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#FinanceDaily: #WWDC, Treasury’s $1.5T Problem, Fed Policy
Recorded: June 5, 2023 Duration: 1:17:00Space Recording
Short Summary
The discussion covers emerging trends such as the convergence of AI, crypto, and VR, and highlights innovations like Apple's potential digital currency and advanced eye-tracking technology. Concerns about market liquidity due to the $1.5 trillion treasury issuance are noted, alongside growth indicators in government debt attractiveness and tech stock performance.
Full Transcription
All right, everybody, just waiting for Scott to join, and we have a lot to talk to today.
So I'm kind of excited.
Well, I'm always excited.
Guys, how's my audio?
Cody.
Do I sound beautiful?
Oh, as always.
What a beautiful day.
What a beautiful day.
You know, I was considering this morning, I was like, hey, maybe we should consider talking about China's incoming data.
But then I felt like it was just going to be a shit on China Day.
And I really didn't want that happening.
Yeah, Bloomberg had some data come out last night about some of the real estate market.
Exactly. That's what spurred my...
my thoughts. I was like, hey, let's talk about the sputtering Chinese economy. But then I was like,
okay, I'm clearly biased. I want to be thoughtful. But it was interesting this morning with
Morgan Stanley's stuff. So it'll be because they, you know, they were talking about Japan and others.
But we'll, well, if people are interested, actually hilariously,
I was also considering putting some information in there about the rapidly emerging psychedelics industry.
But then I was like, people will think that I'm just hating on psychedelics, which I'm not.
I'm just hating on how everything gets monetized in medicine.
But yeah, I have like so many thoughts about too many things.
And so that's why they keep me on track here.
All right. I think we have everybody. Matt's coming up too.
Hey, Scott. How you doing, man?
Good, man. How are you?
Freaking great. Got two days off. It was legit.
Wow.
It was incredible. And so I'm...
What's that feel like?
Dude, it was incredible.
I only got to work on my startup, nothing else.
See, I know what a day off now means for you.
That was my next question because I can't do days off.
I go on vacation.
I literally get insomnia and after 30 minutes on the beach, I absolutely lose my mind.
Yeah, well, my wife and I are talking about going on a vacation in the next few weeks
and she has made it very clear that I won't be coming back if I don't.
if I don't like promise to not work when we're there so it's going to be very interesting yeah I do it I don't work but it's it's literally like a detriment to my health doesn't work with my that does not work with my ADHD oh my god well that days off means not working
Oh, my God.
This up should just mean working from somewhere more beautiful and a little less.
That's what I believe, too.
But, you know, my decisions are not my own anymore.
But I was going to say that, you know, thank you everybody for joining us.
We have a lot going on right now.
Apparently, personally and professionally, this is not therapy.
I'm excited to get started.
We have a lot to talk about.
I wanted to start very simply...
With the WWDC expectations for today, I think there's a lot of talk around WWDC.
What is it going to mean for the larger industry?
So, you know, I wanted to start on the big, big announcement.
I know we spoke about it late last week,
but I want to make sure that people who weren't here with us on Friday, I believe, or Thursday,
are aware that Apple is launching a new platform, supposedly, allegedly,
not financial advice, today.
Okay.
in the next few hours.
The reason why this is so interesting
is, as I said the other day,
Apple has a very interesting way
of always launching at the trough of disillusionment.
Everybody thinks the metaverse is dead.
Everybody thinks that VR has been over-hyped.
Everybody sort of believes that, you know, we have seen this platform, the headset platform fail.
and yet Apple appears.
And so I wanted to get people's thoughts really quickly
on their initial thoughts on this news
and what their expectations of today are.
Do they expect to be blown away?
Matt, I'll start with you since you've been, I'm assuming,
I know it doesn't have as much to do with enterprise,
but maybe it does.
What are your expectations for today?
Well, it's funny.
I have an angel investment I made several years ago,
I think in 2017, a company called,
ad hoc microsystems. It's a Waterloo Canada-based eye tracking monitoring software company that's been
working with Apple on this headset for I think about four years now. So we've known that they've
obviously been in the market trying to build their own headset. But from what we hear from the company
they're working with is that
They're not trying to build a consumer application off the start.
I mean, with a $3,000 price tag, you could obviously assume that it's not for the mass audience.
What they're trying to demonstrate, in our understanding, is they're trying to demonstrate use cases where this can overlap with the physical world, but across multiple use cases and for the most highly necessary use cases.
So you're thinking, obviously, healthcare, construction, you know, things that require the brain to tap into, you know, the experience, you know, deep experiences, but also with the physical world necessities.
And so we've seen companies pitching us on this for a while, like how to look through the streets of a city to see the different layers of infrastructure and where there might be issues in pipes or plumbing or any type of high level infrastructure cost.
And I think Apple is probably going to present multiple use cases today that are not just what.
the metaverse and what Facebook and social was portraying to the, you know, the masses for the last
couple of years before kind of pulling off the gas pedal. And I think there's going to be a lot more
realism and a lot more, uh, patience being built into what they're trying to develop versus just
the social dynamic of metaverse and where everyone else went with that. And I think that's going to be
very refreshing. It's almost going to be like there's actually adults in the room talking about,
hey, there's actually more society.
societal benefits than what Facebook and other people were saying besides just social and gaming.
And I think that's going to give a little bit more calmness to the understanding of what Apple is trying to do.
Fascinating. Very different than what many people are saying. Interestingly,
By the way, if people don't know, there is an Easter egg on WWDC's hashtag.
Tweet with WWDC and you'll see that every time you hit like, it gives you a 3D heart, which is so, so lame.
All right, just kidding.
But it's an interesting Easter egg.
But Matt, to your point, I want to go back to it.
Yeah.
So you just want to clarify for our audience.
There's a lot of use cases, obviously, for AR, right?
And many of them are enterprise use cases.
Oh, did Matt drop off?
Jeez, it always happens.
But, you know, there are a lot of use cases for AR,
and that is one of the big parts of this.
Oh, he's trying to come back up.
Okay.
uh team on the back please get matt back up somehow but i was going to say that you know one of the
things that's very interesting is that the one of the biggest use cases that people are talking about
is not just the vr use cases but the a r use cases eugene i know that you used to be at facebook
and you know you've been in this space for a while i know that you're a believer
Want to get your thoughts as Matt as we try to get Matt back up.
Eugene, what are you excited about with WWDC today?
Sure.
Yeah.
I mean, I think there's going to be a lot of things announced.
Beyond just VR AR, I mean, the 15-inch MacBook Air and other things, but specifically on the VRAR, which I think is obviously the biggest potential announcement.
Yeah.
You know, I don't know, there's like a quote a few years ago where I'm both a believer,
but also skeptic of VR having been in a long time.
I think that the form factor is still not going to be there.
The price point based on the bill of materials being about $1,600 or so that we talked
about the other day, meaning that it will cost Apple about $15,600 to $6,600, those to build
every VR headset as cost of goods sold, let alone the price it'll get to consumers.
I mean, it'll probably similar to meta lose money on the device or at the very least break even rather than try to make a profit in the early days.
So I see this not as a consumer device, but as the stepping stone to, you know, to an actual mass market consumer device that has to be smaller and lighter than anything in the market and probably anything that Apple will probably announce today.
You know, when it comes to VR, AR, I think they're both powerful.
It's really interesting, you know, many years ago, Tim Cook.
said AR is, you know, going to be bigger than VR, but then all the VR practitioners, including,
like, you know, one of our original investors at Oculus, Mark Andreeston, who did our series B at $75
million, right before the Facebook sale, actually, they, you know, Mark Andreessen and others
very aptly said, I think in a tweet, like, you know, VR is going to be 10,000 times
bigger than AR. And I think that's actually kind of the big debate. I mean, A.R.
AR so far has stuck to be, to be frank, right?
I mean, we have the magically one and two.
We've had the HoloLens.
VR actually has applications, right?
It's, I mean, at the very least, at the very least, it's a gaming device that's pretty effective, right, with things like Beat Saber, etc.
Which aren't mass market.
You know, they don't have the enterprise applications.
Question on AR.
It has it been...
a disappointment because of the hardware and because the hardware is onerous and because there's no cellular and you're required to use Wi-Fi currently.
Is that what's driving these issues from just like a user interface perspective?
Bulky hardware coupled with lack of mobility?
You know, I think that's part of it.
I think that's true for VR as well, but it certainly affects AR.
I think just...
You know what it is?
Part of it is hardware, as you discussed.
But part of it is it's a brand new, like, language, right?
In the same way that cinema was a new language, quote, artistic language, then theater.
like VRA and AR both are two different languages, right?
So if you're trying to design for VR,
a lot of people say they're a VR AR company.
I think that's really silly.
It's like trying to say you're a fishing company and, you know, an oil company.
I mean, yeah, sure, those are kind of related,
but, you know, they both have water sometimes involved in them,
at least with deep water drilling with oil.
But they're almost completely different, right?
I mean, if you're a startup and you have to focus,
I'd say focus on either VR or AR because having tried to develop for both,
It's really, really difficult, right?
And today, I'd say the actual only killer app with AR, which I think is actually really good, is like the second screen thing with the MetaQuest Pro.
You know, I was like traveling somewhere in Paris and I didn't have the small little laptop.
MediQuest Pro and I have like two gigantic screens.
It's not the best.
But it's actually really effective.
It's actually one of the only, quote, AR apps that I've seen that are effective.
But you know, like, you know the minority report things?
A lot of people have seen that movie where you're putting your hands in the air and stuff.
Yeah, that sort of exists in AR, but it really sucks.
Because the interface and the, like, UI and U.S., they don't exist for these industries, right?
They barely exist for VR, and they definitely don't exist for AR.
And they're really bad, let's put it that way.
Over the hardware limitations, the software and the design,
is just awful for these things.
So I'm really hoping Apple does a better job with that aspect.
And obviously they built a company on Great UAC.
Yeah, that's what I was going to say.
I actually was going to say that exactly,
which is while the whole world was trying to build better keyboards on your fingers in phones,
like the QWERTY keyboard, Apple figured out a better interface with the multi-touch.
And so, you know, I would give that to them.
That's right.
And so, you know, one thing, if anybody else has any comments about the technology,
specifically
feel free to jump in right now
because I want to go to the
finance of it
okay so but Shakar did you have a comment
I've got a yeah I've got a hot take
so I think
VR actually sorry
I'll make the same mistake
which is called your audio
your audio is putting it out for me
are you on
can you try again
Yeah, it's not good.
Yeah, it sounds freaking awful.
Your hot takes need to be nice and crisp.
You can cut me off with your hot take in a second.
I'm going to move to one thing that came out this morning.
So while Morgan Stanley was bearish in the entire freaking market,
right?
They came out and they said that Apple is about to unveil a $20 billion platform
and they raised the price target on Apple, which is very fascinating.
I was going to say that for people that are listening,
Tell us if you think that VR, AR VR or XR, this Apple's new launch,
do you suspect that they're going to do something that none of us here are expecting,
maybe except Shakar since he's about to give a hot take?
You know, if you think that this is actually going to be way bigger than what people think it is,
go into the comments on the bottom right and share and tell us why i need to understand i don't just
like yes and all that crap like i want to understand why uh you know give points behind your argument
um and uh we'll bring you up to kind of share your argument with us chikar is your audio better
clearly not sorry uh johns can off very quick hot take go ahead
I would just like to say, I love your point about this being somewhat the trough, obviously, in Metaverse.
I think it should definitely be noted that not only is Apple coming in at this timing,
but that Mark Zuckerberg was effectively, even though the timing was fairly bad,
willing to rebrand an entire monster business to Meadow with a full belief in this.
So you're now two of the largest companies in the world that are effectively saying they're willing to go all in on this technology and this space.
I don't think that can be overlooked.
I just think that it's really, really important because we'll effectively see it coming probably with other companies and well,
and then we'll be talking about this in the same manner that we are about AI probably in six months or a year.
Hold on.
Hold on.
Hold on.
Hold on.
Listen, I'm not saying that it tests as...
essential of a technology or transformative, but I do think the narrative will switch there.
And for anyone in crypto, I would make a pretty sizable bet that for no good reason in the next month,
we're going to see tokens that have very superficial involvement, better than almost nothing,
probably starting today pumping like mad because crypto people are absolutely on their mind.
So I heard something over the weekend while I was supposed to not be working.
I did hear something over the weekend.
that someone said there is a convergence coming.
Is this between AI, crypto, and VR?
Yes, I think it always was.
Whether it's a narrative or not, there's very obvious places that those are going to come together.
I think everybody understands where AI and AR and VR can come together.
And all Apple has to do is release its own digital currency and all of them go to shit.
That's correct, probably.
But I'm looking into that.
But on the crypto side, taking the coins aside, the problem here with AI and AR,
especially when it comes to transactions, is that verifying identity is going to be...
wildly problematic, right?
We know that Sam Altman is working on WorldCoyne,
which is going to scan your eyeball to give you free shit coins.
I think it's one of the worst ideas in the history of mankind
to go scan your eyeball for a company for a coin that has no purported utility yet.
If you literally look into the World Coin utility, it says to be determined by the community.
It literally blows my mind, but that's a separate topic.
What's important there is that WorldCoin is being developed as the same guy
by the same guy who created Open AI.
obviously and chat GPT.
And the point there,
forgetting the currency itself
is that he wants to be able to verify your identity
in a world where that's going to be increasingly difficult
because of AI.
Right. And so I think there are very compelling use cases for blockchain technology. Like I said, take the crypto part out of it because it's kind of a misnomer to be able to have a digital identity that's verifiable that will interact with AI and AR to confirm who you are and make sure that you're actually transacting with a human rather than a robot. And that's to me where this convergence.
Scott, do you not use your face to access your iPhone now?
Oh, listen, listen, it's nonsense to think that we have any sort of privacy, but for like, for free coins that I'm not sure what they do, I'm not going to walk into Sam Altman's office and then scan my or.
For sure.
There has to be a line drawn.
I do encourage everybody to look at the patent on this VR headset for Apple because they do have some eye tracking patents.
Well, they all have eye tracking.
You're staring into any of these headsets.
You're literally, yeah, I mean, you're staring into any of these headsets who are tracking your eyeballs all the time.
And, uh, Cody, walk us through the patent landscape.
What else have you seen?
Yeah, if you look at some of their layered lens technology, um, so, uh,
So it was that to me?
No, no, that's Dakota.
And then we'll go to you, Matt.
Go ahead, Dakota.
Yep.
So some of their layered lens technology is pretty wild.
I would not discount Apple's ability to drive customer value.
I think they'll probably go after the eyeglasses market eventually.
But Walter Nesico, who is now with...
Metaverse or Meta spent five years with Apple prior to, right?
And so on Apple Vision and some of this patents that are driving Apple's new innovation,
he's been like the world leader in a lot of this.
Oh, interesting.
Matt, Matt, wanted you to weigh in on the hardware.
You were mentioning a little bit about some knowledge,
and I know that you can't disclose everything.
And again, for anybody that's listening,
this is not financial advice.
Want to be very, very clear.
We're all technologists up here.
We're all going to be bullish on anything that's new.
We tend to, especially Matt, since he invests in these companies.
But Matt, I do want to give you the chance to give us a sense of what is so strikingly different about the hardware associated with this headset, in your opinion, or from your current knowledge, that we haven't seen with the meta quest of the meta quest two that just came out a couple of weeks ago.
Yeah, I think like, so the company that they've been working with, I mean, they've been working with so many different providers, but yeah.
They've been developing technology to help people with cognitive issues relay neurological
signals from their eyes back to their brain and then obviously through the rest of their
body using eye tracking devices because the science behind it is that your eyes are basically
the gateway to your brain and any significant changes in the ways that your eyes move are
obviously related to some cognitive issues in your brain.
And so...
that's the technology and their chip that they obviously sell to hardware providers like Apple are incorporating that into it.
So that led us down the path of thinking, okay, maybe they're trying to build exactly what you are saying,
a very sophisticated, very expensive hardware device that they break even on.
But the platform, the $20 billion platform that Morgan Stanley says is way bigger than what Apple is actually just talking about from a hardware standpoint.
So...
Being that hardware is at the core of what Apple, you know, started out with and how all their teams are very...
disconnected in the beginning when it comes to ideas.
Like everyone, when you sell software or technology to Apple,
it's all very disconnected.
You're not going to like one manager who controls several divisions.
So each division operates independently.
And so the fact that this has made its way all the way up to Tim Cook
and to the company being, you know,
the core of their WWC presentation,
you have to believe that they're building a beautiful looking hardware device
that's going to have,
25, 50 years of development in software behind it that we have not even scratched the surface on yet.
And so everyone's getting way too ahead of themselves on like what the actual real life use cases are going to be with this because we won't know for several years.
I mean, think about how long it's taken for them to get into the car.
And they've only made it so far as a software provider as Apple CarPlay.
Yeah.
And so they are taking a very long-term bet that this will be something that has a lot more use cases with software applied to it.
And the hardware is just the starting point for them to get their name in the hat and hopefully be the leader that people want to build on top of.
And Matt, isn't the good news here that you'll buy one inevitably right when it comes out.
And six months later, they'll come out with one that's 10 times better.
And that one will require computer, car, phone, and watch to sync with it because none of them will work with the update.
I literally just went to the Apple store this weekend because my battery was dwindling on my phone.
I've been running on low power boat ever since I've gotten it.
I'm like, this thing has a ticking time bomb in it. I know it.
and just like all to you plug it into your way to you plug it in your iMac and find out that the uh you have to buy a new iMac to sync to the new phone i mean i have the quest too and that was a covid purchase like everyone else and that's been sitting on my shelf for quite some time so maybe i won't jump the gun so quickly on this three thousand dollar purchase but it's going to come a day where i'm going to have well uh it's going to be very interesting to see how many people actually end up buying it in the short term i feel like on our stage many uh shakar is your audio better you tell me
All right, perfect.
Go ahead.
Sounds wonderful.
Go ahead.
Awesome.
Well, I left for five minutes, and I realized that it might not actually be as hot of a take as I thought.
But I think to the point that we're all trying to make right now, the platform play is Apple's signature.
I mean, think about your own life, right?
I own a MacBook Pro, a watch, and iPhone pretty much every device that they sell.
Not because I'm an Apple fan boy, but because they all work incredibly well together and
unlock new use cases that frankly, you know, just make my life easier.
So when you think about the AR headset, right, you have to ask yourself, how does this
actually fit into the broader play?
When you think about a $20 billion platform, that's exactly what Apple's in the business
of building.
And what I was getting at earlier is that AR absolutely is searching for, you know, that
amazing user experience, the use case that actually makes everyone think, hey, I actually
need this.
Now, the secret is that I think that we actually need AI in order to make AR, the, you know,
the, I guess, minority report type of use case, really, really, really valuable to its
table and consumer.
What we know about Apple is that they've already, you know, dabbled into the health market.
I think all of my wearables are effectively health devices.
So when you actually think about, you know, the future form factor of this device,
I think that long run, right, it's actually going to be using a, you know, large language
model that lives on my icon that is integrated with literally every other Apple device
that I own and actually driving, you know, a consumer experience that's significantly better
than anything that we can imagine today.
Now ask yourself who else's position to deliver that?
No one, right?
No one has any other device or at least as many devices that I own that they can run edge
compute on, which I think is really great news for Apple.
Yeah, it's going to be very interesting to see the convergence of their own devices, too.
You know, my AirPods.
Yeah.
plus my Apple Watch, plus my headset, could I essentially get rid of Peloton by having just a regular
bike in my house? You can do that. You can do that today, Ganesh. I know, I know, I know,
but the ability to be able to take a spin class from someone online, it does improve that
experience quite a lot. And just the health aspects of it,
I'm actually very, very excited about what Apple does in health.
For many people that don't know, it's already interoperable with your medical records.
It's already being able to pull a lot of the health data from your Apple devices.
And so the ability to see that health convergence would be huge.
And I do agree with Shakar that AI, AR is a Trojan horse for edge computing for AI.
But Eugene, go ahead.
Yeah, so I agreed.
Like, yeah, and it might just even be like your AirPods, right?
You know, with like some, some kind of LLM.
I mean, you know, Apple compared to the other fan companies,
doesn't have the same kind of, you know, AI talent companies.
pool, but a lot of these models are already created, right?
So why not just leverage some of the open source models that are out there?
It's an open question.
So the idea or the thought that I have around, so I don't know, this is the hot tape,
but maybe not realized.
One of the rumors that keeps persisting is that Apple's not going to have controllers, right?
And that's, you know, a lot of people are saying, oh, you know, like meta paved the way.
Hold on.
That's a rumor right now that Apple will not have controllers.
Yes, that's a rumor.
I don't know if it's going to be true.
We'll find out in a few hours.
But if so, that's huge, right?
Because everyone's talking about, oh, you know, they're just going to take over what
meta did, right?
And use all of meta's use cases like, let's,
let's call it basically like beat saber and gorilla tag right and basically a meta quest too is like a
you know gorilla tag machine grill tax one more popular VR games by the way for folks I don't know
by the ready at dawn folks but if they don't have controllers i mean like look i built apps in
VR that don't have controllers and i can tell you that the ones that have controllers have far more
engagement right i mean like the physical controllers if apple doesn't have that they're they're
like they're wiping out an entire set of apps that they could use right i
I mean, the MetaQuest Pro has like the hand tracking.
And so there's MetaQuest 2.
It's not great.
I mean, it's certainly not, you can't like play the same kind of games without controllers.
And so the open question is like, what are they going to do, right?
Supposedly that base tracking is really good.
You know, I did a MetaQuest Pro like base tracking like podcast like in the MetaQuest Pro driving an Unreal Engine MetaHuman.
It was interesting.
It wasn't great to be to be frank with y'all.
But, you know, hopefully this one will have, I mean, has an iris scanner.
I think Scott and others are talking about that.
But, I mean, you're giving away your, if you use this device, your iris is going to be scanned by Tim Cook and Co.
I do supposedly stored on device, but, you know, biometric data stored on device.
But, you know, we'll see, I guess.
So, yeah.
what the results are, but basically the no control is huge, I think.
Yeah.
Yeah, so I will ask, because we're going to have to talk about the Treasury's $1.5 trillion problem.
But I wanted to ask maybe Caleb or Tom, you know, how do you think the markets are going to react to WWDC?
What is the usual precedence whenever we have a big Apple event?
And how do you think the market's going to react to the launch of a new platform?
Caleb or Tom, either one of you can unmute and jump in, just to get a market sentiment.
Market sentiment-wise, I'll let price determine that.
We'll see how the market responds when it does.
So I'm not going to pretend to be smarter than the market.
We'll just have to wait and see what happens.
Interesting.
Tom, in the past, how have people reacted to WWDC?
Well, you know, I don't have the exact data as far as how history has acted with this, but I'll tell you one thing.
I don't have a crystal ball, so I'm very similar to Caleb's position, but I will tell you one thing.
Apple has a very strong correlation.
In fact, I would say pretty much drives the S.B. 500.
So the...
reaction of the market to Apple is going to determine a lot of fate of a lot of other stocks today.
So if the reaction is positive, so the question is, is this the new iPhone or the new nothing burger?
You know what I mean?
So if it is the new iPhone, so to speak, that level of excitement, it's going to drive up the entire market because Apple is pretty much, I would say, one of the staples of the S&P 500.
How it will react?
We won't know until we see if it's legit or not.
My only doubt about this, Dennis, you know, is...
I love Apple, and it's a staple in my portfolio, and I think it should be in every portfolio.
It's a kind of stock that everybody should have.
But my only issue with Apple post-Steve Jobs is they have the world's greatest chief operating officer running the company.
So I love Tim Cook, I think is by far the Michael Jordan of chief operating officers.
But as far as Apple innovation, they've done great things with services.
They've done great things with health.
They've done a lot of good.
I mean, they're one of the world's best of what they do.
But I don't know how much innovation we've seen in the post jobs air.
So I'm very cautious with my excitement until I see what they got.
I brought David up.
David wanted to get your thoughts from just like a pure trading perspective.
What are your thoughts on WWDC annually?
And, you know, I know that you don't talk about this as financial advice.
But David, would love to get your thoughts on what you're looking for today.
How do you think the market's going to react?
If you consider it like an earnings announcement type event, I mean, you have Apple sitting
already at a dollar, pretty much just one single dollar off of, or I guess two dollars
off of its all-time highs.
And it's up 45% off of its lows at the very beginning of the year.
So you have a lot of things already baked in to the stock.
You know, that's.
It would be very hard for this to have like an Nvidia type 30% gain coming out of the event or even really kind of any kind of significant gain coming out of the event that it wouldn't already have just based on the existing trend the stock has.
So I wouldn't expect a significant move to come out of the event unless it just maintains the trend that it's currently on right now.
Interesting.
You know, I will say one thing,
which is that I actually think that,
sorry, Dave, there's a lot of background noise.
I'm going to mute you for a second here.
But I was going to say that, you know,
I will have my own hot take here,
which is today they're going to talk more about AI
than they are about VR.
That is what my gut is telling me.
I'm like 99% sure of it.
If you've listened to any of the recent conversation around
around Apple. I think we're going to see that. Mickle, go ahead.
Yeah, I actually thought what EYC said about the no controllers is going to be absolutely huge.
And the second he said that, I was really thinking of that iPhone moment when iPhone brought out or Apple brought out the iPhone and suddenly all these buttons were gone.
Now, I personally can't see how that headset was.
would work with the current applications without controllers because right now the application really is gaming.
So I would be a little concerned exactly how developers would adopt that platform without the controller.
But it's super interesting.
And that automatically now is the thing I'm going to be looking at most.
I'm going to find that fascinating if they actually don't have controllers.
Yeah.
Well, just to be clear, they don't have to have the traditional controllers.
They could have a new user interface that we are not, like multi-touch, that we are, you know,
there's been arm bands that look at muscle movement.
Sorry, this is like more in the healthcare space, but there are arm bands that that can, you know,
predict muscle movement and things like that.
So I do think that there might be a different interface than what we're expecting.
Neely, go ahead.
I just want to pick a little bit on why you think Apple's going to be talking about AI, only because if you recall on their last conference call, they didn't mention AI once during their management, right?
So is it the absence?
Okay.
Okay.
I wanted to get inside the mind of Donish there, right?
Like, is it because they were so absent in talking about it?
They only responded to it in a Q&A, right?
And they were kind of like downplaying it just a little bit.
But.
but they really didn't make it part of their management script.
So I would love to hear more about that.
Often Apple does not talk, this has just been having watched too many of these,
often Apple does not talk about things that they are actively working on in a way that,
especially if they think it is very, very exciting and they don't want to preempt a big release
by talking up, like they don't,
they don't preempt the conversation until they have something really big to talk about.
And I think if us dummies on stage can start seeing how AI and VR are connected, I'm pretty sure
the geniuses at Apple are seeing that much more than we are. And I think that what Chakar was saying earlier, which
which is they've made it very clear that it is both a VR and a,
or it's been leaked very clearly that it's both a VR and AR platform.
There's a high likelihood that if there's any AR component to it,
edge computing, which by the way, they have their own chips now,
plus AI, there's just so much there.
I would be an absolute shock if this entire thing is not about,
hey, you know how everybody's playing with words?
Well, we're playing with fucking pictures.
You know, and like, that's like incredibly exciting, I think.
I think for people that understand the computer vision side of things,
we were talking about the other day how difficult it is to go from,
the physical world to the digital world and back,
if Apple is able to convince us that they can do at least the physical to digital conversion
and digital to digital conversion using AI, I think it would be very interesting.
Eugene, go ahead.
Yeah, so to clarify on the, I think that's right.
So actually on the AI side and the input side, but I'll say to the input AI side since that's what's up for debate.
I kind of agree with Neely.
You know, I think AI is going to be extremely useful for this device and others that Apple has in the works.
But I mean, unlike Google, which, you know, its keynote was like there was a meme, right, where it was like the CEO going like AI, AI, AI, AI.
Yeah.
The difference here is, I mean, Google has some of the best AI talent in the world, right?
With deep mind and, and, and, and all of that, I think Elon Musk even said that they had like three quarters of all the AI talent back before Open AI got, got acquired.
Meta has phenomenal AI talent behind the scenes, but Apple...
I mean, you don't hear about Apple's the eye talent.
Doesn't mean they don't have it.
To your point, Donish, they don't talk a lot about it.
But, I mean, Siri for years has been like, I mean, like, what do people hear you Siri for?
I'm curious.
Do people use it for anything more than, like, setting, you know, I use it for, like, you know,
setting, you know, time alerts.
And that's kind of about it, right?
It's kind of, it kind of sucks.
I mean, Siri enabled with something like chat GPT4 or GPT4 rather would be phenomenal, right?
Yeah.
So I guess that's an open question.
I think AI can be very useful, but I'm not sure it's going to be.
I mean, the only reason I'd say that they want to talk about it is what you said, Donish,
is that maybe they don't have anything, you know, super special that's ready yet.
That would be the open question.
But if they do, they do, they're great.
Until today, you think today.
You think today.
I am convinced that today will be Apple's AI coming out party.
But we will find out talking about AI, though,
IBC incubates and accelerates AI and Web3 companies, partnering with VCs and funds to work with their portfolio companies in return for equity and zero cash.
If you're interested, please DM Mario.
And also, they're going to be doing Shark Tank style pitches.
They've been doing them.
They've been working like crazy.
So if you are a startup or for portfolio company, please hit up Mario.
Often, a lot of these startups end up getting paid.
thousands of new followers and more importantly they're able to get some level of legitimacy
but we are very selective to don't just apply if you're shitty all right because it'll be
embarrassing for you also feel free to add some comments on the bottom right we're listening
uh we brought up many many people uh and we love to get some insight
If you are excited about WWDC, please do share with us.
I think, you know, our panel is obviously very educated on this topic, but we're always looking to learn from the crowd.
Often the crowd has a lot more information than we do.
I did want to pivot a little bit to this really important topic.
that I feel like is being underreported,
and everybody has said, oh, death ceiling's over.
Oh, death ceiling's over.
But we're not discussing this $1.5 trillion treasury problem.
And I want to give a little bit of context on this.
But, you know,
If any, actually, maybe Neely or one of the economists on stage, maybe even Scott, I think Scott,
you're going to be talking about this today, aren't you?
You want to give a little bit of sense into what is going on with this $1.5 trillion problem?
Obviously, it's being the U.S. economy, the U.S. Treasury needs access now to liquidity,
but aren't they going to take liquidity out of the system?
Walk us through what's going on.
but honestly i'm looking for experts to to weigh in on this and that's what i'm going to do
on my show with uh some guess because i'm at an impasse here so even digging in deeply to the
data obviously if we're going to uh if the if the balance sheet of the treasury needs to increase
that means taking liquidity out of the system right they're going to be able to pay their bills
at the most basic level they need to have a higher account balance i think
I think every individual understands what that probably feels like at some point in their life.
To me, listen, maybe this isn't the angle you're trying to get at,
but to me, I'm trying to understand who's going to buy these guns.
Exactly.
And so there's two sides.
My gut instinct says that we're going to end up right back at money printing in QE, Infinity,
and that effectively it's going to be fed yield control to create these bonds,
Foreign governments we know have been buying accessories in a lower rate over the past 10 years in the past.
In fact, they've been net sellers.
And they're buying gold, though I'm not saying one is a replacement for the other.
So if they're not going to buy, if there's not demand for a trillion,
that effectively means it's going to be the Fed and we're going to look like Japan having yield curve controls.
That's my gut instinct.
So let me walk.
Really quickly.
Okay, go ahead.
Give a little bit of context on the problem itself.
I don't know if our audience.
Yeah, just really quick, I'll let you do that.
I just want to say the other flip side, though, is that China's one, obviously, is pegged to the dollar, which means they need to own U.S. treasuries.
Yeah, so I wanted to kind of give a little bit more context on what's going on.
So as we, now that the debt ceiling is raised, we have to raise debt using treasuries.
usually institutions can be pension funds, they can be sovereign wealth funds, they can be banks
or money market, okay? So there's a lot of others I'm probably missing, but if I'm missing
any major ones, please let me know. So now you've got these people, these different institutions
that can buy treasuries, but they often don't buy the short term.
term treasuries, they buy the long term treasuries. And so you see them buying the three, the five, the ten. Okay, the short term
treasuries need to be, usually are bought by banks and money market accounts.
If you do that, now you're really squeezing liquidity.
Now, money market would be the ideal, right?
It would be great if money market accounts could come in, save the day.
But we don't know if there's enough interest in the money market accounts to go in and buy treasuries.
This is a big question.
The other side is if banks end up having to come in and buy these treasuries, it will suck liquidity out of the system.
So that is where I'm a little bit concerned more than anything else, is that we're going to see the liquidity from the banking sector really sucked out.
Sorry, Scott.
Right.
I know.
I'm glad you did that.
And I think the more nefarious tin hat side that a lot of people are proposing is that effectively, we all know that the Fed wants to break things.
And breaking more banks will cause more people to rush into these treasuries that need to be sold.
Oh, that's a very interesting tinfoil hat move.
Caleb, go ahead.
Yeah, I just want to kind of highlight some things that are happening here because,
and as you mentioned, you know, like how much demand is there for money market funds?
Well, on Friday, money market funds were managing the most money they've ever managed
in the history of money market funds, 5.4 trillion.
So if the government is trying to raise 1.5 trillion by issuing new debt, right,
and trying to raise capital, we have to think about it this way.
Money market funds generate yield primarily through overnight reverse repurchase facilities,
repos, or treasuries, particularly short duration treasuries, right? And so, you know,
mostly like one month, three month or less, right? And so comparing the yields on overnight
reverse repurchase agreements and treasuries is going to tell us where the demand is going to come
from. So right now, RRP is yielding 5.05%
Meanwhile, the one-month treasury, 5.24, three-month treasury, 5.41, six-month treasury, 5.51.
Capital is always going to flow to where it can generate the highest return per unit of risk.
With debt ceiling dynamics now kind of in the rear view mirror, right, no one's worried about the U.S. defaulting now,
I genuinely believe that there is not a better risk reward in the fixed income markets than short-term federal government debt.
Right. And so all of a sudden, with $2.1 trillion invested in overnight RRP as of Friday, I suspect a significant amount, not the majority. So, you know, I'm not saying trillions of dollars is going to flow in. But could 250 billion to 700 billion of overnight RRP flow into the treasury market?
Yes, for sure. Can banks step in and get involved here? Yes, for sure. Can deposits flow into money market funds again to capture the yield on these instruments? Yes, for sure. Can foreign investors and foreign governments go ahead and do this? Yes, for sure. So deposits will chase the yield. Institutions will chase the yield. Individuals will chase the yield and foreign investors will chase the yield. So then we just have to ask, what's yielding a very attractive rate of return right now? And it's government debt.
So I don't know.
I really just don't think that this is...
That makes perfect sense.
That makes so much sense.
I love this.
That means that basically it's just the short duration versus long duration
and the problem is not really that significant.
But the question though is Caleb at whose expense.
So I agree with you.
Remember that outside of money market accounts,
which I agree with you,
and I do think that the largest portion is going to come from there.
Yeah.
These sovereign wealth funds also are LPs and VC funds.
These sovereign wealth funds are also involved in private equity purchases and real estate.
These sovereign wealth funds are involved in a bunch of different other businesses.
And not only sovereign wealth funds, but all of these other funds that we were talking about pensions and so on.
Caleb, are we going to see liquidity dry up in the market because everybody's going after these short-term treasuries?
Yeah. So, I mean, all else being equal as the supply of treasuries increases in the market,
what happens is the yield, all else being equal, the yield on those treasuries should go up,
right? To entice investors for less scarcity of the treasury.
Right. So simple kind of supply and demand economics here, but I'm already kind of pointing to the fact that the yield on these treasuries is significantly higher than that of overnight reverse repurchase. Right. And so I genuinely believe that any uptick in yield as a result of increased demand and therefore less liquidity.
is going to be snapped up by investors,
aka there's going to be a high degree of sufficient demand
for those treasuries that on net,
my belief is that yields are going to come down
over the next couple of weeks as the market absorbs
this, you know, debt issuance by the Treasury, right? So could there be less liquidity in the short
term? Yes, absolutely. I expect that. However, I expect that to just kind of be a speed bump.
And, you know, the market will continue to drive thereafter.
Interesting. I think maybe that's where perhaps we are, we disagree. But I, Caleb, thank you
so much for that. That was a master class. Alan, go ahead.
You correctly pointed out that the last long-related Treasury auctions, the three, five, seven, tens, thirties, have been, you know, between 67, 72 percent bought by foreign entities, whether those are governments,
barn, mutual funds, etc., etc.
The Treasury bills have gone to banks, money market funds, and they will continue to go there.
But what this does, you're concerned about liquidity.
I'm looking in more from my point of view is what does it do to the yield curve?
If you, as you portrayed it, that there's going to be so much supply in the short end, that rates are going to go up on the short end.
What that's going to do is create the long end also going up.
The saving grace may be, and I hate to say this to you guys because most of you guys are equity guys.
If rates continue to go up, what you will see is people leave the equity market to go into treasuries,
yielding five to, let's say, let's say the 10-year bond goes to,
Four and a half, five.
You will see people leave the equity markets to go into these longer dated treasuries and also the shortage dated treasuries.
I think that there was a large percentage of people that moved out of the banks into money market funds and secure treasury and mutual funds.
Interesting.
Caleb, your response?
Yeah, I just want to make a quick point on capital flowing out of the equity markets into the treasury market.
If, for example, if equities were severely in a downtrend, I would agree.
However, that's just simply not the case.
The NASDAQ 100 closed on Friday at new 52 week highs.
The S&P 500 is right near those August 22 highs, but it actually broke above it.
So not quite at new 52 week highs, but it's higher than it's been for the last six months.
That's for damn sure.
And so I think generally right now there's a significant amount of optimism in the equity markets.
And for good reason, I won't dive into the details on that necessarily unless you want me to.
But I think that, you know, the equity market right now has still been a very attractive place for investors to be.
And, you know, the market is also the psychological phenomenon.
And when things are doing well, people want to be involved.
And so, you know, right now it's not doom and gloom in the equity markets and people are looking for a way out to go capture yield.
They're happy right now in the equity market.
So I don't necessarily see a significant amount of outflows coming from equity into the treasury market right now.
But that's just my two cents.
Interesting.
Trevor, wanted you to weigh in before I give it back to Alan.
Trevor, what are your thoughts on this conversation?
Trevor, are you still there?
If not, Alan, go ahead.
I appreciate your enthusiasm on the equity market, and I agree with you.
There's the fair of missing out that everything goes to the moon.
But in my, I guess, would say fairly lengthy exposure to both equity and debt markets,
that just when you think things are great, watch out because there's a trend,
you know, I guess it was someone said this once.
When you see the light at the end of the tunnel, it may be a train coming to you.
So if you think that everything goes up forever, we saw that last couple months ago.
You know, I guess the equity market went down 30% very quickly.
We don't know what's going to happen here.
And I agree liquidity will dry up.
And, you know, if rates get high enough, people will go into treasuries.
Where they come from, it may be equities.
It may be money market funds.
It may be the banks themselves.
I think that you have to understand retail investors, which make up a certain percentage of the marketplace,
We'll see this attractive yield, whether it's 10 years, 30 years, six months, three months or whatever it is, and maybe sell some equities that haven't done anything.
Remember, over 50% of the S&P is still negative.
So maybe everyone's jumping into 10%.
100%. So there's a few stocks, and this is something that I was going to bring up.
There's a few stocks, Caleb, that are driving the entire market.
When you take those few stocks out, suddenly the market does not look as rosy as we're painting it.
Neely, go ahead.
I was just going to make a plug for it.
It's a generally slow day to week.
The Fed is in blackout period.
So what are we going to hear this week?
Not a lot.
But this morning we will actually get some of our leading indicators with the PMI,
both ISM and S&P.
And these are viewed as leading indicators.
Right.
There's nothing really super concerning in the current consensus numbers, but what you're looking for is how do they actually come in relative to consensus?
Are they going to come in lower?
Are they going to come in higher?
So without getting into them because the data actually have like a trifle of three leading indicators on the services and manufacturing side of the economy coming out.
Yeah.
It wasn't letting me on, somebody stopped me from on-miking.
I'm just kidding.
Patrick, thank you so much for coming up.
Wanted to get your thoughts on the liquidity conversation.
You know, what are the charts telling us about what this $1.5 trillion problem is going to do to the markets?
I think there's a little bit of, so everybody agrees that there are many different ways that this change can be, um,
that this hole can be filled.
The question that I think is on everyone's minds,
and I think Caleb and Alan disagree on,
is is this hole going to be filled in by other,
by money market accounts, sovereign wealth funds, and others,
or are people going to pull their money out of equities
and push it in here?
Go ahead, Patrick.
Would love your thoughts.
Well, I just logged in, guys.
So if you give me a few moments there, I'm going to create a chart for you guys,
and I'll put it in the nest.
Then we could have some visual support and talk about what I see on the chart side.
So, Donish, let me finish up one more point on that then.
I don't know if you had heard my...
Yeah, I think I was having an audio.
That's okay.
So in addition to the leading indicators, just recall, too, that one of the more interesting
things that happened over the weekend, you and I have not discussed this, is a week ago,
right, the House bill basically went for the debt to lien bill that we were going to pull
forward student loan repayments to effectively start kind of August 1 or 2.
The final bill, which the media did not pick up on, but we did actually read through the 100 plus pages of this bill over the weekend. The final bill reverted back to the original date of 60 days post June 30. So it got pushed back out for student loan repayment. We continue to believe that student loan repayment will be
at the very least, a shock moment to consumption, if not an actual headwind to capacity to spend.
So something else to look for in these low data weeks would also be the Supreme Court ruling could come out at any given Thursday.
They don't tell you which day, which rulings come out. You have to just wait until they just...
throw them out there, but we're going to be hearing about student loan forgiveness too.
So these could be some other kind of events to be thinking through.
Yeah, 100%.
So we've got this $1.5 trillion problem.
We've got student loans looming.
We have this Medicaid issue that you brought up before that has led to sort of some of the
data that we're seeing.
Unemployment data is mad confusing since we don't know what's real and what's not real.
Nobody believes it, even though we've been believing it for years.
I have to say, I have never felt like I have less faith in economic indicators than today.
And it is incredibly troubling.
But Neely, we're going to be looking for this.
Thank you for bringing that up.
Gordon, I wanted to get your thoughts on the liquidity side of things.
And I want to try to settle this debate.
that about what where that money is going to come from to fill that hole.
What are your thoughts, Gordon?
Yeah, hey, thanks for bringing me up.
Good to chat with everybody.
So look, the reality is what the Fed has done so far, right?
They announced QT, the start of QT in June 1st, June 1st of 2022.
Since the start of QT, the Fed has done $529.2 billion of balance sheet reduction.
However, over that same time frame, Janet Yellen has worked down the TGA by $740.6 billion.
So not only has she completely offset what the Fed has done, but she's more than offset it.
So, but you have to also look at the reverse repo account.
That account is down $285 billion.
So net net, you're talking about since QT began a total of roughly $74 billion of basically
liquidity that's been taken out the system.
Clearly, however, now Janet Yellen has to refill the TGA and there's a lot of
questions around where that's going to come from.
Some people are saying, you know, 40 to 50% of it's going to come from the reverse repo.
I don't know the answer to that.
I think that's a safe assumption.
But at the end of the day, we haven't had really liquidity taken out of the system.
And now you're going to have liquidity taken out of the system.
She's talking about, I think, $600 billion by the end of, I think, this month or early
beginning of July.
And there's some expectations, as you guys are stating, she's going to take it back by a trillion.
We've done a number of sensitivity analyses and very simply looking at, you know, a number of different liquidity measures, be it M2, be it other deposits and liabilities, be it, you know, TGA plus Fed plus reverse repo, et cetera.
And all of them have a very strong correlation to the S&P 500. It's that simple.
So without getting into too many specifics and trying to confuse people.
we're going to see for the first time real liquidity taken out of the system beginning today.
And I think that when you have the amount of liquidity being pumped in that you've had,
Janet Yellen in the month of May alone, let me see here.
She did.
Let's see here.
Yeah.
She injected a total of $242 billion of effectively liquidity into the system.
That's the equivalent of, you know, 24 years of Fed balance sheet expansion in a month.
That's about to reverse.
And I think that there's, our belief is that that's going to be negative for equities just overall.
And I'm trying to keep this as simple as possible.
Yeah.
I mean, so from the sounds of it.
It sounds like overall people aren't so worried.
Patrick, do you have some charts for us?
Actually, can I comment on that real quick?
Go ahead, Gordon.
So remember with COVID, right, when COVID was spreading in December and January of 2020, like,
spreading globally, everyone knew that it was spreading globally.
And then when it started spreading in the United States, everyone knew it was spreading
in the United States.
And everyone knew that there were going to be lockdowns, shutdowns, etc.
Economies were shutting down.
And really.
really the effect and the impact of stocks didn't happen until it actually showed itself in the numbers.
So the idea that this market is a discounting mechanism, clearly that's still somewhat the case.
But I think people saying that this is all priced in, I don't know how you price in, you know, a multi-hundred billion dollar withdrawal and liquidity.
So I disagree with those who say this is fully priced in and, you know, everything's going to go up and up and up forever.
So Gordon is in the doom and gloom category.
I'm just kidding.
But I do like the fact that right now we have very differing views on stage.
Amy, David, did you all want to weigh in before we move on?
Amy, thanks for joining us.
Hi, you know, I actually just jumped on so I don't even know what the topic is.
We're talking about the liquidity problem. So it's a good time for us to reset. I want to get some comments in the bottom right. Essentially, the two schools are thought, everybody agrees that there is going to be a giant hole. That's good. It's obvious. There's actually going to be a giant hole, right? Janet Yellen is selling treasuries to
to fill up that hole great everybody agrees with that the question really everybody agrees
that some of that hole is going to be filled with people moving their money out of the reverse repo
there's a there's the people going to move their money from other places the big question
is will there be a hit to other markets to fill this hole i don't you know i don't know
the answer but i'm trying to figure out is there enough
the liquidity in the market today to support this change?
And will this suck the liquidity out of the market?
That was the question, Amy.
What do you think?
You know, I still think, I don't think we've run through the pandemic stimulus excesses yet.
And I think...
We're getting to a point like, I'm trying to remember what the...
There was data or numbers that were done like about six months ago that said
probably by the end of this summer that a lot of that would have been drained,
at least in terms of like the...
For certainly for the average consumer, but in terms of all the excess that just went to...
Foneled up to the top 1%, which really is where the majority of the money comes for the equities market.
So...
I don't know, actually.
That's my honest answer.
I'm not really sure.
I kind of think we're in a little bit of uncharted territory here with where inflation is at and where the markets are at and how they're behaving.
I would have expected just with the rate hikes, even with, you know, we're at a year lag point at this point.
I would have expected to see more carnage in the economy now than what we're seeing.
So I don't know if this is just going to be a situation where we just need more time.
Because again, there are people that are making the argument that we still have only seen the early rate hikes effect now.
And that we still have another, you know, maybe 300 basis points that haven't really fully sunk into the economy yet.
And as those sort of start to hit over the next six months, maybe things will start to shift in our macro picture a little bit more.
But yeah.
Yeah, I mean, I think overall, I'm surprised with how well the equity markets are holding up.
And I don't know if this is just, if it's just going to take more time or if somehow, I don't really believe in the soft landing.
But.
Um, yeah, I don't know. I think I'm just kind of watching and waiting to see how it plays out, but I'm not super optimistic.
Yeah. Bob, uh, oh, he's still connecting. Bob, uh, thank you for coming up. Wanted to bring you up last time as well.
Wanted to get your thoughts, uh, today about this conversation around what does issuance of these treasuries and
pushing you know this 1.5 trillion dollar problem how does that affect the actual liquidity in the
overall markets
Hey, thanks for bringing me up. I'm literally walking into my office this very second at 6 o'clock out here in the West Coast.
Anyway, just getting ready for market open. But thanks for bringing me up.
A couple things here. As people seem to forget that every Treasury auction is oversubscribed by 2.7.
They could double the offering. And my guess is they doubles the offering will even be more liquidity.
Out there.
There's over $5.5 trillion dollars in liquid cash in the banks right now.
Bob, your audio is not good.
Hang on a second.
I'll fix it.
Fix it.
All right.
I forgot I was on these heads up.
All good.
Why don't you fix your headset and I just muted you for a second.
Just wanted to make sure that we can.
Neely, did you raise your hand?
Oh, hold on, Bob.
Yeah.
Is that better now?
Oh, way better.
Love it.
Go ahead, Bob.
I just got out of my car.
Anyway, so here's the scenario.
I've been painting out.
To, on my channel, and as you know, we managed about 15 billion in equities, and I'm an ex-institutional guy.
I'm an old guy, folks.
I was around when Paul Volker came into, I started in the markets in 1979.
So I've been around to watch all this stuff.
Most of folks have just read about it.
And I was actually a participant.
I was an institutional bond trader in 1980 when they were raven.
You've proven your old, Bob.
Yeah, no, hang on.
There's context here.
So the point is that this liquidity, so-called liquidity crisis,
if you look at all of the treasury auctions,
they're oversubscribed by 2.5, 2.7,
they could double these auctions.
They could do hundreds of billions of dollars in the next couple weeks.
And if you recall, there's also corporate taxes coming in.
There's other income that doesn't have to be borrowed at all.
And remember, these are collateral assets.
Even if they do the short end of the market,
what's going to be more interesting is when the actual refinancing starts.
So probably hit the front end, as everybody's been talking about.
That'll be where most of the money comes in.
But then it's going to have to be rotated out to 5, 10, and whatever.
And that will be the more interesting point in time, not today.
So the fact that somehow it's going to suck all the liquidity and all the oxygen out of the room is not very relevant at all.
That's why everybody obviously was buying stocks, everything they could find.
And also the other narrative that somehow there's only a few stocks driving the market,
we run a quantum environment, and right now we have over 10,000 stocks in trend mode.
And everybody talks about the few stocks that you see.
I see the world from a much different point.
We run 10 million calculations every night on the markets.
And we have right now an interesting scenario.
We have 56% of all the stocks that we follow,
which is close to 16,000.
All the instruments are actually bullish right now,
meaning that they're in a...
excuse me, they're currently in trend mode.
And all it means is probabilities looking forward at least 100 plus days are still positive for the equity markets.
And so real quick, let me just want I had a follow up about the rotation comment that you made earlier.
Yeah, sure.
So what you're saying is that.
All of these treasuries are going to get gobbled up, kind of like what Caleb was saying, and then they're going to rotate to higher terms?
Can you walk us through what you mean by that?
So they need short-term cash.
We all know that.
And it's really not quite the hole that it's being played out to be.
It's actually more normal than you think.
Think about it.
All the treasury, they haven't been able to because of the debt ceiling, there's pin up demand as well.
for treasuries. So just know that that's going to happen. But what they'll do is they'll get the money up short,
maybe, you know, up to maybe hit the two year to a point, probably most of it, very short in initially,
and then they'll start to roll out. And like I'm saying,
That, to me, is where the interesting thing comes in and how that rotation and how they end up really refinancing this.
And there's another big block of money everybody's talking about, you know, $5,7 trillion that's coming to maturity.
And if somehow you don't think the Federal Reserve knows what the maturities are, people act as if these guys are operating in some kind of vacuum and they have no clue what's going on.
And I said in my last night's video that I'm actually giving Powell an A or an A plus for what they've been able to do.
And they have run off the balance sheet.
They haven't done on MBSs, forget it.
They're never going to be able to get rid of those things.
But the point is that there is the tactic that they've done actually has worked.
That's why the NASDAQ's up 30%.
I know it's a few stocks that are driving most of the NASDAQ.
But when we look at the breadth of the market from a trend standpoint, not stop this over 200 day moving average or some low level retail concept like that.
We run metrics that are actually looking at trend probabilities.
And we've been running this database and I'm talking about since literally 1994.
Right.
So we've been doing this for a very, very long time.
And the point is that there is a rotation.
We're still seeing positive rotation into the markets as we speak.
We had over 5,000 buy signals on a short-term level for this morning's open.
Okay?
That's crazy.
So what I'm saying is...
That's very exciting. I mean, that's a good thing. I don't think that's a bad thing. I think most of us want that.
Bob, I wanted to get Patrick to weigh in. Patrick, I saw your post up in the nest.
Thanks, Bob. Patrick, your post up in the nest. You did what I asked, which is I wanted you to see what liquidity look like. So go ahead.
Yes. So again, as a chart trader, take those fundamental charts, anything that could have a chart.
I could do some technical analysis on it and I could spot those big trends, right?
So SPX whenever, so this is the thing.
People think, oh, money supply goes up, SPX goes up.
Everybody knows that chart, right?
Because they put nominally the money supply chart and then they overlay the 100 SPX chart.
And then they make the conclusion that SPX goes up with money supply, right?
But that gives you a false sense of how the market reacts.
The market loves pricing in.
changes in the relationship between, let's say, growth and money supply.
So my first reflex is SPX, divide by money supply,
and let's see how the SPX performs when it outperforms money supply.
So no matter what, right, it's a ratio.
So money supply could be going down.
And if SPX is outperforming money supply,
you have to see how SPX reacts to that.
And you'll see I have a 50 or 60 year chart,
when SPX outperforms money supply,
and I've relayed the money supply chart,
it goes from bottom, left, the top, right?
SPX is in a bull era when it's able to outperform money supply, no matter what happens to money supply, whether money supply goes up, down.
If SPX is outperforming money supply, it's in a bull run.
And you'll see there that have a clear early breakdown line for SPX versus money supply.
We're not below it yet.
So until, so we did have a loss of momentum back in 2020.
So it's a rising trend line.
It broke down.
That doesn't mean we're going to a bear market.
It just means that the upwards momentum that U.S.
equities had since 2009 slowed down.
It back tested it.
But right now, it hasn't broken down yet.
So U.S. equities, as long as they could stay like this, and if they start outperforming
money supply, so if money supply actually goes down, I didn't put that chart.
But I did a 10-year rate of change on the money supply.
And U.S. equities actually do very well when the 10-year rate of change of money supply goes down.
So after, so let's, you could.
I'm sure something.
Patrick, isn't that the opposite of what you would think?
Well, think about it this way.
If you print too much money and the rate of change accelerates,
your destruction of purchasing power is probably too much for the markets to handle.
So then commodities start outperforming SPX.
People start looking for other asset classes.
But if the money supply...
expansion has starting to contract, that could be more favorable for US equities, contrary to what people think on that long-term rule not, right?
Because too much of a good thing becomes a bad thing eventually, right?
And then that's how these 10-year, 20-year cycles, they turn ship, right?
It's too much, too much, too much, and then after that, it turns in the other way.
So the only way you can see this, guys, is with 10-year rate of change, 50-year charts,
yeah.
So, yeah, there's no bear market yet for SPX versus the money supply.
That has to break down.
Interesting.
Caleb, what are your thoughts on what Patrick just shared?
Yeah, I mean, looking at the relationship with M2 money supply is really interesting.
One thing I like to do with that particular relationship is to look at the year over year rate of change for both.
And you can overlay those on top of each other.
And they tend to mirror each other quite well, not perfectly.
But it's definitely an interesting relationship.
One thing I prefer to focus on isn't so much M2 because...
M2 gets a little bit wonky in the type of period that we're in with excessive central bank intervention.
And so I think one of the most important things that you could be looking at is global central bank balance sheets.
So if we look at the Federal Reserve, if we look at the ECB, if we look at the Bank of Japan, if we look at the People's Bank of China, if we denominate all of their assets in US dollar terms,
and compare that to the S&P 500, they move in lockstep.
The interesting thing that I'm seeing right now, and I just did a post on Twitter,
so you guys can go check out my profile and it's on there.
The interesting thing is since late March,
we've seen central bank assets decline very rapidly,
particularly over a short period of time, down about 4.3% since late March.
However...
At that same exact time, the S&P 500 is ripped higher, right?
So we've seen this kind of divergence in the traditional correlation where central bank assets and the S&P 500 have a positive correlation.
Right now we're seeing an inverse correlation, which is very interesting.
So the market, which is a forward looking pricing mechanism, seems to be pricing in.
more central bank induced liquidity in potentially the weeks, months, and even years ahead,
I don't know who's right or wrong in this particular situation.
All I know is that that's what's happening right now.
And we'll obviously need to see how this shakes out.
The one thing I wanted to comment on with the S&P 500 is to kind of add on to what Bob was mentioning
because I really agreed with what he was talking about.
You know, on Friday, exactly half of the stocks within the S&P 500 are above their 200-day moving
average. 260 stocks in the index out of 500 have a positive year-to-date return.
We have net new highs, substantial net new highs on a 20-day, 50-day, and 52-week basis.
So in my mind...
This indicates relatively broad-based participation in the upside, strong momentum.
I mean, think about it like this.
We had 91 stocks make new 20-day highs on Friday.
We had 50 stocks make new 50-day highs.
And hardly any stocks are making new lows on those timeframes.
So although we aren't seeing as strong of dynamics and, you know, the S&P 490, right?
This is, I think, what we want to see.
is you want to see the best players on your team perform well.
If LeBron James only scores 10 points in a game,
his team is probably going to lose.
But if he goes out and puts up a 40-point triple double,
the team is probably going to win, right?
So we want the LeBron James, the Steph Currys,
the Janus Antenacompos,
to put up MVP caliber numbers, and that's exactly what we're seeing in the market.
Google, Amazon, Netflix, Nvidia, meta, all of the stocks are performing extremely, extremely well.
These are the MVP's of the market and they're putting the market on their back.
Love the NBA reference. I think that's a great place for us to end. Caleb, you killed it today. Thank you so much for joining us, everybody. Please, please, please, follow everybody that's here up on stage, subscribe, do whatever you need to do because people here are coming in, adding value every day, and we will see you tomorrow, first thing, 8 a.m. Eastern, like, every single day. And
Tomorrow, our friends who actually knows everything about Apple is going to join us and share more information, hopefully tomorrow.
So we will be watching WWDC today.
We're going to be watching what the markets do.
Thank you, everybody, for joining us.
Have a wonderful day.
