is to, to not pick a side and be willing to say like, okay, maybe Nvidia goes to 10 trillion, or literally maybe it goes to 500 billion because, you know, people don't need Nvidia chips anymore 'cause a MD and Intel out compete them. You know, like, I think honestly both of those are possible. Open AI is probably like the most binary business in the history of the world, right? It's, they're just basically going all in with. I don't know, ten nine suited or something and saying, we're gonna spend $1 trillion that we don't have on 20 billion of revenue. But you know, maybe they'll do it, you know, or maybe it's Sam part two, you know, the, there was another SAM that, that sounded similarly ambitious and didn't work out very well. So, honestly, like, I feel like the, it's, a lot of these things are pretty binary. So there's no point like being deterministic and saying, I know what's gonna happen in 2028. I'd rather, you know, react more than predict. There's definitely a Pied Piper aspect to Altman. I don't want to say too much, like be too negative, but some of the interviews that open AI has given in the last two or three weeks, not just Sam Altman, but just overall definitely. Make the question marks pop up above your head, that's for sure. You're probably best known for currency for, for, for currency trading. Uh, what's it been like trading currencies, uh, with a government shutdown? Pretty horrible. I would say. So this, the first half of this year was probably one of the best times ever to trade fx like we had. This raging dollar bull market with Trump elected and then people completely flipped and said like, he's the worst thing ever for the dollar. So the dollar, you know, cratered in 2025. Um, but after May or so things stabilized and then everyone was short dollars. It was super consensus and there wasn't really a catalyst to go long dollars, but the dollar just stopped going down. But then the shutdown has been really bad for fixed income and currency trading because. Those two markets, we really rely a lot on US data as like the real compass of where are things going? Like the dollar. People love to talk about structural stuff with the dollar like deficits and you know, Trump is bad or D dollarization and Russia sanctions, all that. Almost none of that is tradable. It's the dollar is just a cyclical currency over the, like since 1975. If you look at the economic cycles and this, this sort of like broader global cycle compared to the us, that's generally what the dollar has done. And give or take, there was the Plaza accord and some things in there. But generally, like I'm a big seller of structural themes and I'm, I'm much more. Into the cyclical, you know, stories that drive, drive fx. So it's hard to have a cyclical story when you don't have data. So we've been stuck in, in ranges in fx, and I think we were discussing this a little bit before, before you hit record, but the annoying thing now is we're gonna get a bunch of data, but it's all gonna be polluted by the shutdown. So we're really not gonna get any clean data. I don't know really till 2026. And then by then, you know, you're gonna be looking at a different fiscal backdrop and you're gonna be looking at a, a different Federal Reserve composition essentially, you know, starting in, in early to, and then May, 2026. So, I don't know, this excitement about, you know, December fed pricing going from a hundred percent to 50%. I have trouble getting too excited about it because. The real Fed story is gonna be determined by like who's the new who? Who's the new head of the Fed, of course, is a huge question. What happens to Lisa Cook and then how much fiscal, and also the thing that people don't talk about that much is. All this ai CapEx, like, feels like, just like digital pie in the sky, kind of crazy talk with all these numbers. But the reality is like there is actually gonna be physical buildings and infrastructure being built in 2026, and that may create a lot of jobs, like, uh, and it may create wage pressure and, and labor shortages or whatever. We don't know. So I feel like slicing and dicing the data. In 2025 is kind of gonna be like necessary 'cause that's what we do. But I think it'll end up being a waste of time because we're gonna essentially have a completely different regime. Uh, FOMC, fiscal and, you know, broader economy in 2026. So that's gonna make FX tough, I think, until we get a, a little bit more clarity on what, what the US economy is doing. This is gonna sound like a weird question, um, and it probably is a weird question, but, you know, FX is, FX is insider baseball to the max. Right. Like if you, if you go to a, an a cocktail party that with doesn't have anyone in the world of finance and you bring up the stock market, uh, you know, at least half the people are gonna perk up and wanna talk about it. Uh, uh, you bring up bonds and, you know, half, half the crowd will fall asleep. But there, you know, there's some people will talk. Nobody knows anything about fx. Outside of a little world. I started in 1995 and my family still thinks I'm like trade stocks. They still ask me like, oh, what's a good stock to buy? I'm like, dude, I, I trade currencies. I, I, um, so yeah, it's, it's kind of like this funny thing. It's very macro. I think that's what I like about it, is that there's always like, you know, you got the G 10 C, you got 10 major countries and then a whole bunch of emerging markets, countries. And you know, each currency can be enumerator or a denominator. And then you have different stories in all those countries so you can mix and match and there's always like a story in New Zealand or Canada or wherever. So I don't know. I've always found it fun, but it's, yeah, it's funny 'cause it kind of is like. It's in the weeds and it's definitely like inside baseball or whatever, but it's kind of the one of the more accessible markets too, if you wanna study it, because really it's, it's mostly about global macroeconomics and, you know, relative economics of two countries and all publicly available information and, you know, there's no insider trading and FX or anything like that. Um, so I mean, I don't know. I've always found it interesting, but, and, and it's also very liquid and high volume, and you can get a lot of leverage. There's, you know, it's a huge market, right? Yeah. I mean's, yeah. It's, it's gigantic. Yeah. So, so, so what, what do you say to the person at the cocktail party that says, okay, but what, what purpose does it serve? Well, I mean, I guess the question, that's the existential question I ask myself every day, but I'm sorry. Well, I will say though that currencies are a good rebalancing mechanism. Whether, you know when when one economy gets hot, their currency goes up, it makes things more expensive to buy from that country. It reduces demand, import demand, or export demand from that country. It is a little bit of an automatic stabilizer, especially like as a Canadian, you know, if Dollar Canada goes to one. You know, cross border travel changes, online shopping changes. People start buying cars in one country instead of the other one, and it's like this automatic stabilizer. So I feel like just in general, prices are like the transmission mechanism of information around the world. If you believe in capitalism, you need prices. And, you know, prices are set by speculators to some degree. So like, that's kind of like the defensive answer as a trader. Um, but in, you know, in the real world. FX is actually probably the, the market that has the most real world flows of just like exporters coming in. You know, Toyota needs to sell dollar again 'cause they receive a lot of dollars from us customers or, or whatever. You know, there's, there's a lot of real flows going on every day. Um, or mergers and acquisitions, cross border m and a. Um, so a lot of it is actually real. I think a lot less of it is really speculative. Uh, obviously the speculators are operating on the margin, but I think in fx, the speculators are like the little pilot fish around the shark. And the shark is like terms of trade and like the real world. So I, I think FX is probably one of the most real. Markets in terms of like most of the flows are actually genuine business transactions, not, not speculation. Yeah. Agreed. And that was a fabulous answer. Thank you. Hopefully I wasn't too defensive there. I can't sue his careers at this point. Speaking with you about markets is, it's always fun. Thank you. Your, your command is, uh, is just unrivaled. How do people learn more about you and what you do? Sure, so the easiest thing is just to go to spectra markets.com, so S-P-E-C-T-R-A. markets.com and everything's there, or people can follow me on Twitter. Usually I'm updating whatever, whatever I'm thinking on there as well. Brent, good to see you. I hope you come back soon. All right. Thanks for having me. Before you go, please be sure to subscribe to the channel. Leave us a comment and check out Brent's website. There's a link in the description below. We'll be back next week with Michael Howell. Until then, thanks for joining us.