Bubble Pop or Bear Trap?

The current market sentiment is one of cautious optimism mixed with significant concern, particularly regarding a potential bubble top. The speaker highlights the prolonged three-year coiling of the 10-year Treasury yield, suggesting a potential breakout that could have dramatic consequences. There's speculation about whether this is the most telegraphed euphoric bubble top in history or a trap for bears. A potential 10-15% pullback on the S&P 500 is discussed, with questions raised about whether this is the beginning of such a correction or a precursor to further gains. Geopolitical tensions, specifically regarding Iran and potential renewed kinetic war following Trump's return from China, are identified as a potential catalyst for market movements, possibly driving prices up. Conversely, pressure from China and continued passage of ships through the Strait of Hormuz are seen as ongoing issues with escalating ramifications. The NASDAQ has experienced a gap down and is holding near its lows. On a weekly timeframe, it exhibits a shooting star or a doji candlestick pattern, suggesting potential reversal. The speaker anticipates a similar candle formation next week, coinciding with Nvidia's earnings report on Wednesday. Concerns are raised about China's interest in Nvidia's H200 chips and their desire to develop superior domestic semiconductor technology, continuing the semiconductor race. Despite the bearish sentiment observed, the S&P 500 has shown a 6% gain in May, contrary to the "sell in May and go away" adage. The concept of volatility begetting volatility is discussed, recalling how downside volatility in the past has led to significant market ascents. A historical comparison is drawn to inflation cycles, particularly the 1970s and early 1980s. While acknowledging differences, similarities are noted in how equity markets behaved during periods of rising inflation. The speaker criticizes former Fed Chair Jerome Powell, attributing a "K-shaped economy" and widening inequality to his tenure. The transcript also examines historical instances of rapid market gains, specifically focusing on the S&P 500 experiencing a 20% gain in a month. This occurred in 1929 and during the dot-com bubble in 2000, both times with further room for ascent before eventual downturns. The speaker questions if the current situation with parabolic semiconductor gains is a repeat of these historical bubbles. The semiconductor index is noted to be the most overbought since the dot-com bubble, with its RSI above 85. The gap between the S&P 500 and its 200-day moving average is the widest since 2000, though historically, this has not always signaled an immediate top. Nvidia's upcoming earnings are highlighted as a potential catalyst, especially after a nine-month consolidation and subsequent ascent. S&P 500 profit margins are at a high, significantly influenced by semiconductors and big tech. The speaker speculates on future competition from players like Elon Musk's new fab and China's advancements, which could lead to margin compression. The cryptocurrency market, particularly Ethereum, is described as having experienced a massive leg down followed by a tough sideways period, likened to Bitcoin's six-month sideways movement in 2018 before a significant drop. The current price action is deemed frustrating and a "grind," but the speaker anticipates a turning tide, with contraction leading to expansion. Potential catalysts for Bitcoin include the Clarity Act or a liquidity surge. The market is currently pricing in a 64% chance of a rate hike this year, but the speaker suggests this could shift if an energy crisis worsens, leading to panic cuts and market freefall. Structurally, the short-term holder MVRV for Bitcoin appears strong, with regaining and holding the cost basis typically signaling a bottom. However, the possibility of a breakdown from a channel formation is acknowledged. The speaker is personally not bearish on the current market, despite the presence of bears. Examining S&P 500 historical gains, a 16% gain is compared to past instances. While four and five-year periods have been challenging, the outlook one to two years out is generally favorable. The speaker notes that cycles are becoming sharper and quicker, with mild downside moves. In contrast to 2020's tightening monetary policy, current policy is described as loose, with fiscal dominance at play. The sell-off in yields is seen as impacting the broader economy and necessitating future printing to service debt, leading to increased liquidity. Historical market cycles are reviewed, showing long bare markets followed by extended bull cycles. The speaker references Stanley Druckenmiller's "lost decade" predictions and the recurring pattern of 9-year bare markets following 24-25 year bull cycles. The possibility of another extended bull cycle is raised, with a mention of Donald Trump's prediction of the Dow reaching 100,000. The Hindenburg Omen signal, indicating new highs and lows occurring simultaneously, is discussed. While it occurred, it was not a definitive signal, but rather a warning sign of proximity to a top. Correlation between high-yield bonds and the S&P 500 is at an extreme reading, similar to late 2019 when the Fed was forced to stop quantitative tightening. The question remains whether the market has more room to run, with Nvidia's earnings being a potential catalyst. Despite a recent pullback, the NASDAQ is still up over 6% for the month and 10% over the last four weeks, highlighting the psychological impact of market movements. The speaker reiterates that periods of intense grind and frustration often precede the greatest gains. This is illustrated by the concept of abnormal streaks of losses, after which significant moves tend to occur. Current positioning in stocks is a testament to this, with unexpected follow-through after entries. The same is expected for Bitcoin and crypto, though the catalyst remains unknown, be it regulation or increased liquidity. Diversification across stocks and crypto is advised. Regarding plays on yields, a breakout in yields is seen as a warning sign, potentially dependent on oil prices. A restart of conflict in Iran is considered a possibility that could significantly impact yields and equities. The speaker does not advise buying bonds at current resistance levels, especially given geopolitical risks. Intervention from the Treasury and/or Fed would be a potential catalyst for buying bonds, but only for trading purposes. The discussion shifts to potential IPOs, specifically SpaceX and Anthropic. For SpaceX, the speaker anticipates initial euphoria leading to a significant vertical move, followed by a phase of facing reality. The strategy would be to unload shares during the initial surge and then DCA on the way down. The integration of SpaceX with Alphabet for data centers and satellites is seen as a driver of speculation. Anthropic is viewed as a company with immense potential, comparable to the impact of Google and Meta. Despite current high valuations, the speaker believes they will become even richer by the time of an IPO, drawing parallels to Google's acquisition of YouTube. The speaker expresses a strong desire to have Anthropic in their portfolio, acknowledging valuation concerns but also the transformative nature of the technology. The speaker does not believe today is the market top and expresses concern about the long-term consequences of unresolved geopolitical issues by the end of summer, though the US economy is seen as resilient. Weakening job markets and stagflation are also identified as potential worries. The current accommodative monetary policy is a significant bullish factor, with passive bids entering the market. The speaker contrasts the current situation with Burry's calls for selling, noting Burry's history of poor timing. The question of when the top will occur is explored, with a potential 10-15% correction (or even 20-25%) being discussed. A breakdown of the NASDAQ below a trendline could signal broader economic problems. While a 1% pullback is not considered the top, a strong weekly move down would be concerning. For the first time in six weeks, bulls and bears have reached an equilibrium, which is seen as healthy. The ability of bears to gain control and initiate a sustained move is what is being watched. The speaker expresses personal concern about security in the context of AI agents, preferring agents running on Anthropic over OpenClaw. The SaaS industry is noted to have been heavily impacted, but a comeback for companies like Salesforce is anticipated due to the need for security. Tesla is viewed not just as a car company but as a tech company, with the focus on humanoids and the semiconductor fab buildout powered by SpaceX as key drivers. Bitcoin miners are transitioning to AI miners, with companies like CleanSpark providing compute for AI. The speaker's preferred play on miners is through Block, citing its outperformance of Bitcoin and IBIT, its dividend, and lack of NAV erosion. The increase in AI capital expenditure (CapEx) is noted, with a potential shift of funds away from stock buybacks. While companies spending on CapEx have outperformed those focused on buybacks, this trend could change market dynamics. Finally, the speaker addresses the current market "grind," acknowledging the frustration but emphasizing that such periods often precede significant gains. The importance of diversification and staying on the right side of the market is stressed. The speaker concludes by wishing everyone a great weekend, acknowledging the shared frustration, and expressing hope for better times ahead.