STRAWS ACCUMULATING ON THE CAMEL'S BACK (Guest: Brian McCarthy)

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This week Kevin & Patrick welcome, Brian McCarthy. They discuss the war in the Middle East, what that means for markets, and …

Transcript

Hit it. It's Friday, March 13, 2026. Well, Kev, it's Friday the 13th. What can go wrong here, right? Anyway, but episode 287. I'm Patrick Sesna. >> And I'm Kevin Mure. And with oil having the largest one-day moves in history, yet the stock market being relatively well behaved, who do we turn to in this madness to make sense of it all? none other than our fearless technical leader, Patrick Serzna. You don't want to miss this talking charts. >> And folks, we might even drink some beers along the way. Danny, jump on here. Like, uh, what what beer am I, uh, drinking today? >> Okay. Well, this one's called Square Wheels. Never tried it myself, but apparently it's a wheat wheat IPA with hops and a shine. Hops to shine without finishing sweet apparently. So, got pineapple, juicy tangerine, fresh lime, and aromomas. Apparently, >> sounds terrible, actually. >> For a six 6.2% strong beer, it actually drinks very well for an IPA. >> It's But it is definitely bitter. Anyway, well, I'll let I'll give a rating at the end. Let's give it a go. >> All right, Patrick, enough with the beer. You got something else, a big announcement. Why don't you tell people about it? >> Oh, super huge announcement. No, but listen, actually with these turbulent times in these markets, I can't think of a a more important time for me to host one of my uh normal um special webinars where I do for free where I show people how to hedge their portfolios. And I can't think of a better time to do it right now with the way the conditions are. We'll talk about it during the talking charts, but listen, we're going to give also more details on it, but it is going to be on Monday, March 16th at 400 pm Eastern. And uh you can f register for this uh hedging webinar on uh the bigpicturetraining.com website. We'll talk more about it in a moment. >> All right. So for those who are interested and want to know more about hedging your portfolio, it's bigpicturtrading.com Monday at 4 pm. >> Nonetheless, um Kev, uh what uh give us some disclaimers here, buddy. >> Nothing in this podcast should be viewed as investment advice. Listeners should consult an investment professional before making any decisions regarding topics mentioned in the show. Side effects of too much huddle may include the oil floor repricing syndrome, the mid70s accumulation urge, and the private fund gating panic. >> All right. Well, let's get to the guest. >> It's our great pleasure to welcome to the show Brian McCarthy. Brian is the managing principal for Macro Lens LLC. Brian, thanks for coming on. Thanks for having me, Kevin. >> Uh, it's going to be a lot of fun. I've already We were chatting a little bit before the show. Um, you're a Bostononian or or someone that grew up in Boston. Uh, growing up there, apart from loving the Bruins, did you always know you wanted to be into uh uh markets? >> Yeah, I did. I did. But, by the way, the local term, I didn't actually grow up in Boston. So, >> Oh, you didn't. >> More appropriate to call me a mshole. It was >> um and and you know I I I not to date myself but I sort of came of age in the 80s. I graduated Harvard in 1988 and uh you know Wall Street was the place to go, right? What else? You know that that was sort of uh where everyone was heading. Um, I landed on a trading floor at Morgan Stanley in the international fixed income department and I've been in, you know, what they call FK ever since. Fixed income rates and currencies are, you know, sort of my area of expertise, uh, global of course. Um, and you know, it's been a a long strange trip. >> Uh, now did you go to school like at Harvard? Did you study business? >> I studied economics. Yeah, it was economics. I have an undergrad in economics which I I find sufficient. >> Okay. And yeah, well I always kind of I have the same degree and I always say I I'm successful or moderately successful even with despite having that. Um so you go to Morgan Stanley. So this is 88. So you just the crash has just happened. Um but the bond market is actually like that's the start of a bull market, right? Like that's actually terrific timing in terms of the the subsequent years of uh bond bull market. Yeah, it sure was. It was a good It was a good period for fixed income. Um, and you know, the whole international thing was really just coming of age as well in terms of US investors looking for diversification uh in in global fixed income. And that was really, I'd say, the first decade of my career really the focus. So again, I was in a research group at Morgan Stanley and then I I uh followed my boss over to what was then called Alliance Capital, now Alliance Bernstein. and in an international research group there. And so I had early experiences uh in in a bunch of crises basically. Uh in 1992 it was the erm exchange rate mechanism the precursor to the euro blew up. They ended up putting Humpty Dumpty back together again obviously, but Alliance Capital at that uh point had had a lot of uh institutional clients in uh global income funds that were basically you know FX carry trades uh that suffered a lot of volatility. So that was a sort of early trial by fire. And then uh shortly thereafter I went to AIG, the insurance company, and I managed a global fixed income portfolio for the insurance company. Uh lived through the Mex Peso crisis. >> Okay. >> Which which was, you know, another popular trade that, you know, most of us had for income generating purposes that got pretty wild in 94 there. And then at AIG, I was ended up in the middle of the Asian currency crisis because AIG obviously has huge business in Asia. And as a global fixed income manager, I was on the uh you know, the foreign exchange committee with a handful of us sitting with the the vice chairman helping them decide what to do with the firm's foreign exchange exposures. And uh I I had by the time I left AIT, my my nickname was Mr. bot because I sort of ended up in the middle of that. Um I I'll tell the story if if you got >> Yeah, sure. I'd love to hear it. I was gonna Yeah, for sure. >> I was like the time this time about, you know, we had a huge exposure in Thailand. I'm like, "This thing's going to blow up, right?" Um but interest rates, I don't remember, they were 19% or something and and these very senior guys at AIG were like, "Ah, we don't want to pay that." And I'm like, you know, just whatever. three months is a quarter of 19%. If this thing goes, it's going to go 30%. Like, right, >> let's just let's just hedge this. And and they said, "Well, we don't want to pay that much. Well, let's only do one month, then we only have to pay, you know, 2% or whatever whatever it was." And I didn't really fight for the position because I was a junior guy, >> right? >> And and you know, these guys were 35 years and hundreds of millions of dollars my senior. And I was like, "Okay." And I thought it was sort of a win. And our hedge expired, came due like 3 days before the thing blew up. >> Oh, come on. >> And then our hedge came due. Now rates aren't 19%. They're at like 19,000%. Right. So, we couldn't roll the hedge and then went into the event on hedge and got created. So, oh my goodness. I'm not exactly sure what I learned from that other than I think really you got to stick to your guns when you have a strong view and and like I I settled for half a loaf and it ended up being, you know, worse than doing nothing basically. So, um these things are are tricky, but this is this is this is how we this is how we learn in this business, right? >> Right. And I I so many times I've seen people try to get cute with their hedge and save money and it ends up costing you money. And one of the things that I've learned like I I grew up I was an equity index derivatives trader and so I was always short those those options and in general they were always like they would trade rich versus uh realized so we would be short and we would make money and then as I you know went on and matured to my own account. I been hesitant to buy options. I always hated buying options. One of the things that I learned doing this show was I had guys like Morris Sachs and Jim Lightner on the show and they would talk to me and they would say, "No, you have to buy longdated options." And that was the one thing that really was kind of an aha eureka moment for me when I realized take away trying to time it perfectly because nobody does. And yours is the perfect example and just buy the longdated hedge >> because the street the the investment management community is set up to sell vault, right? that that business they're picking up. You you pick up the pennies in front of the steamroller, right, >> for three or four years. You get paid and then the steamroller comes while everybody else got steamrololled >> and and then you do it again. >> Well, I I I I love telling the story of uh it was Pimco's Bill Gross. He came out and he talked about how the uh Boon when it was trading negative yield, he said this is a once in a-lifetime opportunity to like short the boond. He shorts the boon. He's talking about he's like doing, you know, table pounding and then he ends up losing money on the position because he got greedy and he did like a one by two or whatever and because he >> All right. So, you're there at AIG. You go through the long-term capital. What's your next move uh in >> then I moved to the uh I moved to the sell side. Okay. I went to uh Barclays Capital and I was in FX sales covering mostly asset management accounts and some hedge funds and I had three stints in that gig. I did Barclays and then UBS for about three years and then RBS for about three years. I did that for about a decade >> into the through the financial crisis. So I was at RBS in the financial crisis. I mean to some extent the epicenter but what wasn't right? Everything got everything got smoked then. And that was that was obviously a wild experience. Um but pretty clear coming out of that that the uh the FX sales gig had changed in a pretty dramatic way. Um that wasn't going to be you know the institutional sales I think across all product areas sort of in most cases aren't what they used to be. Um and the business certainly isn't as much fun uh after the crisis as it was in the uh the late 90s and the 2000s. Uh um but uh so so I was fortunate in that um a gentleman that I sat behind at Morgan Stanley on my very first days in the business, guy by the name of Kevin Kenny um had started a hedge fund. He was one of the first Tiger Cubs. So okay, he was uh he was like a star. Morgan Stanley was running emerging markets there in his late 20s and then Julian Robertson seated him again as I think it was the very first round of of Tiger Cub funds uh and his hedge fund was called Emerging sovereign group and he hired me in early 2011 as the global macro strategist. Um they had a long short emerging market equities fund and a macro business. So I was the chief strategist for the macro business and then in 2012 the Carlilele group bought 55% of the firm from he and his partners and uh they were very deep into China a lot of PE business in China great connections and Kevin called me into his office he said you know we've never done anything in China macro we have great connections through Carlile why don't you go spend six weeks in China and come back and tell me what you think and this was 20 early 2012 So I did that and I came back and I went back into his office and I said, "Oh my god, this is the craziest thing I have ever seen in my life." Um, and so that's now 14 years ago and it had, you know, the telltale signs of a sort of a Ponzi dynamic then in that they were uh, you know, just just complete and total moral hazard backing the financial system. Um, so we started I designed a a single strategy fund predicated on the R&B blowing up. And you know, Kevin was really like to sort of lever up these single strategy funds. When the R&B devalued by 3% in August of 2015, the fund returned 72% on the day. So, so I had that tiger by the tail for the next three or four years through through a lot of ups and downs. A lot of ups and downs. Um, you know, at one point I think I was might have been the biggest on the street in like one to two-year dollar C&H calls. Um, which to your point about buying long-term options, by the way, two-year dollar C&H calls are at all-time lows. Maybe maybe discuss that later. Somebody wants a sort of a cheap hedge to put in the drawer. I know everything looks rosy in USChina relations right now, but there's no guarantee that that uh situation's going to last for two years. So, at any rate, I I sort of manage the ups and downs in that fund. Um, but Carlile Carile just didn't really enjoy their experience with hedge funds. They bought three. The other two fared really not well, and we were sort of treading water. So, they sold the firm back to the founders, but they decided to shut it down in 2018. Um, and I had basically, I think, had enough of like the Stamford train platform at 5:30 in the morning and like just just had had enough. Uh, so uh, always liked to to write and uh, you know, the strategist role was where where I really felt most comfortable. Um, and decided to found Macro Lens in late 2018. you know because of my sort of broad experience on both the buy and the sell side had a pretty good rolodex of institutional investors and I you know provide institutional research and strategy um on an independent basis and it's uh both strategic and tactical. I I write a note every Friday that's pretty extensive and put out a video to follow. On Saturday I'm in IB chat with a bunch of more tactical investors on a daily basis. So, it's a sort of a real- time institutional uh research and strategy product. >> Got it. And you got to get you got to move back home. >> I did. Now I'm back on Cape Cod. The youngest went off to college, so we moved out of Stanford. No more of those trains. And you know, now it's just a fivemon dark cold winter, but we're coming out of that. So, >> yeah, we got to got to stay positive. Well, listen, I'm up here in Toronto. It just snowed. So, just be thankful you haven't got that. Okay. So, let's talk about what you think about markets. Um, obviously, you know, what's on most people's mind is uh the Iran slash USIsraeli war. Um, I I don't know about you, but I've been really kind of fascinated about the fact that the market is being so sanguin about sanguine about it. I don't know how to say that word, but um just relaxed and and hasn't really until this past few days been that concerned about it. like I you know I if you look the first week um from Monday to Thursday the stock market was unchanged. >> So first of all did you do you agree that the market was very relaxed and and and did that surprise you? >> Well there's a there's like relative pricing that doesn't make any sense to me. >> So obviously the oil market was not relaxed >> which makes perfect sense. >> Correct. Yeah. I guess that's true. Yeah. And then but the bond market is also very not relaxed and we can talk about that that trade makes no sense. Central banks cannot be hiking into a supply shock. The economic logic of that econ 101 aggregate supply aggregate demand says you're going to go into recession if you do that. And if you have a sustained supply shock real potential growth is going to be lower at least as long as that supply shock is is ongoing. And that suggests the neutral rate should be lower. So, so the Fed needs to make sure it doesn't uh tighten the monetary stance and if this if we're still at war in 6 months, rates are going to have to be lower. I I that that seems as clear as day to me. Uh it's not an easy choice because obviously there will be price pressures. Um but but the reason the bond market has continued to trade highly correlated with oil, i.e. oil up, yields up is because to your point, the equities haven't freaked out yet. >> Yes. >> But my view is that if if if Trump, >> you know, we're moving a a marine amphibious unit out there now, I think it's posturing. Um, but if he decides to take Car Island or something, oil goes to 150, equities aren't going to be down 2% then. I mean, this market is showing like that the the the straws are accumulating on the camel's back. So, I I think if that happens, it's not my base case, but if that happens, you're talking equity's down, you know, we're going to have a 5% down day type of thing, >> right? >> And and and then I think the market is going to wake up to the reality that that a supply shock is other things equal contractionary, not inflationary. So, get back to Iran. And I hope you don't mind me bouncing around. No, we're on the supply shock thing. I think I think the reason the market misreads this. Two reasons. There's the oil crisis in the 70s. >> Yes, we had an oil crisis. Inflation was very high. Nominal GDP growth was 12% or something when the when that crisis hit. >> So nominal GDP growth was double digits on average through the 70s. That was a demand problem exacerbated by supply shocks. >> Okay. Same with 2022. And I think we have a real problem analyzing this because the Federal Reserve had to cover their ass by saying it was a supply shock. But if you look at the trend of nominal GDP, it clearly was by 2022 nominal GDP. It dipped in the recession, came back hard, but cumulatively on trend it had g it had gone much higher than the previous trend. Right. >> Clearly there was a demand management error. They in conjunction with the Treasury did a big helicopter drop and they overdid it. Now I I I I honestly don't know why they didn't just say yes. There was a demand error here exacerbated by the supply shocks coming out of the pandemic and Russia. >> Yeah. >> But let's just look at the chart of nominal GDP. We made a demand management error. It was a very hard thing to calibrate. I mean, I think it's sort of understandable, you know, was two trillion helicopter drop the right number? Was four trillion the right number? Nobody had any idea. >> Yeah. Okay. >> It was the wrong number. And, you know, and then the less the less acceptable error, I think, was the the the slow rate of tightening, you know, the slow unwind of QE in early 20 that was just they were they were too slow. So, they made a demand management error. But because they'd rather not admit that, they just blame it all on supply shocks. And I think too many people have bought the idea that that was a supply shock. >> It was primarily a demand management error. And all I would say about the current environment is I don't think we have a demand management error. You know, nominal GDP growth has been very very stable, call it 5.3% final sales for two and a half years now. >> Yeah. >> So, so the Fed actually has landed the economy. Now, we can talk about the the the administration's theory that real potential growth is much higher. I take issue with that. But 5.3 is probably consistent with core PC inflation at 2 and a half over time. >> Now, is that perfect? No. Perfect would be two, but we just went through the entire previous cycle at 1.6. >> So, they did 1.6 last time. They do two and a half this. It's close enough for government work. the and the problem with these these a lot of our friends on on, you know, Twitter want to, you know, push it down to two. They're not a two. They're not at two. Once you've been at five, you know, 53 nominal, let's say that's consistent with two and a half. So, what is that? 28 real potential, which is maybe generous, but ballpark figures, right? um you know to say I want to push it down by half a point now to get it to a more inflationmandate consistent level it's not worth the risk right >> because now you have a whole set of asset markets that are now priced to 53 because we've had that for two and a half years >> okay so so so the longer you price at a certain level like in the last cycle I don't know what was stall speed three and a half nominal because we were at like four and a half. Right now we're at 53. Stall speed's higher because because you cut 150 basis points off nominal growth and this this bubbling problem in private credits going to not it's going to be more than bubbling. Right. >> Right. So, so, so just by dent of the fact that we've been running very stably lowvall at this rate for two and a half years, I think you're playing with fire to try to push it a half point lower. um because you hit feedback loops primarily via credit and and you know at 4 and a half nominal we're we're taking these equity earnings expectations down from 12 to eight or nine and and it's just it's not easy to like stick the landing a half point lower. The landing's been stuck. All right, they missed two. It's at two and a half equivalent of a nominal GDP run rate. Good enough. It's pretty damn good. I think it's not bad. So, so they've landed it without a recession and I, you know, I I I think they just need to leave well enough alone now. Sorry, I got off on the Iran. >> No problem. But so, so the reality though is that the the the front end of the yield curve is chasing oil higher. Like I I made a chart and it was basically the December 2026 um sofur priced as a yield and then I looked at it what year uh crude one year out and it's almost following a tick for tick. So to some extent like they've taken out what two cuts out to December because of the the higher oil. And so I I'm with you in that I understand your argument that that's actually going to be recessionary where and especially if they don't go and do the cuts that they previously thought have been priced in. Right. And so my question to you is, do we need to have an accident for those things to go back and to be priced correctly, or will we get a situation where the bond market might go, hey, wait, you know what, the reality is that the cuts are still going to be on the table and they're probably going to look through a little bit of inflation and, you know, at the very least we should put them back. >> Yeah. I think the reality is we're either going to have an accident or Trump's going to smarten up and get the hell out of there in the next week or 10 days. And I'm not I'm not even sure he has a week or 10 days. And and and you know >> before before the accident happens on a financial basis. >> Yeah. Yeah. Yeah. Yeah. Before we have a 6% down day, >> right? >> This is this is like a he's on the classic slippery slope. And I I can tell you I aired um >> so so my client base I have a lot of um they're called pod shop guys. >> Yeah. Yeah. Yeah, I understand. >> And you know, you really sort of they really want to know what's going to happen in the next two days. >> Um there was a lot of money to be made or loss this week, right? What do we have? Almost a 2% day yesterday. You know, you're on the wrong side of that. It's like you can get a tap on the shoulder at these places. >> For sure. No doubt. They're they're they're trading extremely short term. There's there >> Yeah. So, so that that's that's the game. And even the asset managers are are like, you know, they're they're watching every every wiggle. So, so you know, you have to sort of get these things right. I didn't this week. I thought he would I thought it would be over by now. And and a very simple premise. Um I I think there's a red line on boots on the ground. Trump understands his presidency is over. I think when that the the moment the first boot hits the ground, I mean, it's just it's insane. Um if he gets sucked in like that, then we have huge huge problems. And if you're going to restrict your capabilities in that way, then you naturally have to constrict your objectives. So regime change was never a realistic objective. I think you figured they'd take a shot at it, but now both the US and Israel are admitting that's not going to happen. Um I think there was a window where this, you know, what actually happened in the in the Oval Office situation room. I don't know. It does sound like they got the call from the Israelis. Hey, we got like two dozen of these guys in a room, you know, we've had this on the drawing board. Let's do it. Um, and then I I I think, you know, in terms of uh public perception, the this concept that Hexath presented early on of degrading the conventional shield behind which Iran was hiding its nuclear ambitions. All right. you know, that was that was reasonable enough. Iran does not have a lot of fans out there, right? Um, so, you know, that was reasonable enough, but as Trump himself acknowledged on Monday, so now 5 days ago, that was done. >> Yeah, >> that was done. So, so you're never going to degrade their capability 100%. You're not going to get 100% of the missiles. So, they're telling us we got like 90. Are we gonna bomb the place back to the stone age to get to like 93? What are we doing? So, you know, regime change is out. >> Trump told us today the other fantasy, we're not doing delta force in there to get the uranium. >> Yeah. >> What are we doing? What are we doing? So, something happened this week where he the president I think realized on Monday this is we're hit diminishing returns here. >> Okay. right? This is now more risk than reward because the risk that I've thought was he would understand all along which is getting closer is that you're going to force Iran into doing something asymmetric from which we can't come back. >> Okay. But but is it e like I I understand your argument and I do agree that we're getting to a point where either the markets are going to freak out or he's going to pull back, but is he even able to pull back and have like the straight moves open again? And that's really what I'm concerned about is that in terms of when you're looking at the the the chess board, it's not as easy as him just pulling back and saying everything's great. uh the the straight might not open. >> I'm surprised uh at the degree degree to which I'm now on the uh minority side of this. So I think over the past several days a broad consensus has moved to the view you outlined that uh Iran is not going to agree to a ceasefire and the news flow does suggest that there might be back channel communications that aren't going so well in that regard. Um, but I think it's all going to be worked out. I think it's all posturing. It just it doesn't it doesn't make sense from the Iranian standpoint as far as I can see to continue. Now, a lot of this rests on one's assessment of who's actually winning, right? And, you know, fog of war, propaganda on both sides. We don't know what we're not seeing. Um, but I just look at, you know, ju just what we do know is it's there maybe 15 Israeli killed uh and a hundred times as many Iranians. The the Iranians haven't really hit anything that you would say, "Oh my god, that was wow, we didn't know they could do that, right?" Um, so, you know, are we going to run out of interceptors? I don't have the intelligence on that, right? And you know, I'm sure there are people involved making decisions on both sides that have a lot more information than we do. Um, if the administration went into this saying it was a four-week thing and didn't have four weeks worth of defensive munitions, I'd be shocked and crazily disappointed. So, do you worry though because I I understand your argument, but what I I'm concerned about is that seems to be a very popular argument and it was very popular at at least at the beginning of the week. Uh, as you noted, it's become less popular today. Um, one of the things that that concerns me is that yes, you'll get a pop in the stock market and it if you're correct, let's just imagine there is some sort of ceasefire. Uh, but I I still worry that it's there isn't there isn't that much bad news yet priced into it and that that apart from playing the wiggle that there's a lot of negatives that have been put into motion and that we might get a situation where the economy rolls over anyways. >> Oh yeah, sure. For sure. For sure. I I mean I I think if there's let's let's say there's a an agreement for a ceasefire, right? probably going to rally 5%. I think it's probably a fade. I think the market was showing signs of stress. We basically been range trading for six months in the major indices. Um, you know, the the the NASDAQ has lost leadership. I'm I'm don't really believe in the sustainability of this rotation trade. Um, because >> Okay. So, let's let's can you explain that because I think a lot of people were very excited about the rotation trade. They've gotten it's been a tough week for them. Uh why don't you tell people why you don't think that that's something that's uh that people can really you know hang their head on over the longer term? >> Well, it's worked because we had strong data in the second half. Um but that data had a hell of a tailwind from this AI capex boom which when we saw last quarter's earnings was revised up again. I mean the revisions to the the major hyperscalers AI capex and Q1 itself was like 40 basis points of GDP. >> Okay. But why did that send people into value in small caps and and the things that >> I think you know there there's a there's this reaceleration crowd the the you know the sort of old economy cyclicals and I think it's a weird confluence of >> I don't want to buy these hyperscalers anymore because of valuation even though they're adding capex. So let's buy the economy because they're spending all this money and not have to worry so much about whether it's a good idea or not at these valuation levels. >> But you don't think that that the real economy portion is should be bought? >> The next iteration is capex stops going up. >> Right. >> Right. And and I think we're seeing cracks in that story. Um you know the open AI's dropped news. I haven't seen anything yet today, but I think it's two Fridays in a row at like 5 pm they dropped news that was not so hot. Um, right. Like like one they they increased their revenue out for the next four years by like 29% and oh also the cash burn was up by 112 billion, right? They dropped that. And then last week it was, you know, this deal with Oracle at the uh big um uh facility down in in Texas is now on shaky ground, >> right? >> So, you know, there are questions starting to be raised as to whether this this at least whether this AI capex can continue to increase at the rate it has been increasing at and I think not. Um so you know we did get a a strong second half really strong third quarter for GDP uh driven again by this AI capex but also a very surprising burst of experiential spending. So in the first half um you know we had uh leisure and hospitality and travel and restaurants airfare lodging all softened in the first half and it was a really really strong third quarter. But, you know, I have a I have a guest cottage in my on my property here that we rent out in the summer and you know, people book those things eight months in advance. >> So, you had a lot of like summer vacation spending that was robust in the third quarter. And I I don't think that really tells us a lot about how people actually felt in the third quarter, right? >> Oh, I see what you're saying. Okay. >> So, so I not to discount that it was a strong number. Um but you know we look until this morning it looked like uh you know fourth quarter was another strong number. I think personal consumption was taken down from 24 to two real and now nominal it looks like that there's a bit of a deceleration again. So I I I look at the um disagregation of the consumption data and it just doesn't look it it explains the angst. While we have very strong headline growth, people aren't happy. And if you look at what people where the spending growth was last year outside of that third quarter, which I think was pre-planned, the fund stuff actually was very weak. So restaurants have been weak. Airfare uh TSA throughput was up half a percent 2025 on 2024. That's not so high. We've seen Vegas had a terrible year, right? So outside in the third quarter, spending on fund was lousy. You know what grew a lot? The bills. I call it the bills. Utilities, insurance, health care, and and this is largely lagged price effects from the pandemic still because these are the last things to adjust to the demand shock. The Fed makes a demand error. Commodity prices go up, goods prices go up. These services are the last thing because their cost base is wages and rents which have natural lags built in. >> So you know Delta redid its contract. They got huge increases in like 2024 or something, right? >> So so these services naturally lagged. We're seeing these latent price increases came through largely in 2024. And so people are spending more on paying the bills and spending more for goods because of some tariff price pressures, but they're not getting more goods. >> Yeah. >> So, so you're spending more on the bills, you're spending more on the groceries and your goods, but you're not getting more. >> And you're going out to eat and you're going to be traveling less. >> This is the setup that just doesn't bode well for me. What when you tell people this because this is very much non-consensus at least in my interpretation of consensus most folks think oh you know Trump tells us the economy is doing great uh the numbers look terrific it's it's all peaches and cream out there what is the push back like and and you know what do they say to you when you try to say hey things aren't going as well as you might guess >> yeah well I think that you know the reaceleration crowd um that that that view is largely predicated on a view that the Fed is too easy, right? And and and I think this stems from the fact that inflation is above target, but as we discussed earlier, like they're in a steady state, >> right? >> So so so yes, they're too easy in a steady state. That doesn't mean things are going to accelerate. And in fact, the jury may still be out on the 75 basis points we got in the fourth quarter of uh 2025, but this reaceleration crowd was screaming about the cuts in 2024 as being irresponsible. But clearly that was the correct move. The neutral interest rate is falling and the Fed has done a really pretty damn good job of marching the Fed's the actual rate down in line with it. And we can say that again because nominal final sales however you want to you know whatever little piece of that you want to measure. I look at final sales for domestic purchases which strips out inventory and trade. Obviously trade's very volatile and inventories are always volatile. It's in a steady state. So they've been able to m they've needed to cut rates to maintain the steady state. And I think we're gonna find that that was that remains the case and that the the cuts in the fourth quarter of last year were were the right were the right move. Now to be fair, if I were on the Fed board, I would be standing pat right now because we did have a strong second half um and I have a forecast that things are going to slow, but it's been steady for two and a half years. So I I I am I'm normally an advocate of the Fed managing to a forecast. I think they they did that aptly in 2024. I think it was the right thing to do it in 2025. But at this point, I don't disagree with those who said, "Let's let's wait and see now a little bit um whether we're going to get weaker data." And you know, the the weakness in the in the labor market is hitting us in the face as well. And I have been a big advocate of stripping out health care for two years now. Not stripping it out, those jobs are real. They happened. Um, but there's a lot of funky stuff going on there. There was an elongated uh recovery from the pandemic, job losses in that sector. And then there's something going on with this expanded Medicaid, which pays people to basically, you know, take care of grandpa. Um, there's a lot of that going on. And these generally aren't great jobs uh in terms of compensation for the most part. And outside of health care, we're basically had no job growth, none uh for, you know, a year now. >> So, you know, the other big debate is supply demand. Um and and this gets back to not tightening into a supply shock. If the Fed says, "Well, labor supply is lower, so we have to let labor demand fall, too. The break even rate is lower." All right, fine. But that means aggregate income generation will slow. And it has. >> Uhhuh. >> And now now you're taking us out of this 53 steady state because we look at aggregate weekly payrolls, which is the the the monthly payrolls metric for aggregate income. It's total payrolls times hours worked times uh weekly earnings. So how much is that payroll report saying we're throwing off an aggregate income? And that's gone down from that 54 rate to the, you know, high fours somewhere. And and now we have a a growing divergence between income generation and spending. And again, these internals on spending tell me that the consumer is spending on stuff that's suggesting stretch, >> right? >> I surmise that that that spending is going to slow with income. And and so what is this is the Fed's dilemma in a supply shock. >> If you say labor market supply is is zero, so we need job growth of zero. Okay. Well, then income growth is going to slow to the rate of average hourly earnings. it's going to be four something uh spending growth is going to slow you know now you're risking hitting this stall speed and maybe it's gradual enough so that's a couple quarters away um but I I think this is the direction of travel um based on you know again this slowing of income in the labor market which I think is probably both supply and demand um but again if it's supply look the whole idea of shutting off immigration which whatever you think about Trump I I think this this had a popular stamp of approval. >> Yeah. >> The whole idea of doing that was to increase wages for those who remain here. So like the Fed in a way is fighting that policy by not running it a little hot to bring those people into the labor market. >> Yeah, that's a great point. Actually, I I I'm listening to you and I'm thinking about this one thing though. Well, you're definitely painting a picture of us at least slowing down in the in the coming months or or quarters, and I was I was kind of struck recently with a conversation I had with one of my subscribers, and he was telling me how we don't have recessions anymore. We had the last recession that was a true economic recession was, you know, in the in the '9s or whatever it was because 2000 was the bursting of a.com bubble. 20078 was a global financial crisis brought on by the bursting of that financial bubble and then 2020 was we shut down the economy for a global pandemic. Do you think that recessions are a thing of the past and that it's just going to be a slowdown or do you worry that we will actually have a good oldfashioned economic recession? No, I I I think absent the shock, which we can now see might be brewing, right? Um, you know, certainly if if if you can't get more than a few billion barrels of oil a day out of the Gulf for an extended period, that's a very significant supply shock. and and and and I think what happens is you know the process is there are just vulnerabilities that leave us vulnerable to a shock and then then a risk of mis money monetary mismanagement I mean 2007 didn't have to become 2008 the Fed let demand collapse basically right there there there was a there was an error there um >> you think it was the Fed because I I I'm not even sure they could have lowered rates quickly enough cuz wasn't the real problem that we needed fiscal and we were trying to fix it with a monetary solution. >> Well, the aftermath that >> Oh, I see. >> The stagnation of the aftermath was um but and you know the the Fed obviously made an error of overabundant liquidity that caused the problem. >> Okay, I I'll I'll buy that for sure. Yeah. >> And and then and then allowed a vicious liquidity crunch to unfold, >> right? And you don't worry, do you worry about that >> today? Like you brought up private credit and you brought up uh other sorts of uh uh exuberant market behavior. Do do you think there might be something lurking out there like that this time? You know, my my my my knee-jerk response was I think Powell showed us in 2020 that he's learned that lesson, but then I realized, oh, wait a second. >> Yeah, >> Powell's going to be gone soon. We got a guy who spent the last decade like railing about these policies taking the helm. So, so honestly, I think a war sled Fed is is going to be much more likely to make the error even though he was there in 20 in 2008. >> Yeah. Um, >> but by the way, >> you know, people rail about the Fed put. Sorry. Like, no. Go ahead. >> If there's just there's no two ways around it. If if nominal if nominal activity is collapsing, they have to fix it because the system is just there's no self-stabilization down there. >> Yeah. No, agree. Especially because fiscal is so tough to do and it's slow to to enact. Um, do you do you find it interesting though that you bring up Worsh and the fact is the silver market is behaving like the Fed reaction function hasn't changed and you would think given that Worsh will be the the chair at that point and if they if he was going to be influential that the that the front end of the curve wouldn't be moving. I think it makes it I I I think I think the take on Worsh was right a couple weeks ago which was he's going to be coming into a very contentious committee and and we are for a while at least going to be looking at a different kind of Fed um that you know is not sort of bowing to the chairman as we've become used to. >> Okay. I think that I think that changes a little bit if we're still in some kind of oil crisis mess because if he gets there in June and you know S&Ps are 15% lower than they are here and there's still bombs going off in the Middle East and you know everything's a mess, I think there'll be enough uncertainty that the committee will not want to be bucking the chairman. And do you think that Powell is going to be stubborn and not lower rates? Just kind of a big FU on his way out because I've heard that argument that people say that really it he should be lower and he's just he's being obstinate now and and absent Trump the actually rates would be lower. Do you do you worry about that or do you think >> Yeah. No. Again, personally, I think on hold is is the right thing for now. Oh, >> okay. So, you just think he's doing the right thing? >> Yeah. Yeah. and and and you know, so we downgraded the fourth quarter, but you know, we're probably, if Atlanta Fed is accurate, we're looking at 52 final sales again for Q1 right now. Um, now we might get some downward revisions to personal consumption. You know, I February retail sales looks okay. It sort of looks okay. Um, so I I think he's doing the right thing. Um but but I again I I do think there are sufficient vulnerabilities where if things go pear-shaped they they're going to have to be cutting and and you know whatever the inflation prints go out the window that that argument is going to have to be thrown out. And again if S&Ps are down you know you get you you get something like uh like we saw last April in the equity market only it's not something the president can fix with a tweet then they're going to have to fix it. >> Yeah. And I I think I think Powell would do that. >> Okay. I >> in May, like in May if it if in his last meeting if if if the circumstances called for it. >> So, uh here's a question for you. Let's imagine we do get that scenario where um he's late to get out of the Middle East. It could continues to have problems. Oil stays up. Eventually, that creates enough financial pressure. We get a big down move in stocks 10 20%. He has to cut rates. What happens to the yield curve? Does term premium expand or or is or we actually see for the first time people rushing back to bonds as like a place to hide? >> Yeah, I still like the steepener, but it gets tricky in these situations because if the Fed laags then we flatten and then steepen, >> right? >> Like like it needs to flatten like crazy to slap them into into cutting and then it steepens like crazy, >> right? But now do you do you think though you say you like the steepener let's just put all the kind of the media problems of Iran aside. Do you think that the term premium is something that's going to continue to expand in the coming you quarters years? >> Um no no I'm not you know I I've been fighting this argument for for three years. So I've been a bond bull since I don't know two to three years. >> Okay. And the fact of the matter is it's been a tug of war, right? We've basically been in a range trade. Um uh but I have been telling my clients every time we're pushing 5%. This is not going to break in that direction. It's just it's not going to break in that direction. I don't buy the fiscal dominance arguments. Um I I'm I'm not I'm not overly focused on supply personally uh because the term premium itself, it's just it's only so far it can go. um you know and and ultimately the expected path of short rates uh is is going to be the predominant driver of of where the the long end goes at least out at least out to tens. Um >> 30s is a bit of a more supply sensitive animal, but at least out to tens. Um I'm I'm not in the camp that you know there's not going to be buyers. There's there's always there's always buyers. So um you were talking about the treasury curve. Um what about credit curve? So far like up until what two weeks ago uh investment grade and high grade was actually really well behaved in some of the best performing stuff. We finally getting some widening. Is this a result of the private credit or is it the actually worrying about the mark about the economy and does it get worse from here? >> I I think it's the the private credit spillover. >> Oh it is okay. Uh yeah. Yeah. And I'll give you sort of the sort of a weak call on whether it gets worse from here, which has been my weak call on equities for the last 18 months. As long as they keep nominal GDP growth at 5.2%, it's all going to be fine. >> Okay? >> Right? If the Fed doesn't make that error, you can't have big problems in credit. Right? Some fund managers might have made some mistakes or some sector might have a problem. Um, but it's not going to be a macro credit event at 5% nominal GDP growth. And again, I I I think it's slowing gradually. You know, my forecast for this year is they'll keep it at around five, but it'll take two or three more rate cuts in the second half. Um, you know, it's pretty easily fixable, I think, as long as it rem as long as we don't get hit with the the shock, >> right? Um, so, >> so it's a slow down, but they're going to the the they're going to continue to land the plane. Like the plane's just slowing a little bit, but everything's fine. We're not going off a cliff. Like, he's not driving it under off cliff. Okay, I I understand where you're coming from there. Um, in terms of China, let's go. Let's talk about this because most um for a little while your negative China view would have been very in fashion like for what it was couple years there was China was uninvestable I remember looking at the EM and then the EM exchina and the one with exchina was exploding at the expense of the EM that's changed recently over the last what six months there's been a much more of a an appreciation and and folks rushing into China. Do you think that's a mistake? And and tell us if if so, why? >> Yes. Yes, I do. It's a it's a narrative-driven market. Um, you know, we've seen these types of of sort of meltup trades in China a number of times over the last 15 years. And you know where they always end up back? Right where it started every time. So, so, so you know, we've roundt tripped like ashares 50 to 100%. I think this is this will be the third time and I think it's going to round trip again. Um they don't >> you don't you don't buy the the end of the the involution thing. That's just >> No, they don't earnings. They don't grow earnings. So MSCI China earnings are like barely up on 15 years ago. The system is not designed to maximize profit. They don't really care about profit. The system is designed to uh enhance and protect the power of the CCP. And I actually now think that they've it this has been a multi-deade plan to um you know dominate global manufacturing for geopolitical means and they've done a pretty good job right >> they've done a pretty good job. So, you know, there's a there is a narrative out there that I think's driving the performance and um I think Louis Gabe is probably the the biggest proponent of this, which is that China's won right now. Now, if he's correct and China is the new hegeimon, then maybe we look back and say this was like a multi-deade Amazon strategy, >> right? It's a good point. >> Like you forgot profits for 20 years. Yeah. and then dominate the market and then you start making money. So I, you know, I can't totally discount that. Um, I think I think the Trump administration is genuinely dedicated to preventing that and I think they have a good plan in theory. The execution has not been great. Um, who didn't know this rare earth thing was going to be a problem? I I don't understand how the president walked into a basically he he walked into a punch on the chin in in Busousan in November. Like I I and my hunch is that that that stuck in Trump's crawl because he got his butt kicked in that meeting because he had no cards. He had no cards and and Trump himself wrote two or three executive orders in the first term on this, >> right? >> I mean, everybody's known this was a problem. They didn't think China might play it. Now, the fact that China played this card does tell you how vulnerable China is. And and and you know, my my mantra back to the beginning of this year was strategic decoupling as Bessant and Greer lay it out, which is no or limited trade in strategic sectors and balance in everything else. Okay, that's what strategic decoupling is. And Greer's okay with the balance in everything else being what I call bobbles for soybeans. So he talks about managed trade. We'll buy the trinkets and you buy our beans and then we just don't do business in in in uh you know sensitive stuff. I don't like that. I'd rather just tariff the Jesus out of them and see what happens. Um but I'm a real hawk on China and I'd ra I'm just as soon as trying to knock them over. >> And so do you have a trade for us? Like do you >> Well, let me just let me just finish by saying the strategic decoupling as they've outlined it is an existential risk to the Chinese system. How do we know that? Because they wield this rare earth weapon that's been 15 years in the making and can only be fired once out of the hanger, right? They took the mask off. They said, "This is how we're playing now, right? We have this weapon and we will use it." So now everybody knows it. Can we fix it and defang the weapon? I hope so. I think so. It's It's a small market. Global rare earth magnets 20 billion. Let's just throw a hundred billion at instead of throwing whatever 60 billion bombing Iran, maybe we should be throwing 60 billion at the rare earth magnets. But now I'm off on a rate. So, so, so, but but but I think I think China's behavior tells you that this strategic decoupling policy is an existential threat. They cannot allow it to happen and they will do whatever it takes to pres prevent it. So, so this is a big story over the next two years. You know, we talked about options. Two-year dollar CNH calls are are as cheap as they ever were in va terms, and there's a big discount in dollar C&H. So, these options are cheap, cheap, cheap, cheap, cheap. Um, you know, because >> wait, I just want to explain for people, you're saying calls, but that's because it's an inverse currency. So, they're betting on the CH going down in value. >> Dollar calls. Dollar calls. Yeah. Dollar calls, CH puts. um you know, we're still got a 200 basis point plus uh yield premium there. So over two years it's a 4% discount and the 25 delts are out of the money dollar calls are the lowest VSS we've seen since they started the CH market in like 2011. So these are very very cheap and I don't know what's in Donald Trump's mind. I don't think the people around him really know whether he how where he wants this to go, but I think there's a pretty good case to be made that he's been barking about China for 20 years. He took it with a smile in November, but Xiinping really stuck it to him. And if you were really following it, it sort of made him look like a jackass. I think Trump is is not happy with it. Um, and if they can see enough light at the end of the tunnel in this rare earth thing, I think they'll go at China again and and uh that is going to be, you know, really problematic for markets if that happens. It's a 2027 story probably. So, maybe a little early to be buying two-year calls, but, you know, whatever. You do a couple basis points a month. I I don't think you're going to regret it. >> Don't make the same mistake you did in AIG. Um, >> exactly. >> All right. So, we're getting towards the end here. Before I go, I'm going to ask you what um, you know, like I we've covered some various topics, but obviously I've directed us and asked specific questions. What do you think I might have missed? Like what is if you were asking yourself, what would you be at this point asking that that might been missed? >> Oh boy, good question. Um, >> what are you talking about with clients that we haven't brought up? what are the what's on their mind? That's >> Yeah, the uh the dollar's been a big story for the last year or so. So, it's that would be the Cell US trade, I guess. Um which which I'm not enamored with uh simply because I'm not as upset by some of the stuff Trump does as some others are, particularly my European clients. Oh my gosh. Um >> I don't think your Canadian ones are too happy either, but I think it's qu. But but I think I think all the people who get really wound up by Trump both here and abroad underestimate the institutional robustness of the United States. >> Okay. >> So you know >> this whole end of American exceptionalism is overplayed and you and the US dollar that's been for sale for the last little while is actually a buying opportunity over the longer term. >> Uh yes. Yes, I you know I think the dollar's where are we 11415 on euro right now. So so we're still seeing a safe haven bid um into the dollar. So that hasn't gone away. Any any notion that China is going to be a a competitive reserve currency is complete fantasy. And uh I just think the whole sell US thing that the structural trade that a lot of people are excited about is uh is was not going to play out. I I it's been in also in a range. I mean, all my FX folks I talked to are pulling their hair out um because prior to the last 10 days, it's just been a chopfest and I my my base case is that continues. But this, you know, structural cell dollar narrative I think is a fade. >> Okay. Got it. All right. Before we let you go, we're going to do our fun end of the uh session question and it's the we're going to do um the there's something on BBC called the celebrity desert island and they celebrities have to pick 10 albums and why and explain why they would like those 10 albums if they were stuck on a desert island. We're going to do trader edition. We're going to do three albums or bands. You can do either one and then we're going to talk about one trader that you would bring with you on that island. So, let's start with the three albums or bands. What are they? >> Well, I'm a big dead head, so that's where I got to go. Um, if you really were going to drop me on a desert island, I'd I'd go through the catalog and and pick a a live Dead Show and a live Garcia. >> Okay. Well, let's do bands then. So, I need I need I So, we're going to do the Dead Head. So, first of all, are you like like following the You said in the old days following them around kind of dead head. No, not you know, I would travel on occasion, but if they did six nights in Madison Square Garden, I'd go to four type of thing. >> Okay. >> And are you also um uh what do you think of the new one or when before what's his face passed away? I can't remember. Um >> Yeah. Yeah, it was great. Dead in company. >> Yeah. And and and and does uh John Mayer live up to it? Like you enjoy that? >> He was fantastic. It it was like different. It was a he definitely had it, you know, added a different flavor. Um, but until he joined that band, I really had no idea he was that talented. He's really, it was really uh really spectacular. I thought he was he was fantastic and they were great. >> Okay, so we got the dead as number one. What's your number two? >> Yeah. Well, honestly, I' I'd do a dead album and a Jerry Garcia band album because um you know, he >> Come on. I got to get one more out of you. Okay, fine. So, you're doing a Jerry Garcia. >> Jerry was a lot of covers. >> Yeah, that sort of brings in a lot of other music. You get a lot of Dylan there, a lot of, you know, older stuff. >> Yeah. I'm not letting you off, Ryan. You got me a third then. A third. >> And then I'm going to go eat a Peach Almond Brothers simply because um I had a run in the 90s. They used to play six to nine nights at the Beacon Theater every March >> and and that was also like multiple multiple shows for uh you know back in the 90s. So that was that was sort of the and and again as I said the uh the Wall Street was a lot more fun back then than it was >> I thought bring back memories. >> I thought for sure you were going to say fish >> you know. Uh >> you never got into a bunch of fish I've been to a bunch of fish shows but just not enough to like really know the music. Um, but great stuff. Great stuff. >> I I I listen, I tried. I I I thought that I would like it and I went and I was like, I just don't get it. I'm not I do not understand. It's a bunch of middle-aged dads sitting around in a lane Venice dancing. >> That's how that's how I figured it. >> All right. Okay. You got to tell me the trader that you take on the desert island. Any time any trader from any point any like in life, you could pick Jesse Livermore, whoever. Who would you choose? Oh boy, who would I choose? Um, I guess I'd say Julian Robertson. >> Just because I I got to know him a bit. Um, having worked for the the Tiger Cub. Um, and just uh just a just a a gentleman and and you know, so much experience and all kinds of stories that uh he was always uh kind to share. So, >> what what was what impressed you the most about his thinking? just that he was as even killed as you could imagine. >> Oh, okay. >> Yeah. >> Yeah. >> So, no matter what, he was one of those guys that could be getting crushed and you wouldn't know it. >> Even killed and unbelievably open-minded. And to be honest with you, he always listened more than like he he he was he was he was absorbing your view and taking it and doing his thing. he he you know he he didn't uh didn't feel the need to uh sort of say I think this or I think that uh he was just really interested in in in what everybody else had to say and and absorbed it uh in a just a really incredibly even keeled manner and obviously synthesized it to great effect. >> Well, that's awesome. That's a great story. All right. Uh before we let you go, uh you got to tell us about Macro Lens. explain what it is, who should be, who could be interested, where they can, you know, reach out for you. Um, you also have a Substack. Make sure you mention that. Uh, give us the whole spiel. >> Yeah, macro lens at Substack. I I post the occasional sort of sample of my institutional research. And lately, I've been taking to posting some, you know, three to five minute videos on >> Yeah, I like them. I see. I knew you were cute because you >> Yeah. Yeah. Yeah. You know, it's tough with the social media to sort of maintain traction. you know, it takes takes a lot of effort and you get a couple more followers and like but I'm trying to I'm I'm committed to sticking with this one. >> Okay. Well, listen everyone, go on to Substack and follow Brian and get his his updates so that he doesn't feel like he's just talking into the wind when he's giving you these great insights about the markets. Okay. And then that's on your Substack. >> Yeah. And then marlens.com if anybody wants to check out the institutional product. Yeah. Um, I write a a fairly lengthy note every Friday and do a Saturday video version, uh, which some people prefer. And then, of course, when events are hot, I'll I'll write, uh, you know, I wrote three pieces in the last 10 days on on Iran and things like that. Um, and for institutional clients on Bloomberg, I provide a real- time service um, analyzing the news, trade ideas, and and uh, just chatting back and forth with investment professionals. >> That's awesome. Well, thank you very much for your time, Brian. I really appreciate it. It was great getting to know you. >> Yeah, I appreciate the invite. Thanks for having me. >> All right, Patrick, talking charts. What do you got, buddy? >> Well, uh, I mean, Kev, where do we even begin? like the last episode we did right uh right before uh the [ __ ] storm. >> Yeah, for sure. >> So, this is this is our first episode and boy has a lot happened in the last two weeks, right? >> For sure. But I would say the biggest news is that you and I agreed on something and it actually happened. >> That's very rare. Yes, >> very rare. >> The we actually I think we both called it correctly and we agreed. It was probably because neither one of us had any serious positions on it. Unless you did. >> Ah, I had some skin in the game. >> Oh, you did? So that's why because I didn't. So therefore, that's why it worked. >> Absolutely. But uh but let's um not waste any time and and dive into it. Like >> first of all, let's just talk high level on the S&P. It looks like [ __ ] Like we can move on now. It's the um but uh actually uh we're we're negative on the day. we were uh we were temporarily positive but the same patterns there. We have technically now entered um not only gamma flip territory but we've entered uh where systematic traders are are deleveraging at a time where uh clearly the trend is not your friend. All sorts of stresses are coming in markets. uh the market is clearly in some form of a distribution and while there are some people that are eager to call the the low because we had a VIX blowout to 35 um I'm not so uh sold on that. Uh I think that uh the VIX like certainly look sentiment has turned you know whether you look at the uh CNN uh um bull bear um you know fear of greed index or whatever it was or the AI thing. They're starting to get bearish. I mean things are getting negative but I really think this sell cycle in the manner that it's going needs an actual price capitulation not just a indicator capitulation. Uh I think that uh the vulnerability at this point is uh is to downside. The thing is we're recording this. By the way, notice it's at 666 right now on the uh on the index while we're uh we're recording. So, it's it's like it's meant to be at this moment where uh where we're uh at a critical moment on the markets, but bottom line is this. Uh there's no reason for the market to stop here on the short term. Uh now, I do not first of all, what do I not want to call here? I don't necessarily want to call another liberation day crash. I don't want to call a COVID crash. Like I'm not in the uh the opinion where uh where as of this moment you know that this is going to be a devastating drop but for us to have a 10 to 15% market drop here uh is uh to me uh would be normal considering the magnitude of rise. put in context off of the liberation day lows we had a 45% rally in the stock market for it to step back 10 15% on a retracement to give some things back is very normal uh and uh and so this can go deeper it can go farther to and you know if I was to give a a path I wouldn't and actually this is what I wanted to talk to you about on the short term I think we go lower uh and lower could mean even 6,000 uh even temporarily below 6,000 on the downside is no guarantees but this is would not shock me if we saw this. But the question is does this play out a little bit like the analog of uh 2027 sorry 2007 where you know when Bear Stern stuff started happening in the summer of 2007 the market dropped about 15% and then managed to rally all the way back to its highs and uh before rolling over later. And what I'm debating, what I'm trying to figure out here, Kev, it's not that I'm, by the way, calling for a great financial crisis, but even if we do get down to 6,000, um, does it still have the buy on dip reaction where once we get to a capitulation point and everyone is trained to see these very extreme oversold levels, do we see a reflexive rally off of that that shocks everyone to the upside of the fact that it can completely reverse the entire sell-off. And uh and so I wanted to kind of get your opinion on that. A first of all, do you think that that kind of a downside target is reasonable? And and do you do you think that the market is even capable of doing something like what I described? >> Going down to 6,000 for sure. >> And then and then shocking everyone with a rally back to the highs. >> Oh, for sure. First of all, good trader never says never. So, anything's possible. But before we talk about that, Patrick, I want to claim uh you know, just point out the fact that you mentioned the 2007 scenario. And ironically enough, I was just let in, you know, informed that Jim Kramer tweeted an hour ago. Do you know what he tweeted? >> No. >> Quote, not buying the 2007 scenario. Unquote. So what does that mean, baby? It means that first of all it means that people enough people are talking about it. >> Well, it means 2007's back on the dinner plate. >> Of course it is. >> You got to fade Kramer. Like this is a given. Like this is >> Did you see how bad he was when he literally said something was like, "Oh, the war is no big deal and blah blah blah." And then literally the next day it took off and got all worse. And then at the absolute highs on oil that Sunday night or Monday morning, he came out and said, "There's no way this doesn't escalate further." He his timing was absolutely terrible. Like, you know, he should just hang it up because it's an embarrassment. He's just flailing around. It's um it's it's hilarious because uh it's it's almost like um you know like at some point people learn from their mistakes. They say, "Hey, what I'm doing isn't working. Let me change my playbook a little bit." But like the consistency like he literally just comes on and literally does not change his playbook at all. He just basically says, "Well, it doesn't matter if it didn't work. I'm still of this opinion and my opinion Even George Castanza figured out that he should go the other way. >> Yeah. >> So that's the problem. >> And that's and that's that's a that's that's important, right? Like you have to be able to know when when you hang up the thing and say like it's not working. I I got to try something new, right? >> I'm a middle-aged balding man living with my parents. You want to go for a date? >> All right. Uh back to the stock market. >> Uh I think the 10% is easy. I completely agree with you. To me, you're already talking about a bounce back that surprises everyone. I think everyone's looking to buy the bounce. I'm more scared about something that that that accelerates to the downside. And I'm not calling for this. I'm not saying that that's what's going to happen. But just the fact that everyone is is more interested in the bounce than the actual fear of of something more s significant happening, it says a lot to me. Okay, so this is a great segue to kind of talking about the risks. Now, first of all, a lot of people are um hinging off of uh Trump's tweets and particularly, you know, is uh you know, are we going to get a Trump taco here? Uh in like is is is there going to be a cave? And it's like the reaction that happened the other day uh earlier in the week off of uh you know a Trump tweet uh it was almost like Trump is going to dictate this. But for me obviously and I and I want to highlight like obviously we know that high oil prices and this kind of a move in oil uh is going to uh have some intermarket effect on equities and on global confidence and all sorts of other implications. But in my mind uh this stock market deterioration and correction was uh was going setting up and actually starting without the war. Anyway, you had the mag seven weakness. You had the the rotation underway. You had the private equity and uh credit crisis uh uh really getting underway. You had the AI innovation causing all of the stress points in the software stocks and all these things. these things are were happening even if oil didn't go up and if the confrontation didn't start. So if those are really the underlying reasons why the market is deteriorating, then why would anyone hinge on the idea that Trump will taco out of this war and somehow the all those problems will go away? >> Because they don't think those are problems, Patrick, right? >> They think that they're they're the economy is great. Everything's terrific. All us panickins, quote unquote, are are worried about nothing. The economy is doing terrific. And listen, there are some signs like you can make a bullish argument. Earnings keep going up. The reality is tax receipts are coming in higher. My buddy Vincent Delawir, he keeps, you know, harping on that. He keeps saying, look at this. You know, it's tough to say the economy is doing bad when the actual cash that's the economy is generating is increasing. Um there's there's all sorts of positive things that that people are focused on. I happen to think they're they're kind of glossing over the negative things. uh the fact that employment sucks the that as you say there's some problems in private credit uh we have a situation where the dollar is going up right recently but on the long run I think that there's a huge current account deficit that needs to keep fun getting funded uh there's a million things to worry about and the one thing that really struck me was funny Patrick was that I was t chatting with someone the other day and he told me that recessions just don't happen anymore this is a fellow you a very, you know, sophisticated investor and he's just telling me recessions don't happen. And all I could think about was all those people who told me in late 2010s inflation is a thing of the past or or those people uh just uh 3, four years ago that said gold miners were doomed and never going to rally, right? >> Because because what they're doing is they're looking at the past and what has happened as opposed to what potentially could happen in the future. Right. >> Yeah. So I I'm with you that that right now people are blaming this the the stock market you know correction although it's not much of a correction Patrick like yes it's looking weak but if I told you that US and Israel were going to strike Iran and it was going to result in the straight of hermuz and asked you to say how much the stock market the straight of her moves being closed and asked you how much the stock market would be down I don't know about you but I certainly wouldn't pick 5% or whatever we're out. >> Yep. >> I agree. >> I would have said 1520. And one of the things that I find kind of the most >> Well, 1520 is kind of crazy. I'm I know I would not >> listen for the straight of her moves being closed. Is that a big deal? >> Yeah, I wouldn't have said 1520. I >> I'm just telling you I wouldn't have >> I would have said 10 minimum. Look, um oil prices going higher uh are uh are a factor, but I mean in the end, how do uh it does influence consumer spending and other things, but for the stock market to wipe out 15 to 20% like a huge repricing and pulling multiples out because they're cleaning up a regime in Iran doesn't seem uh like I I wouldn't draw that conclusion. I if you would that's your thing but like I was I would have never anticipated a 20% drop >> with well I I would get 20 but I'm saying 10 minimum was what I would have said >> okay >> 10 like with oil going up >> well okay and that's finally now but it's been a hard seven to get and everyone's been trying to buy every single dip >> right and that's the part that I find amazing right the every every single strategist is out there talking about that chart that Marco Papich made which shows how stocks rally after geopolitical events and we usually get a you know a dip on a geopolitical event. We didn't even get a dip because people are so busy buying it in anticipation of the future um stock market rally two months to three months from now. >> But uh let me let me pose something to you. >> Yeah. >> Okay. I I would have believed that Iran uh while they probably didn't know exactly when attack would occur, but I do have to believe that Iran uh wasn't naive enough to believe that this wouldn't inevitably happen. Uh that uh that there would be an attack on them. And what I you can also I would assume is that Iran would know that they literally can't militarily beat the United States uh with their technology and weapons and everything else. And so if you can't um beat the United States at a kinetic war, uh how does one actually hurt America? And if if you can't beat them uh you know on a militarily basis, you have to target the one battlefield that matters uh to the US and that is its economy and the markets. And the fact is is that if if Iran knows that they can't beat the US on a a hot war, then why wouldn't they try to uh to defeat the US by basically causing so much economic damage that the US has to back out because they simply can't deal with the consequences of it. Like what do you think of this idea? Well, of course. I I completely agree. And I always said when people were telling me that the US was going to crush Iran, I was like, "Of course they're going to crush Iran. Nobody in the world can stand up to the US." Nobody. The US is the largest military out there by a factor of five or 10 there. Nobody can stand up to them when it comes to fighting a regular war. But the reality is that, you know, US on paper should have crushed Vietnam as well. and Vietn Vietname Vietnamese found ways to to fight in ways that were unconventional. They went off into the jungle and then hit and then kind of went back. Same with Iraq and Afghanistan. And it's just I I think too many people are are focused on an oldfashioned type of war and not thinking about what it's going to really look like. And to your point, I think that striking um economically is what they're going to be focused on and that's what we've seen so far. Yet the stock market thinks that there's no problem, you know, finally down 7%. >> Trump saying, "Oh, we've achieved our objectives." This the lights at the end of the tunnel kind of [ __ ] you know, reality is is that if they want to keep the straight open, uh, you know, Iran may at this point, uh, continue to be, uh, an absolute nuisance, causing insurance rates to go through the roof, continuing, >> even if the US declares all one, you know, everything one and everything great, it doesn't mean the street opens. Anyway, so let's not talk too much about the geopolitics because everyone's talking about the geopolitics. >> Point I'm making is that the stock market is not pricing in how long prolonged this entire thing can be. And I completely agree and I also I love your earlier point Patrick that I just want to take us back to which was regardless of the war things were already rolling over. >> And I think that's what we should focus on. And that's what you and I I are are different in our analysis versus most of the rest of the street >> because everyone's either talking about the war and and arguing about that and then saying once it's over everything's going to be great and we're saying listen regardless of the war it's not good but the fact is that the economy was already headed this way and I am in complete agreement with you that that is the reality of the situation and that it was rolling over and if anything this just accelerates the things And and even if tomorrow somehow Iran just says we give up and everything's great, I don't think that means a rally and everything's terrific and we just head off to new bull market. >> I'm with you on this. >> It doesn't solve the private credit stuff that's huge. It it's it's monstrous. It there's the uncertainty from the midterms. There's the problems with in terms of the fiscal stimulus is now more difficult to do. >> The AI innovation displacement. There's just and and the and this is all coming at a at a point when the stock market in the US is very expensive, very uh you know rich compared to previous valuations. It's it's the riskreward is just terrible on the long side. >> So, so let's go through the charts. Okay, >> number one chart there there something very important broke in the last week and that is we were even last week and and many weeks before talking about the sector rotation story. The idea that money was leaving the mag sevens and it was chasing the other sectors. We saw a strength in uh um a lot of uh everything from resources, energy stocks to uh to uh consumer staple names, utilities, whatever. There was a whole array of sectors hugely benefiting from that sector rotation and uh and that caused the equal weight index to be doing very well. Last week something changed. What you can see here is that this is the uh uh the breath indicator of using the number of stocks above their 50-day moving average in the S&P 500 and it basically we were nicely in a bullish way couple weeks ago sitting at 65 70% where two out of three stocks were rallying showing that the breath was healthy and fine to basically collapsing to 31% in a week. We're now seeing that the the sector rotation breath story is dead. Uh the we're seeing that more and more stocks have joined the downside party and that was most evident in the breakdown of the equal weight index which basically we saw an a beautiful bull market happening in the equal waiting is that this that the mag sevens weren't just influencing the index anymore. there was a huge run in the last you know five six days we saw a legitimate breakdown of uh the equal weight index and so what we're seeing is that we've moved away from a clean sector rotation out of mag sevens and into everything else to now the selling has broadened >> right that's one of my subscribers asked me he said is the immaculate rotation over >> and I and I and I said to him I said you have to that has to be on the table that has to be a possibility that you have >> it has to be a possibility and uh and so you know a lot at the same time you have a scenario okay well here's the software stocks yeah everyone was getting excited about this bounce and it was a $10 bounce on you know anyone could on a percentage basis say look oh it uh bounced 15% in two weeks oh you know like that the bottom is in but you have to always look at reflexivity in terms of the magnitude of the bounces are always uh have some sort of symmetry to the magnitude of the prior drop. And so when you have the software index basically in like two months wipe out 31% to the downside, expecting a reactionary bounce uh from a like a dead cap bounce from an oversold condition is just textbook. It happens almost every time. And the bottom line is this is still a prevailing downtrend. And this bounce failed uh below its 50-day moving average, below all the fib zones. There is literally no evidence that this is a change in trend, but rather simply an incredibly oversold condition that needed some sort of a relief bounce for profit taking and short covering and draw some short-term uh value buyers that want to try to scoop up lows. I by no means uh can you call this a positive chart. Now you take the mag sevens then and they are literally at the edge of a cliff. You have them bouncing. Think of it like a a ball bouncing at uh towards the edge of a table. Each bounce being weaker and weaker each each time it tries to rally. Not even a test of its 50-day moving average once during this entire sequence. Like if this if this uh roll breaks this support line, the mag sevens are uh are heading lower, bud. like um to me there there is it's very hard to find anything structurally positive on that. You want you're smiling. So what go ahead? finally because you um you talked about that uh support line and someone or maybe I was going through my old um pieces or something and I found this uh meme and it's this young school girl and she's sitting and she's um she's drawing with crayons and she's sad and she's crying and she's like all bundled up with like anxiety and and sadness and it says the horizontal line didn't work and now my calls are worthless and I can't help but think about I'm sorry. It's the one she mentioned the horizontal line. I was >> the horizontal line didn't work. >> Hold. Now my calls are worthless. But forget that. Just study the price action. The price action is outright distributive on the MAG7s there. There's no pulse. And uh and let's talk about the market call that that we together were talking about last week which was or two weeks ago which was uh the inevitable Cosby top and uh and while the NASDAQ hasn't legitimately broke down with it the one thing we were right about was the time frame from which is the fact I said between now and and this episode there was going to be the the swing high uh or intermediate high put in in the Cosby and so we had the swing high on the Cosby and the bounce is been off of the 50-day was relatively weak. I mean we have a scenario where almost all global equities are now in sell mode. You got the NIK dropping below its 50-day moving average. Uh on that you have a legitimate uh ass kicking on the um the euro stock here. Let me just pull it up here. You know like complete and solid uh you know what what is it? percentage- wise let's say that was like a a 10% drop in the euro stock from peak to trough. Uh you have India which is a uh which is clearly uh you know the one of the countries most impacted by the straight being shut down is like what what's the number like 85% of all oil uh uh that they import comes from the straight. >> Yeah. >> So like you know India did not take this well. All right. like this is uh an absolute shellacking on this. And then you have to then go like 13% on the uh on the censex. But then you have to recognize that the emerging markets uh hate a a rising US dollar. We'll talk about the dollar chart here in just a moment. But uh emerging markets uh taking a legit reversal. The bottom line is the entire global equity complex is getting hit. uh and this is not just a a US thing anymore. And so the selling really broadened and and you can't ignore that this is no longer just a sector rotation story. Uh but now selling has legitimately widened broadly. And this is why like the only thing that uh I keep hearing of from the bulls uh is that uh you know, oh but the VIX hit 35, so the lows got to be in, >> right? And uh you know yes there is a strong correlation there's no denying that a lot of times when a key market bottom occurs that we it is associated with a spike higher in implied volatilities and often you can use it as a fear index of when everyone's grabbing at the put protection usually is a capitulation moment but I've learned that uh you want to see not only a spike in the VIX but actually a price move that in some way reflects the magnitude of the VIX dry uh uh rise. I mean, if you have a spike in the VIX and the stock market's doing nothing, then to me, that spike in the VIX is doesn't have the same value. It doesn't have the same waiting to it. And I feel like those people that are anchoring too much off of this VIX spike, well, go back to uh previous bare markets, uh uh a prolonged elevated uh volatility spike, can stay up there for many months and and just work its way higher as the situation deteriorates. Just because we've printed up here is not like somehow guaranteeing that there's going to be a low. I >> I couldn't agree with you more. I suspect that that SP that spike in the VIX is actually a function of the dispersion trade and that there was really just some technical covering of index v that caused it to be bid, but in reality it wasn't a function of real clients buying VIX or buying S&P put protection. I'm sure there were some, but it didn't feel panicky at all. And in fact, it >> it just everyone was was going the other way. So, so I suspect that that was more to do with than than professionals trading amongst themselves. >> Okay. But we are uh legitimately two weeks uh of staying above 20, right? So, it's this is a an elevated volatility premium. you know, yeah, we can talk about whether 35 was real or not on the upside, but overall we have a structural rise in volatility and it's accompanied by even though we have not had some really crazy days like two, three, 400 point days, uh overall realized volatility is on the rise and this is obviously everything. >> Okay, I got to push back a little there. Okay, >> the real it. Yes, it's on the rise, but it's still shockingly low. >> Shocking. No, no, no. It's not it's not at crazy levels. We haven't seen big moves yet, >> right? And the volatility risk premium, which is the difference between the implied and the realized, like the the forward looking implied and the backward looking realized, is hit one of the the highest levels we've ever seen, I think. >> So, I I I don't know. I there's something strange happening there. And uh I'm just trying to pull it up here and see what the one month realized was. Um what do you have it handy? The realized >> uh I uh I'd have to look. No, I don't actually. >> Okay, let me just look. We'll do 20-day or should we do 10day? Let's see. Okay, I got V for 10 days. V for 10 days. It's still 13. Like considering that you know S&P's ticking at 35 or even now like what is it now 30? What's the number? I can't see it. >> Um uh right now the VIX is at 26. >> 26. So think about that. There's still 13 vols of uh volatility risk premium there. It's it's still really high. And that has to do Patrick with the fact that we had this huge rotations for the longest time. for the first like what was it four days of the war? I think that the stock market was unchanged. >> Yeah. >> Like I had a chart that I showed that the first four days we it they did it on the weekend. We gapped down. We closed unchanged on that day. The next day it went kind of bad. We gapped down and then it closed off the lows on the highs and then by Thursday it was unchanged on the week. >> Yeah. >> Anyways, I'm going you you got a lot of charts to do so I should stop talking. Keep going, bud. >> No, no, no, no. Listen, uh I mean these are good conversations like we don't have to like uh thing, but overall uh I feel like the key takeaway is that just because we're at elevated ball levels, everyone should just calm down in rushing to uh to conclude that it's a low of the market cycle. The fact is is that the price action remains distinctly distributive uh in its nature. Uh so what I wanted to do is talk specifically sectors, right? So first of all, let's start with the SMH uh and uh and the semiconductors. So uh the um the noble animal appeared in the semiconductor space. >> Oh, it's perfect. >> Like uh the the the prairie dog pop uh uh happened on the uh semiconductors. The irony was that uh traders felt compelled to clear that high the day before Nvidia earnings >> like like somehow uh you know they knew the outcome of what was going to happen. Uh and Nvidia legitimately uh was the catalyst for the prairie dog >> which is even better when you have a prairie dog on a news event. >> Absolutely. >> Like chef's kiss. So, so let me draw take a nice and thick crayon and uh and let's hope my calls don't expire on the support of this uh this thick horizontal crayon line. But what you have is the highs from October and November uh on on here with the lows of of basically February and March that were established that basically make this kind of let's round it to $380 for the sake of having a round number. Um, but this has been uh more or less a a support resistance line. And uh and if this is some form of a double top or or some mutated version of some head and shoulders pattern, let every technician put whatever geometric shape they want to jam on this thing. Bottom line is if this is a a topping formation developing uh if the semic uh if the semiconductors break down uh below this level then that is an end of its trend uh and it's been bull trending uh all the way since the uh the liberation day lows and so this would be the first reversal point of this and uh that's coming with the Cosby top along the high and what's interesting is Nvidia is very much putting in some sort of a um I'm sure definitely technicians want to see the head and shoulders pattern topping through Nvidia making its um crayon line here particularly uh important like if Nvidia somehow here starts breaking down these lows it again signifies that it's in a new cell cycle and that uh that really could only exacerbate the situation even further. Uh but what I continue to think is one of the most important things is looking at these financials. Uh the XLF uh financial index has been selling since the start of the year. Uh we have had deterioration in the major bank stocks uh very clearly. We're down 14% basically on there. And this is your uh quintessential beta 1 asset to the index, right? the banks tend to just move with the indices. And so the fact that we're down 14% on the banks tells you a lot. Um, and this is where obviously private credit stresses and the potential of tight liquidity conditions is most evident. Uh, and obviously the private equity things, obviously everyone's listening to all these stuff on this private equity credit, but like take a look at some of these like Blackstone uh basically below liberation day lows, right? You take uh Owl uh the the blue owl. It's not it not it's liberation day lows were at like 15 16 bucks. It's down to nine eight b like eight handle. Yeah. Um, like we're talking about a private equity breakdown, but but now funds that had uh private equity like uh Black Rockck uh had a monster gap down here at the start of the week uh clearing October lows very clearly defining that they are now in some sort of sell cycle distribution. And so, not only do we have the tech stocks and mag sevens weak, the financials are rotten and and the and the breath of the market has actually deteriorated. So, all of those other sectors that were carrying all the weight have stopped, >> right? >> So, is this a market that you want to buy? Like, I'm uh at this moment, look, everything is a buy on dip. I don't want to say that, you know, everything's going to zero. At some point, every asset becomes cheap enough that there's going to be a key bottom and there's going to be an extraordinary rally. You know, we've been doing this show through the the COVID lows and through the liberation day lows and the 2022 bare market. You know, we when when things are oversold enough and start a bull market, we call it the way it is. This just seems too early. It seems like we're in the middle innings of something, not the late innings of something. >> And I couldn't agree more. >> There's something that's still developing. The cockroaches are still just emerging here. >> Yeah. And the Walter Demer line that I love the most is like when it's time to buy, you won't want to. And conversely, when it's time to sell, you won't want to do that either. >> And the reality is that everyone everyone wants to buy. Nobody wants to sell. >> And this is the this is the time. We've been saying this for a while, though. My problem is that you have to be careful. >> Yeah. Okay. So to your point, it's finally agreeing with you and and I will say that >> I I actually want to cover a little bit of my shorts. So the re this is the biggest sign that things are about to get really sketchy on the downside because I'm thinking about bringing some in. >> No, but so but listen, let's kind of call it the way it is. So like let for instance Black Rockck and the financials generally were strong in the uh at the into the first month of the fourth quarter and they got heavy. Uh the stock market basically uh did not make any further highs uh legitimately from its uh its uh late October high. Right? So what we're seeing is a scenario where we were acknowledging that things got overstretched on the upside, but topping formations uh are prolonged distribution cycles often. Rarely do we see VTOPs like where it just pops and drops unless it's a bubble like the Cosby. Uh and more often not the stock market bumps its head, stays stuck in long trade ranges. And just because we were talking about the very poor asymmetry many months ago didn't make it less true. It's just the thing is is that the stock market ultimately needed to exhaust all the buying pressure and ultimately give uh catalysts for the sellers to overwhelm the bid. Uh and uh and we're now finally seeing some catalysts that finally emerged that is that is driving some form of profit taking cycle. Got it. Okay. So, let's go through the charts. Let's talk US dollar. >> Thank you. Because what what is the most important thing to talk about this week? >> It's always the US dollar. It used to be always the dollar. >> No, but this is actually for real, buddy. Oh, listen. I just want to say >> uh like I think it was it was a week ago I noticed all of a sudden on the days when when the geopolitical really you know heated up and there was a really bad headline or two and I think there was one day maybe it was it wasn't this past Wednesday but two Wednesdays ago where everything went down and the only thing that went up was the US dollar like gold got hit. I guess oil went up, but gold got hit, uh, stocks got hit, bonds got hit. There was this period where everything was selling off except the US dollar. And that was the point I said, "Oh, for the first time in a long time, the US dollar is actually behaving like a safe haven asset." >> And you'd be proud of me, Patrick. I I gave up trading from the short side and I said, I'm going to get a chance to sell this higher. So far so good. I'm kind of neutralish. Um I do own some yen, but that's a different kind of trade and with long-term options. But I'm looking I'm hoping we get a pop above this this line you've just done shown and that at that point I want to lean into it because I think that there's a chance of a prairie dog here. Um, so I I'm not going to disagree with the long-term uh uh view that you have because I think that there's a rationale behind it. Um, what so technically this is the way I I kind of sized this up. Uh, that was uh to the opposite of the noble animal. This was uh a little turtle head poking out when we broke down in January. >> That's true. Actually, it is. You're right. uh and uh and it was uh the fake fake out breakdown um that happened which basically uh once we got above the 50-day moving average at the first days of March um solidified that there was not a downtrend but rather that the prevailing trade range that was established since the summer of last year was the dominant trend which is is it was rangebound sideways. and chewed up in a a consolidation pattern and that um and that breakdown was just a fake out on the downside and that the trade ranges were what dominating. Now, uh, what we're seeing now is the safe haven thing in its most traditional form historically, and there are arguments to be made that there are going to be periods in the future where this may not work. But using historically uh the historical intermarket relationship that has been is that when uh there are crisises, it's the scarcity of dollars that everyone turns to as a safe haven asset. Um and and we are clearly seeing things uh unraveling and to me I don't like see I don't like it when the stock market just gives me a sell signal. I like it when it's confirmed by a whole bunch of things. Breakdown in uh in uh in junk bonds, breakdown in credit, breakdown a rally in the US dollar, other stress points developing in other areas. What you want to see is that it isn't just some technical candle that is giving you a reason to sell, but something is happening on a broader basis that that in fact is is showing that there's a regime change of some sort happening in the market. And uh to me this US dollar I was first under the uh hypothesis that this trade range will prevail. But here, if this dollar breakout sticks, I don't necessarily think we're going back to, you know, 110 or something like this. But a Fibonacci retrace of uh of the sell-off, which is something that has happened many occasions in the past, is a rally to 103 104. Yeah. So, I don't know whether this is a prairie dog here, Kev, but uh especially if this is a prolonged sell cycle of some sort that doesn't last, the dollar could easily go 3 4% higher from here uh in a period. Overall, once everything settles, it probably will re-res downside bare trend. Uh but I'm just not thinking it's as soon as you like a quick prairie dog here fake out. I think that this dollar breakout, if it sticks, we could easily have another two, three handles, even four handles on the upside. >> I think it's going to go fast. I think it's going to go in a whoosh. So, I guess that's where I'm I'm I'm agreeing with you that the breakout will get everyone excited. It will cause a very accelerated um rally in the dollar. And at that point, I I think that the Fed will have no choice but to go and actually ease and be the the the easiest central bank on the other side. So, it's in anticipation. And I'm not saying I do it on the first day or whatever. I'm saying a week into it when everyone's all bowled up because the thing's gone from 10 100 par 50 to like 102 or something like that. It's just a big whoosh and and everyone's all bowled up on the dollar. That's the point where I want to start looking at it >> because I I do think that if we get a situation where there is a an event in the financial markets, the Fed will have no choice but to go and to ease, >> right? And so, you know, what a great little segue into talking about the rates markets and pull out our stir trader uh uh charts. But I wanted to highlight that both on the 2026 December and 2027 December contracts the the sofur futures ate it. Uh and let me share my view because it's very different. I mean, we had um Jim Biano come on to Macrovoices uh that show I'd cheated on you with uh and um and basically, you know, they're talking about the bond market needing some sort of of protection from the inflation fears. But as far as I'm concerned, a war premium on oil is about the very that's the greatest definition of um supply shock inflation that is transitory. Like to me, uh we could go to $120 to $150 a barrel and be back down at 70 six months from now. and the idea that that this requires monetary intervention uh in order to manage this transitory inflation shock uh is I think um completely unnecessary and I think even if the Fed does in any way respond to it, it's going to be policy error. Uh I I think that overall um the the Fed can't turn hawkish and therefore if the only end result is uh dovishness on here then this is an extraordinary buying opportunity. I >> I I'm with you Patrick but I think that what you um what you failed to talk about there which I think is really important is the fact that we had a situation where it's moving with oil. And I was just in the process right now. Um I had um I do this private feed recap and I had a great chart that I included and and Patrick if you just go to um the u the post.theourrist.com and you'll see that the private the mourrist private feed recap I've made it open for everyone so everyone can go look at this chart. Um and it's the chart of the December 2026 future versus the 12-month WTI contract. And you'll see that it's almost following it tick for tick. And so what does that mean? Um that means that the basically as the stock as the uh crude oil market has rallied and as this uh inflation is starting to get embedded into the economy, the market is assuming that the Fed will not be able to loosen as much as they previously were going to do. So they have been taking out cuts, >> right? And so I think that's a super interesting kind of development because what that's telling you one is that this idea that Kevin Worsh is going to come in and be able to just dictate where policies are and that he's going to be, you know, Trump's do Trump's bidding. The market is calling [ __ ] on that. The market is saying no. the the the FOMC as an institution will hold and the Fed's reaction function will stay the same. So, I think that that's super interesting. I also think it's interesting that as we get this rally in oil, I think it puts more stress on the economy. And yes, I understand from a an economic or a macro environment, the US doesn't import oil. And so therefore it ends up being a wash because they're roughly neutral or maybe they're slight exporter. But the reality is that it's taking away from the consumer and giving to oil companies. So it is going to slow the economy. There's just no doubt about it. So what I suspect will happen is that this will cause increased pressure on the economy. We'll slow the economy and then we will eventually get a situation where the Fed is forced to lower rates because the economy is rolled over. And and ironically, Patrick, one of the things that I just wanted to highlight, >> Hallelujah. Hallelujah. That's >> Well, listen, I got something else to say that's going to blow your mind, buddy. All right. Okay. But we'll we'll get there when we talk about bonds. Um, but when it comes to uh back to this idea about oil and the economy and it's slowing, I thought it was ironic because over the years I've heard, oh, oil is always the thing that is the final um asset to rally that causes the economy to roll over and causes the stock market uh rally to come to an end. And I said to myself and I was laughing the other day with some buddies. I was saying you know here we are stock market sorry the the oil market is is is spiking higher and this is the point everyone told us that you know that this is what causes the economy to roll over and causes the end of the stock market and everyone's still bullish stock market right >> absolutely >> okay so anyways going back to this thing one of the ideas is that I so I wrote a piece recently um about the economy being weaker than everyone expects and uh for a variety of different reasons and we kind of going over some of them and I had a a one of my buddies, super super smart guy and he uh reached out to me and we started chatting and he started asking me about how to play this and he says, you know, I'm sympathetic to this and I said, "Well, you got to buy the front end because eventually the Fed's going to cut rates and this is we're going to we're going to have this environment where the front end goes straight down." And he says, "You know, I hear you, but I feel like you should own the bond market." And I said, "No, no, like you you got to be worried about term premium and all these things." And I gave him all these reasons and he says, "Yeah, I hear you. I understand all those reasons, but the bond market is the most contrary market in the world. And the reality is that nobody is long the long end." And I realized he was right. Like, tell me somebody that's out there saying you should own the long end. That that isn't always Rosenberg. I don't know. >> Yeah. But like Yeah. But my he's always long the long end. Like somebody that's actually willing to not be long the long end. >> There's nobody >> Lacy. >> But he's always long the long end. And I was thinking, >> hold on, let me consult my poster in the bedroom. >> And I have this I have this line that I always say the hardest trade, you know, the hardest trade is often the right trade. And to me, I I feel like the the the near universality of of people saying that the long end is not a good investment almost feels to me like we might get a tradeable rally on the long end. So, Patrick, >> I am thinking about buying the long end for a flattener because >> I have a tear in my eye. >> I know. I I can't believe myself. I haven't done it and and it's I but I'm for the first time I'm just like, "Oh, I get it." And if we get a situation where let's say this the oil stays elevated and it and it does do what we say and it causes the economy to be um slowed down and then we get a situation where the Fed feels like they can't go and lower rates, we could get it we could get a flattening of the yield curve, something nobody's expecting because everyone's worried about runaway deficits and and uh you know term premium blowing out, all the things that that that I used to, you know, chat about and and nobody would take seriously. And now everyone's convinced that that it means that the long end will never rise in price. >> What if the flattening is also a general decline in rates? Like it could be a flattening but uh but at lower levels. >> Yeah. No, but the flattening though if if if the Fed chases it down and and my point is that the stir thing about the fact that the front end of the stir of the front end of the yield curve is following B uh the the oil market is very much a sign that you can probably go and buy the long. Now Patrick, if I was wrong, let's say Wars came and he convinced everybody that no, they have to push back on that and they're going to go cut rates at the front end. Like if if if Trump got his way, then I would then all bets bets are off and I am selling the long end. But assuming the institution holds and assuming that the Fed reaction function stays the same as expected, >> then I think the lung and you might you might even want to own it. >> And I know that's that's terrible, dirty, like I feel I feel like I need to have a shower like >> I uh I uh you know what in spite I I did all my shortterm tactical trades are flat on bonds at this moment. Yeah. But I have long core positioning in in these as and I don't think that there's an issue with holding these things at these prices even though short-term volatility is guaranteed because imagine for one moment that something happens over the weekend and oil's at $150 a barrel. Like is it possible? Absolutely it's possible. And if that happened then that the bond market swooshing one more time to the downside is there. So uh I would say there's zero market timing benefit on the very short term. You have to expect maximum volatility here. But if you ask me where the bond market was going to be three or six months from now, much higher from here. >> Yeah. Lowering yield. Like I was thinking about it. I was like, "Oh, if I'm right about the economy, I could see a 10 at 3%. 10's at three." >> Like I don't think that's as insane as it sounds. >> No. What do you mean? We've been there before. I know, but for me it's it's it's >> Oh, that does sound insane. >> But it might set up for the next major bond short later on in 2027 2020. But talk about another time >> and then because I think what happens is that all sets up and then that all creates the next run into real assets. That is absolutely huge because at that point we'll have full-on central banks lowering rates to zero. The fin the the confidence in financial assets will be shaken especially with the private equ private credit and the AI crap and it will be just a massive decadel long run in in real assets. >> Yeah. So, I want to talk bonds here for a moment, but not going to go to long bonds at this moment and treasuries, but I want to focus on uh um corporate [ __ ] because particularly I want to start by um first of all, I'm going to start it by saying uh you know, we've done it on this show and you were the one who brought this uh to my attention and you can correct me if I'm not paraphrasing you correctly, but you know, there's been a lot of market corrections we've had that are in the 5 to 10% variety that didn't have credit uh uh issues in high yield or or corporates, but almost every stock market drop of 10 plus percent has seen stresses in corporate credit. >> Correct. >> Am I wrote a piece about that? Basically, that the difference between a 10% correction and a 20% correction in the stock market is often but you can look at it and see it in credit. So start with investment grade investment grade bonds. Just eating it in the last week. >> Yep. >> Just eating it. Take junk bonds. Uh while the first gap down was a dividend thing, but overall they've been eating it. Let's talk canaries in the coal mine. One canary dead. Second canary dead. Look at the third canary. Like look at what senior loans have been doing for the last three six >> actually. Senior loans are way worse than that even. like they're the than the other two. Senior loans have been leading on the downside. It just doesn't look doesn't look like it because >> they're they're they're a reflection of the tightness of credit conditions. >> Well, but also it's that their their volatility is so much less. So, it looks it doesn't look as scary, but in reality it is. And and that is where there's a lot of pain. The point being here that we're seeing the credit markets under a lot of stress that private equity credit um is uh is uh kind of like a contagion tightening up conditions and this is where I I'll ask you can the Fed surprise with an ease because the maybe the the liquidity conditions repo markets everything start seizing up and they have to come in there with some sort of balance sheet intervention to to essentially provide some sort of liquidity in this in this kind of period. Could we see a surprise? >> Yes, we could. But we need much more pain in the financial markets before that occurs. >> All right. >> We need to see real real you know fear. We we haven't got fear. Everyone's buying the dip. >> Well, a lot can happen between now and next Wednesday when Powell is on the podium. Well, I don't see how he's going to lower rates. >> No, no, he's not going to lower rates unless it's an emergency. But, but the thing is is that he can't not not address this. >> You think he can higher not once address the fact that there's [ __ ] [ __ ] going on in the credit markets? I think that one of the problems though is you you're looking very closely and if you step back and think about it in a grand scheme of things, it's not as bad as you think. And for example, issuance, I think that they just had the largest issuance uh ever on a single day in corporate credit. So the markets are open. It's not and yes, the prices were extremely tight and they're widening, but that's what markets are supposed to be. And in the grand scheme of things, Patrick, they're not that wide. >> So, I get it. You want to be short credit and you and and it's one of my it's actually my largest position right now is short credit. Um but you do not want I I I don't think it's at the stage where it's going to cause the Fed to react. I think we're a long way away. >> All right. So, so Kev, yeah, we have to we have to pause for a moment and just recognize that we are uh several hours into the show, like a stone and throw from the close, and we haven't talked oil yet. >> I know, but everyone's talking oil. I feel like there's not much. And I and the other thing is Patrick, there's so much volatility there and it's such a news-driven headline that that you know we do this and then two days from now it'll be all but but what I what I want to pivot to is not actually just crude. Uh but uh the knock-on effect or implications for energy stocks. So obviously crude can be at 150 on one headline and it could be down below 70 on another. Uh, and so maximum volatility, there's a reason the implied volatilities on crude oil are at 111%. We're as high as 25%. Like insane implied. Even on the the weeklys, you're talking 170 190% implied on oil. Like just insane insane levels of implied and and rightfully so, it's there. But what's interesting is that the energy stocks were rallying under their own sector rotation thesis uh for months in advance and generally let's say the XLE hasn't really done anything during this period. Um, and now the question I have for you, what's your speculation? Like, has basically all of the best possible scenarios already been in some degree or another baked into the cake? Or is it that there's a lag here that's going to uh to give these a kicker? >> Oh, you mean the fact that the um stocks haven't rallied as much as you'd hoped? >> Yeah. >> Well, not that I hoped, but just like they haven't responded. It is what it is >> in terms of this last two weeks. >> Yeah. I think though one of the things you need to remember is on a relative basis the whole market's down now. So yes, I hear you that it hasn't moved that much, but let me just pull this up and let's look at the groups. Um cuz my suspicion is what was the day of the war? Like basically it was over the weekend. So it's like if we look at this from >> uh February 28th like that'll work, >> right? Let me just pull this up. Uh so the 27th I'll do the 27th. So yeah every index is down uh except for energy index the energy index which is up two and a half%. So sure it's not screaming to the upside but materials are down eight industrials are down seven healthc care is down six staples consumer staples down five financials down five almost consumer discretionary down four and energy is up two and a half. So I I think it did what you wanted to do. It just it's tough when beta is getting sold and the reality is that the stock market is is getting liquidated. It's tough for it to go up. I'm not fussed. I think it's done great. Like it won't it won't The other thing, Patrick, is that for a while now almost all the action in the in the oil market has been at the front end end of the curve and that the curve in terms of a month out and and sorry, a year out and farther, it's not really moving now. It's starting to change, but but when you think about stocks, they're not pricing it based upon the front end of the curve. That's not what they're getting, >> right? >> And often what you're pricing and not only that, what you're really thinking about is their assets in the ground. What are they worth over the long run? So, what you need to do is compare to long run price of oil. So if you look at one year out what that oil is and I and I and I think I've done this before actually a lot of times these things will follow like the fiveyear out price of oil. That's what they're that's what they'll trade on. >> So I'm not fussed at all. I I I think that they've done quite well. >> So you know the the next thing I just wanted to make sure we just cover all the charts here. um gold uh everyone was at least I've heard many people talk about that their expectation was in geopolitical uncertainty they were expecting gold to behave in almost like a safe haven manner and rally and really gold's been grinding. My position has not been that. But uh overall my position was that in the past gold after a blowoff top has spent as much as two to four months consolidating before bullishly breaking out again. And we're just like 40 days into um into a consolidation and us, you know, retesting the 50-day moving average and and trading back to the top of the trade range and messing around here is the base case. But the one thing that I want, first of all, do you disagree? But number two, uh, if we had a stock market liquidity event, like a wash out, kick the feet out from underneath the market, it's dipping to the downside. Um, if something like this is underway, uh, do you, uh, what's your overunder that uh, that gold gets grabbed by the ankles and dragged down and some liquidity selling? uh even if it's short-term and a buying opportunity as a result. >> Oh, I'm almost positive it will. Gold is behaving like a risk asset right now. And if we have a massive US um stock market selloff and credit event, uh especially if one where the front end of the yield curve is going up because oil's going up, I mean the front end of the yield curves yield is going up and the price is going down. Uh gold's going to go with it. And um it's only once we get to the stage where the market starts to smell that the Fed is going to turn and is going to provide the liquidity that that is needed. At that point, it'll rip. So, it's one of these things that you need to be careful about. It could be two days and it could be $500 on gold, but then it's very quickly that is what you want to buy on dip. So every, you know, everyone's talking about buying the dip on the stock market. I'm going to I'll I'll I'll take a pass on that. >> I'm going to buy the dip and gold. When we get a serious correction in gold, you want to be there because it will be the thing that leads us out of the next uh recovery. >> All right. So listen, the last thing I want to touch on here uh because we ran we're running way over time. So let's just leave it one thing. We got to talk the grains and eggs >> because the one sector that's doesn't show up on your sector analysis with the energies is the egg space. But here you have corn ripping to fresh new uh multi-month highs, soya bean at 52- week highs, wheat at 52- week highs, all ripping while you have the MOO index, which is the egg basket, uh ripping to the upside. But the while the MOO has not uh beaten February highs, shitloads of the individual names, New Trend, fresh new highs. Uh CF Industries, fresh new highs. You know, like you could go, you know, um Bungee fresh new highs. Uh uh I IPI, which is the Intrepid Pod, well IPI, Intrepid Podash, uh fresh new highs. Like we have a huge egg bull market. Uh I know uh the a good friend of the show Paulo Macro has been all over this for a while. >> Beautiful. >> Yeah. But uh but this is this has been a place that's getting lots of love right now. It's like an it ain't noticing no Middle Eastern uh >> Well, no, but I No, it's it it's actually going up because the Middle Eastern nervousness. A lot of the the ingredients needed for these fertilizers comes from there. And so the whole world is short fertilizers and that's why these things are occurring. So one of the troubles with this trade is if all of a sudden and I don't think this is going to happen, but let's just imagine that there's a new Iranian leader that says everything's great. We're going to let all traffic go through. We've made a deal. It's terrific. These things all come back big time. >> Okay. >> So just be aware that this is more of a geopolitical angst trade than you might. Now, that's the stocks or the actual grains? >> Well, the grains are up because they're anticipating there's not going to be as much fertilizer available and so yields will be down. What? And people need to realize that, you know, uh over the the many years or decades, almost centuries of us getting more and more efficient with our farming, a lot of it is this fertilizer. And if we get a situation where all of a sudden there's not enough fertilizer going around, we could have squeezes in the grains and in the in the commodities themselves, that is are quite scary. And we go back to the problems with um when we were talking about the consumer and them getting squeezed. What if they're getting squeezed not just on oil? What if they're also getting squeezed on their food? And that's where we're headed right now. And uh you touched upon it when you said the Iranian regime wants to cause as much economic pain as they can. One of the ways they can do that is by making the price of food more expensive. >> Absolutely. All right. Well, Kev, listen, I think this is where we can uh wrap things up. Uh so uh let's let's bring this to a close. >> All right, Patrick. Uh if everyone, thank you very much for tuning in. And Patrick, you know, in this trying times with markets all over the place, you got this great webinar coming on Monday. remind people about it, where they can go, what it's going to be about. Give us the whole spiel. >> Well, you know, Kev, you know what's interesting about the last time I did a hedging special webinar? You know, when it was >> was it right? >> The day before liberation day. >> Oh, really? >> Absolutely. You know, the thing is is that whenever markets get turbulent, uh I I often want to uh uh to kind of always take a moment to uh you know, remind members and and listeners uh just, you know, how important it is to hedge and and the benefits of being able to dampen downside volatility to give you staying power in the markets and and be able to ride out some difficult times without making the only choice to just go to cash. And so a lot of these uh big uh institutional um desks are always talking about uh hedging with barefoot spreads like you know doing a 95 by 85 barefoot spread out and things like this. And I want to be able to go deep and explaining what it means how you size these trades, what impacts it would have if there was a downdraft in the market and what what impact it have on a portfolio. want to be able to explain uh to our our listeners just how to protect your portfolio, not by selling everything, but rather just simply having a volatility dampener, something that reduces the draw down and and gives you more cash at the end to be able to buy dips on. So, I'm uh I'm doing this special webinar on Monday. Uh it's I'm going to be a March 16th at 400 PM Eastern time and you just have to go to bigpicturetrading.com to uh to check it out. There's a the registration right on that homepage and it's completely free. I because you know I I I have a view that if I can just show people how how these things are done and they make a some get some value out of it then they see the value of being a member. So uh come on join me for that webinar. It's going to be a a great opportunity to go deeper on this. >> Sounds great. All right. Bull market bare market. We're just happy to spend some time with you now. Stick around for the after show Danny. Okay. I got something to say. So, I was watching on our little like I don't know what is it like uh screen with all of our different uh views that we have. I see Danny kind of off to the side like he's it's like in the what do they call it the green room or something and he is drinking water and it looked like the biggest jug of water I have ever seen in my life. So, Danny, can you bring it up so I can see it? cuz I it was all grayed out and I don't know if it was just the angle. Oh my god. Yeah. So, he was drinking out of this thing. It's like a 3 L maybe a 4 L bottle. >> That's how that guy rolls. >> You got to stay hydrated. This is this is important. Like you can't you can't [ __ ] around with just small little like 250 mil little toys. Like you got to go three liters. It's it's got to >> go big or go home. That's what I >> Yeah, that's right. You know what it is? I I hope you don't mind this, Danny, for us mentioning this, but you bought yourself a new camper van, so you're living life large, and now you're springing for the 4 L bottles of water. Like, you're just you're you're Wow. >> What can I say? Nothing. You're completely right. Big time. I mean, I've hit the big time. >> You hit the big time. Patrick's driving around in Ferraris and jumping out of balloons or whatever. And Danny's getting the four liter bottle of water. >> Yeah. >> Okay, let's get the beer review before we, you know, forget. >> You know what? This is a hazy IPA. I'm I my head is spinning. It's a 6enter. Uh I I'm not drunk, but it definitely I can feel that I had a beer. And u It's awesome, though. Uh I I'll I'm going to rate this one 7.8. I uh recommend anyone who wants to try a square wheels. It's uh it's like square wheels makes sense. It's like being long the market right now. You're going to >> It's tough. It's tough to roll with. >> It's tough to roll in this market, but uh it's a it's a great beer. Love it. >> That's great. All right. Anyone have anything apart from Danny's big purchase? Anything new and exciting happened in anyone's lives? >> Oh, you know what? I'm uh I'm actually uh heading uh back across the Atlantic here next week. Uh and >> you're going to come visit me, right? We're going to go out for >> Yeah, we're going to we're going to get it. But I'm uh I'm going to also uh go and visit Cuppy. I'm going all the way down to Puerto Rico. >> You're going to Puerto Rico? Cases Cupy. It's >> absolutely. I'm going to go help him pick some mangoes. >> Well, you know what? He's going to put you to work um uh doing some farming in the back. like I don't know if anyone follows him on Twitter, but if you do, you know that he is very into farming. He's often off, you know, tending his land for the coming aop apocalypse and uh, you know, sometimes he comes on to like the chats and he's like, "What the hell happened? I was busy like planting my mango trees or whatever." And we're like, "Dude." And then you can see his cow. I think there's a cow that the farmer left next door or whatever. So, you're going to have to give us an update. It's going to be a lot of fun to hear about uh what it's like living with Cuppy. >> Yeah, absolutely. I'm actually just looking forward to hitting some waves down and do a little bit of surfing. >> Oh, that'll be >> But it'll it'll uh it'll be awesome. I'm looking forward to it. But uh yeah, we'll we'll definitely meet up for for a nice dinner. >> Oh, that sounds great. How about you, Danny? Are you enjoying the new ride? >> Yeah. >> So, when you say camper van, I I I'm not familiar with that term. We use different words. So, what is it? >> Mo motor home. >> Oh, it's like a full-on motor home. Okay. >> It's like It's like It's a retirement a retirement wagon. >> Okay, I got it. The kind that um the guys Top Gear flung off the cliff. >> Yeah. Yeah. >> I got it. Looks very nice. Very >> I'm jealous. I'm I'm seriously thinking of getting one because like uh you know this guy's roaming across Portugal uh checking out these beautiful beaches and uh uh it's uh you know >> Well, I mean thankfully we bought this one because it has a a big garage space. So we we've managed to fit two surfboards in the back. >> Oh, that's awesome. >> Oh, that's terrific. >> Are you going to tow a little car? >> No, no, no. This is this is the car. >> This is the car. Because sometimes you can't get into some parts of the city and stuff. It's like kind of a pain in the ass. >> Yeah. Yeah. But it's it's more like it's more for being out outdoors. It's not necessarily >> Oh, I see. Okay. You're just going to go from one beach to the other. One beach to the other. Got it. >> Exactly. Exactly. >> Okay. Well, that's great everyone. Thanks for tuning in and we'll see you next week. Cheers, everyone.