Lead-Lag Live

Craig Shapiro on Fed Policy Impacts, AI’s Financial Role, and Strategic Market Adaptations

• Michael A. Gayed, CFA

Share episode

Craig Shapiro, esteemed hedge fund expert and macro strategist for the Bear Traps Report, joins us for a compelling exploration of the intricate world of Federal Reserve policies and their interplay with artificial intelligence. Unravel the complexities of recent monetary decisions amidst a politically charged atmosphere, as we dissect the impacts on bond markets and business confidence. With inflationary pressures mounting, Craig offers his insightful take on the potential consequences and future directions of Fed policies in a landscape fraught with uncertainty.

The conversation takes a strategic turn as we navigate the global investment scene, spotlighting the surge of interest in zero data expiry options for indices like the S&P and NASDAQ. Discover how traditional hedges are reshaping investor tactics amid macroeconomic unpredictability and why equity volatility might be underappreciated right now. From the allure of gold as a fiscal hedge to the implications of geopolitical turbulence on treasury investments, we examine scenarios that could catalyze another S&P surge and evaluate the economic ripple effects of potential Trump policy maneuvers.

Our dialogue rounds off by examining Bitcoin's burgeoning role as an alternative store of value amidst global instability. Compare its potential with that of gold and real estate, and consider the geopolitical ramifications of nations folding Bitcoin into their reserves. With deregulation under Trump's lens and opportunities for small-cap growth amidst rising borrowing costs, we reflect on the US's evolving role in a multilateral world. Craig highlights the enduring value of balancing qualitative insights with quantitative data, emphasizing relationship-building within the financial sector. Don't miss Craig's seasoned insights and practical reflections on today's pressing economic issues.


The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

 Sign up to The Lead-Lag Report on Substack and get 30% off the annual subscription today by visiting http://theleadlag.report/leadlaglive.


Foodies unite…with HowUdish!

It’s social media with a secret sauce: FOOD! The world’s first network for food enthusiasts. HowUdish connects foodies across the world!

Share kitchen tips and recipe hacks. Discover hidden gem food joints and street food. Find foodies like you, connect, chat and organize meet-ups!

HowUdish makes it simple to connect through food anywhere in the world.

So, how do YOU dish? Download HowUdish on the Apple App Store today: Support the show

Speaker 1:

My name is Michael Guyatt, publisher of the Lead Lager. Before you join me, here is Craig Shapiro. Craig, I don't know that much about you, but you're very thoughtful, and that's all that matters.

Speaker 2:

That fits it.

Speaker 1:

Who are you? What's your background? What have you done throughout your career? What do you do?

Speaker 2:

Thanks, michael, appreciate you having me on.

Speaker 2:

I've been on the buy side for the last 25 or so years, working at various very large hedge funds, including SAC and Osprey Capital and a few others.

Speaker 2:

I had my own fund and manage my own basically family office now, but I also work as a macro strategist for the Bear Traps Report, which is a firm that was founded by Larry McDonald, and we provide custom research and an institutional chat room where we're serving our network of clients from around the world, really getting a sense of what the street is thinking and what the street believes, and redistributing that information out to the network and providing some color and analysis on a cross-asset basis, and so we do a lot of work in equities, commodities and FX and rates, and so and I try to provide color to our clients and we've increasingly broadened that out to away from just doing institutions to family offices and financial advisors, and I host the Discord channel where we put that information out there, so I'm pretty active on Twitter. I like to talk about the Fed and treasury and macro, and so it's great to be here. I like to talk about the Fed and Treasury and macro, and so it's great to be here.

Speaker 1:

I'm a big fan of Larry, as I've had him on the podcast a few times in the past. He's very good, by the way, promoting his new book. It's like clockwork Every 10 minutes he mentions it, so he throws it in there. He's very good at that, by the way, I will. I think it's. People seem to think self-promotion is a bad thing. It's like if you don't promote yourself, who's going to do it for you? So I never understood that mentality. All right, so a lot of different things we're going to talk about here. Now let's talk first and foremost about Powell, the Fed. I think it's funny that at least the reaction the day after the Fed basically says, or loses the idea that they are not going to cut rates further, that long duration yields fall the day after one day. Ok, fine, but I want to get your take on where we are in terms of monetary policy. Do you think the Fed made a mistake with that first cut, and are they maybe unsure themselves about what to do next?

Speaker 2:

Yeah, about what to do next. Yeah, I think, if you rewind the clock back to the summer, we had just a tremendous amount of uncertainty in the economy stemmed around the election results, right? I mean, basically, had you know Trump in the lead and then Biden stepping down and Kamala Kamala taking over, and then she goes on a run and there's an expectation that maybe that she's going to win. And so through that July August period and into September, I think the economy really started to slow, as small businesses were uncertain about the electoral outcome. What's the tax regime going to look like, what's the policy regime going to look like? We just don't know. And so I think that led to an uncertainty slowdown that stooped the Fed. And so, after they didn't cut in July and the markets had that yen carry, trade, unwind and swoon for I don't know 72 hours or whatever it was I know you were all over that markets recovered, but there was still that uncertainty. Volatility was elevated, and so the Fed kind of came back in with this 50 basis point cut in September, which I think, in hindsight, really was a mistake, because we had what we've seen subsequent to Trump winning and the Republicans week is basically uncertainty has gone away. Euphoria has reentered the picture from a business survey perspective, from a um sentiment perspective, and so, uh, the fed then followed up with another cut in november, and then another cut in december, and so winds up cutting 100 basis points into an economy that really didn't need it. Um, and so, not surprisingly, the long end of the bond market has kind of revolted against that behavior, and so, while fund rates have fallen by 100 basis points, the long end has moved up close to 100 basis points or more in that, as the market has come to grips with the reality, that policy is too loose.

Speaker 2:

The Trump policies that are likely to come are pro-growth and with business confidence improving as we start 2025, the Fed, I think yesterday and into yesterday, was forced into a decision to basically you know what. I think we've done enough for now, and the question is is that now the right policy? And so I know we've talked a little bit more, but Trump's policies are still creating uncertainty, right? I mean, clearly the first week has created a bit of chaos around the border, around this federal funding freeze, around tariff uncertainty, and so it's just not clear yet what he's going to do, what's going to drive him and how quickly he's going to be able to implement it. We're also operating under a debt ceiling regime. Is he going to be able to get these tax cuts through? What's he going to have to give up in order to get them? Will we get spending cuts? And so there's just a lot of uncertainty again, and so I think the Fed now is being forced into stopping its rate cutting because they're uncertain Again, their uncertainty inflation, which has started to reaccelerate, is going to keep reaccelerating, and so your point well, they're not as important.

Speaker 2:

I think there was low expectations for them to do much yesterday. I think they could have been a little more hawkish than the modestly hawkish statement and press conference was, because we've seen a lot of reacceleration of inflation momentum. Prices paid series in the services, ism has ripped to multi-year highs. Regional PMI surveys are showing similar momentum in prices. Inflation expectation readings, most of the market readings and survey readings are showing big step-ups in momentum there, and really the only thing that's been left behind probably is the oil price. And if oil starts to go, if Trump can't convince OPEC to accelerate production increases this weekend, and oil starts to go, if Trump can't convince OPEC to accelerate production increases this weekend, and oil starts to move higher again, then we're going to have another bout of inflation as we move through the first half of 2025. And so I think the Fed's now on pause for a while.

Speaker 2:

Powell mentioned a couple of times no hurry to cut rates. Powell mentioned a couple of times no hurry to cut rates I talked about if inflation doesn't move back to target in the path that they think about, they'll keep monetary policy restraint for longer. So I think this is going to put some pressure on the economy, or further pressure on the economy as we move through the first half and into the second half of this year. But we really need to start hearing more about the Trump policies and the timing of these policies, and you know February 1st is right around the corner.

Speaker 2:

Taras on Canada, mexico and maybe China are supposed to come, you know, as early as this weekend. So you know, I think Trump is she's supposed to be speaking as we're speaking to talk about this plane crash, but you know he likes to delve off into any topic you want, so maybe we'll get ahead of mine while we're live here. But again, this uncertainty that Trump has now brought back into a euphoric market I think creates a little bit of consternation and some worry. It kind of makes me want to be thinking about being long volatility and hedging out portfolios as we push through here. Yeah, all time highs Before you know we get into this AI. You know competitive threat that that's been spooky markets the last week or so.

Speaker 1:

Let's talk about that competitive threat, because I had a lot of fun talking about Deep Seek as it was coming out. I said it's the black swan. I know it's not really a black swan, but it was dramatic. Taleb would probably slap me on the wrist if he saw the post, as he did, by the way, in the past when I've argued something with a black swan on X. First of all, we know that they're probably lying about the cost of the implementation and how much of the NVIDIA side was used on the black market. But is the deep-seek revelation or competitive threat that big of a deal? Or you think it was an overreaction on Monday? Or could it be the excuse that's needed for the Mac 7 to finally sell off?

Speaker 2:

Yeah, I mean, I think up until last week we really didn't have a very credible bear case on the build-out of the AI ecosystem To hyper-stellars and using the video chips and all the power that's going to be needed and all the commodity intensity that's going to be needed. And so I think the revelation that China has acted swiftly and aggressively and in a lower cost way, maybe creating an as efficient or even more efficient, better product than what we're doing here in the US, I think creates at least a credible bear case. Maybe we could argue about what percentage we should apply to the bear case, but it really wasn't in the narrative prior to that. And I think, if you think about the companies that are most exposed to this threat, it has to be NVIDIA right Now, the companies that are most exposed to this threat, it has to be NVIDIA right. And NVIDIA, I think, really think about this from a commodity perspective.

Speaker 2:

My background has been largely in commodity-related industries, and so what we normally see in very tight supply-demand markets is companies like NVIDIA will just jam. Pricing as aggressively as possible, takes their margins up, they struggle to raise their own capacity to meet demand. Tremendous economic rent is accrued to Navidia, and then what happens is customers start to thrift right. They start to look for alternative sources of supply, they start to try to do more with less, and so I think that's what we've learned here is that the Chinese have been able to create a product that is similar in quality to what the US guys are doing, but using old generation chips or using non-NVIDIA chips, and so, as you think about these hyperscaler CapEx plans for the next several years, I mean, I think the boards of these companies are going to have to be asking are you sure we need these high-priced chips that NVIDIA is selling?

Speaker 2:

And so I think we've created now a real, credible bear case here for NVIDIA, where the pricing momentum is going to start to wane and there's been over-ordering and double-ordering of these chips. And if we start to see some of that supply fall back into the market and the secondhand market for these chips starts to deteriorate, that's a real issue for the NVIDIA story. So I think for NVIDIA, it becomes a problem. It's a $3 trillion market cap company. That's a very substantial component of the S&P of the NASDAQ, and so, yes, some of that money is going to get reallocated within those indexes, but I think broadly everybody owns the video and this is. You know, this is something that could be an issue.

Speaker 1:

Is there anything historically we can look at in terms of the impact of a technology suddenly becoming open source, dramatically impacting margins or market perceptions around an industry? I mean, I don't think anything. Nothing comes to mind personally, but I wonder if anything does for you, because I think that's where it's most interesting. It's more about the open source aspect of it.

Speaker 2:

Yeah, hard to say. I mean, I'm not really a technologist in that regard, but one comparable technology that I think has been really that we can really look to is US. Shell is ShellS, shale is shale developments and what CapEx into shale for natural gas and what that did for natural gas pricing. Think about natural gas pricing, you know in the middle part of, you know, of 2005, six and seven. You know big, big moving gas prices. You know, and oil prices, obviously, and then you get this development it's technology development in Shell that the US companies were able to do drastically lower the cost of production and really improve US competitive manufacturing. You know competitiveness and so and we really had a kind of energy you know renaissance and manufacturing renaissance in 2013, 14, 15, 16 in America, where cheap gas really became a driver.

Speaker 2:

It really changed the underlying dynamics for the global energy industry. So you know when companies are forced into finding new sources of supply and can use technology appropriately. I think this is the kind of these are the types of changes and reactions that we get. So maybe that's something that folks will look back to. And again, that's a commodity industry, supply-demand driven, and chips are kind of similar in that regard. Obviously there's a little bit more of a technology component, but very commoditized industry, you know, based on supply, demand, and so now that customers feel like they can use older generation or chips that are different than the videos, I think we've created a, you know, a different operating environment.

Speaker 1:

See Jim Carroll. Good to see you, jim, on YouTube asking a good question, since you alluded to it a little bit earlier. What is Craig's favorite way?

Speaker 2:

Obviously, what we've seen for the last few years has been this explosion in zero data expiry options for S&P and for NASDAQ, and so folks feel a bit more comfortable that they could just hedge portfolios on a daily basis into macro events around. And he creates this overnight risk, this overnight tweet risk or weekend risk, where he can say something that moves policy, that moves markets at any point in time.

Speaker 2:

I think folks are now going to be looking again towards more traditional duration hedges. I mean, you can really think about one month or two month out puts on indices again, whereas for the last couple of years everything's just kind of been very daily focused. And so I think equity vols is underpriced for this environment and so for regular investors, kind of having S&P puts or NASDAQ puts three months out, I think is a reasonable way to hedge your portfolio. I think some of the VIX ETFs they're just not great, but if that's how folks are forced to invest based on the types of accounts they have, you can use some of these big CTF products. But I think broadly, three-month out hedges kind of makes you know, makes most sense where you're not going to be decayed as much as you were, uh in in the past because you still have you still always have trunk risk. Uh, kind of sitting in the, you know in the, in the legs.

Speaker 1:

How about um thinking about gold baby as a, as a hedge, in that sense as a vault play?

Speaker 2:

I mean, I like gold for a lot of reasons, um, and been bullish for gold for, you know, for for quite some time.

Speaker 2:

And so, um, I I don't.

Speaker 2:

I don't know that it's necessarily a hedge against, you know, this equity uncertainty or this corporate probability uncertainty, or this dead uncertainty, but I think it is a hedge against, you know, profligate spending by the US government that is likely to continue from now until forever.

Speaker 2:

You know, even with the DOGE committee looking to cut spending, you know they have to cut a lot of spending in order to offset the tax cut that you know we're likely to get.

Speaker 2:

And so, and the more the market thinks that Trump is only posturing about tariffs, then we're not going to get, and the more the market thinks that Trump is only posturing about tariffs, then we're not going to get revenues from the external revenue service to help fund the deficits. And so, I think, increasingly, as foreign investors are growing increasingly concerned about the US deficit situation and debt situation, they've begun to, and will continue to, store their wealth away from US treasuries. I mean, obviously, expropriating reserves from Russia in the early part of 2022, based on what Russia has done in the Ukraine, I think also has scared some of our enemies and allies who own treasuries to diversify their reserves away from treasuries, and I think gold is picking up an exorbitant amount of share in that regard, and so I like gold for that reason. But yeah, I think you know, if you believe in chaos and if you believe in disorder, gold's a very good place to be.

Speaker 1:

So Outlook is concerned about the tails being fat. They'll use a term that Powell referenced yesterday. Is there any chance that we could have like another one of these, like 23 percent runs in the S&P? I mean, just make it three years in a row of just stupid performance.

Speaker 2:

I mean, I think the way you would get there is if Trump doesn't do what he says he was going to do, right, if he doesn't really pursue tariffs, if he doesn't really look to restructure global trade and gets concerned about small hiccups in equity markets and just tries to know, tries to run everything hot, you know, in the economy from here, then yeah, I think equities could kind of keep moving. The issue with that is inflation will not return to 2% in that environment, and so we could find ourselves in a situation where the Fed is then being forced to raise rates later this year and I can only imagine the back and forth that we're going to get between Trump and Powell or whatever Trump's shadow Fed chair at that point gets put in there to try to prevent Powell from hiking. But that would be the environment where I think equities just kind of run from here and all assets run. I think in that environment gold is moving higher. I think Bitcoin, that environment, gold is moving higher. I think Bitcoin is moving materially higher, inflation expectations are moving higher and we're giving up hope that we're going to get prices or price rate or inflation back down to 2%. So I think there's an environment for that, but I think we're only sowing the seeds for an even larger correction at some point.

Speaker 2:

I just don't think it's possible to do all the things that Trump wants to do without having an asset price correction. And the gating factor, I think, is if he tries to do all these things, we're going to get inflation, we're going to get the long end of the bond market to really start to sell off, and that eventually will act as a gate around asset price momentum. So I can see us having a run of assets in the early part of the year if Trump is more dovish than not. But then 30 years, five and a quarter, five and a half going to 6%, and then the economy is really starting to slow down. The low-end consumer is getting even more screwed than he already is with higher credit card rates and higher mortgage rates, and so I think we'd have a much worse situation later, and then that would be much more difficult for, I think, trump and the administration to set policy in 2026 and keep power in 2026.

Speaker 2:

Power in 2026. And so, from my perspective, they need to move more aggressively early in the term in order to do some of the tough things that they want to do. They can still blame the old administration, they can blame Biden, they can blame Yellen, they can blame Powell for any market dislocation or any slowdown in the economy and say, look, we're just coming in here to fix things, trust us. But the longer he waits before doing that, then it becomes, uh, you know, it's it's his market, it's his economy and and he'll be to blame for, you know, an unemployment rise, more inflation and, you know, possibly losing seats and losing power in the you know 2026 midterms, where I'm sure democrats can find another reason to impeach it. Uh. So I think there's a desire to move more rapidly than not.

Speaker 1:

Yeah, I think you're right. If there's going to be something that hits, it's better for him for it to hit now as opposed to obviously closer to the midterms. I want to get your thoughts on emerging markets, on China in particular. I have argued in an unpopular way that I would bet you China's markets does better than the US markets in the next four years. A large part of that's based on valuation right and, I think, just underinvestment in China. It's almost the perfect contrarian trade to say that China outperforms the US under Trump, but any thoughts on sort of a recovery in China's markets and then other emerging markets more broadly? Will they ever really be more appealing than US equities?

Speaker 2:

Yeah, look again. I think we do need to word how aggressive Trump intends to be with China and the tariffs. And you know he's already maybe pushed back a little bit and said well, you know, I prefer not to use tariffs. I didn't have to, I mean. But clearly he has to right China is running a massive trade surplus with the US and that Trump is serious about reducing that he's going to the only real way to do it is through tariffs. Clearly this AI development suggests likely that there's been more stealing of IP or what have you. So it is what it is, and so it's hard, I think, for foreign investors or US investors to allocate a lot of capital into China without knowing. Are we going to 50%, are we going to 100% tariffs? I think ultimately Trump wants and needs a weaker dollar and China actually would benefit from a stronger R&D to recycle capital and kind of improve consumption in its economy. But so we know the outcome. We just don't really know the timing and the path and Trump creates that kind of uncertainty. So I'd be more apt to start allocating capital into China as we get closer to a deal, or at least closer to knowing that these negotiations between the US and China are happening. I just think it's a bit too early to do that and I don't think that China is going to stimulate very aggressively ahead of the knowledge of what the trade regime and tariff regime is going to look like, and so I think they're fine just letting their economy kind of bleed out. They're papering over debt issues in the property market, bringing things on balance sheet China doesn't really have a US dollar debt issue papering over debt issues in the property market, bringing things on balance sheet. China doesn't really have a US dollar debt issue. China can buy its commodities now in RMB and so it's not really at the risk of having a late 1997, 1998 ENFX blow up, like we saw with Tiger economies, which were forced into significant devaluations because they couldn't find dollars to pay back dollar-denominated debts. China doesn't really have that situation and China can trade goods for oil or goods for copper or goods for iron ore or goods for food, and so they don't really run risk of having an imminent blow-up. And so I think they're fine, just kind of bleeding things out Opportunistically. I think you could start to. You know, look at things like Alibaba or other you know, cheaper tech related, consumption related plays in China with the you know the knowledge that you could get screwed by Trump, but there's other. You know Trump can throw a lot of things up too. So but yeah, I think over the course of this year, allocating more resources and capital into China is going to make sense.

Speaker 2:

I think people have been overweight India and underweight China, and so I think you can see a further unwind of that relative value trade, as people or investors are taking more money out of India, which is struggling more with the strong dollar, doesn't have as much in the way of exports like China does in order to compete and buy commodities globally, and so I think you could see some unwind there.

Speaker 2:

Brazil is more of a derivative play on China, given the resource gap focus, and so, as we get closer to a deal and China starts to stimulate as well, I think that'd be very bullish for Brazil. Mexico I think we're in the crosshairs here of the tariff situation, so a bit of uncertainty there. But look, I think, opportunistically investors finding value in some of these emerging market countries that are trading at much cheaper valuations than the US. I think we will start to see that capital start to shift through the course of the year, because I think we know that, ultimately, for Trump to get what he wants to have this restructuring we're going to need a weaker dollar. There's just no other way that we can get there, and so I think that reality is going to take capital out of the US and it's going to deliver it to other countries around the world. It will be a relative beneficiary of it.

Speaker 1:

Yeah, I think we've been waiting for a weaker dollar for 10 plus years. It just hasn't happened. The ECB lowered rates today. Any thoughts on monetary policy diverging from the US between Europe and the US?

Speaker 2:

that will impact macro environments in general. Yeah, look, I think Europe has, you know, starting to now fever trying to improve growth over solving inflation. You know, I think European headline inflation has moved down, has benefited from kind of lower energy, but that's starting to move back up again. The European natural gas prices are back to one-year highs. European services inflation has been running 3.5% 4% for quite some time. So it's not clear to me that Europe has really solved its inflation problem either. But they're cutting because they are concerned about the growth outlook in Germany. I think it's pretty bearish for the euro and on the margin weaker euro could help pick up some German competitiveness and maybe put a bottom in growth in Europe.

Speaker 2:

But I don't really think folks are going to be looking to get into Europe with capital in a large Look European indices are closer to the highs than not already.

Speaker 2:

Germany has some big tech components in their index, and so if we start to see a little bit of unwinding tech, that's probably not good for the German stock index, while the German economy maybe start to look a little bit better. But I think the euro is still going to be under a fair bit of pressure. You can see that trading through par or lower over the course of the next three or six months, and if Europe kind of finds itself in the crosshairs of Trump tweets or tariffs I know Trump wants them to start to increase their military spending up to 5% of GDP. I don't see how these countries can do that and maintain balanced budgets, and so I think Europe's looking at a tougher operating environment, a weaker euro from here, and it's probably not really going to get much in the way of a bump in global growth momentum off of these cuts. I think Europe will start to again trade better when China starts to stimulate and trade better, and again, I think that's going to be a while.

Speaker 1:

Yeah, I think it's well articulated. I think we can all agree that, no matter what, currencies are all going to be more and more worthless, even though, relative to each other, they may look stronger, and that explains why there's a lot of demand for gold. What about Bitcoin?

Speaker 2:

How does Bitcoin fit into what's coming? Yeah, I'm a Bitcoiner. I believe in Bitcoin as a store of value asset for the people. Let's say, and look as governments continue to run deficits, inflate away the money individuals need to find or have these types of store of value assets to hold on to their purchasing power. Gold's clearly a place to be. It's been around for thousands of years and I think Bitcoin has some advantages over gold as far as the visibility and portability and the like. So I think the asset class let's say Bitcoin's a $2 trillion asset in a $900 trillion asset value world just seems too small to me. I think it's going to continue to take share from or and collectibles and high-end real estate over time and so I think gold and Bitcoin kind of rise together to take share on a store of value basis. And I think you know, given Bitcoin's positive characteristics, I think it's the fastest horse in the race.

Speaker 2:

As far as countries getting involved in the strategic Bitcoin reserve or what happened to game theory behind that, I'm torn. I think Bitcoin you know maximalists would say this is not the intent of Bitcoin. We want this to be away from government. We don't want government getting involved here. But as an American, I think there's a game theory and geopolitical angle here where the US support this could strengthen the dollar, strengthen America, can strengthen the US's balance sheet, which clearly is needed. So, look, looking, I think if countries or states start to add Bitcoin to their balance sheet, it's another source of demand, which is really not unexpected.

Speaker 2:

And clearly, the way Bitcoin is set up, there's no ability to bring out incremental supply when prices go up. We don't change the supply algorithm based on price momentum. Obviously, we could draw out supplies from holders, but there's no new supplies that are coming regardless of price, and so that is a unique characteristic in the commodity world. And so, look, I think this asset's going to grow materially. This asset class grows materially over time. I think the other coins are mostly garbage and a distraction, and you know clearly wish that the administration and Trump's family wouldn't do things like Trump coin or Melania coin or this other garbage. But I do think Bitcoin has a place in investor portfolio and, as folks need inflation hedges and store value assets to hold on to their purchasing power, I think Bitcoin fits in perfectly.

Speaker 1:

So I know a lot of people talk about the deregulation play and Trump administration being favorable towards Bitcoin and crypto, but do you have a sense of like what Trump actually would do? I mean, beyond the strategic Bitcoin reserve idea, what can Trump do to make the bullish case even stronger practically speaking, structurally speaking?

Speaker 2:

Look, I think it's a bit of a Trojan horse, right. I mean because you know, the US's hegemony is based on the dollar, is based on US military and a variety of things, and what that's led to is a massively negative trade situation. A government that's running huge deficits, runs 100 plus percent of debt to GDP. True interest expense, which is interest plus entitlement spending, is running north of 100 percent of tax receipts, and so we have an issue here in the US, and so we need a much weaker dollar in order to bring back stocks, in order to fund growth, and the problem is that the government spending is outrageous. And so how do you square that circle? It's likely that we're going to get inflate away these debts, and so I think Bitcoin and maybe gold revaluation just helps the US navigate this transition.

Speaker 2:

It keeps us at the seat of power when we're trying to negotiate with China or with OPEC or with Russia about reordering global trade, and so I think that's the reason why Trump and maybe some of his supporters are bracing, but I think there needs to be a recognition whatever world exists on the other side, the US is much more of an equal player with China and is not the global hegemony anymore, and are we going to be okay with that?

Speaker 2:

Is that going to lead to a more peaceful world or is that going to lead to a more contested world?

Speaker 2:

And so I think these are things that maybe the administration hasn't thought through or the Trump team doesn't really know yet, but I think those are the things that we need to be thinking about. Are we going to have a peaceful transition into a multilateral world where gold and or Bitcoin act as neutral reserve assets, or is it going to be the US trying to hold on to hegemony, force its allies into its trading sphere, try to force enemies to keep taking dollars and keep using treasuries, even though China is a much bigger driver of their grace? I think it's going to be very interesting to watch transition. I think the markets now are certainly priced more for the US to win, whatever this battle is, and the US exceptionalism trade has run for a very long time, but I think that's overpriced. I think there is risk to that story. I think with some of the developments, even in the most recent week, about how far along they've moved in AI, clearly they're leading in areas like electric vehicles and drone technology and a variety of other high technology areas.

Speaker 2:

And the US needs to start competing more aggressively, and are we going to do that in a protected way or are we going to do that more in an open source way? I think the jury is still out, and that's something that we really need to monitor closely.

Speaker 1:

Is there anything that's, as you mentioned, valuation? Is there anything that's underpriced and that's not really fully pricing in some positive effect under Trump administration? I mean, I think in general, small caps probably do outperform right, because if deregulation is real mid-cap, small cap should benefit the most from that lower regulatory cost of compliance. But what parts of the marketplace from your vantage point look the least expensive?

Speaker 2:

Yeah, I mean you know my view, look. I mean as far as small-caps are concerned, I think the issue that small-caps I think will continue to have is cost of capital. I don't really envision a scenario where, you know, borrowing rates are moving materially lower again, like we saw during COVID, and because I think treasury government deficits and debt situation is going to keep the treasury market largely for sale and Scott Best was very critical of Yellen and her desire to fund the government with T-bills rather than terming out the debt and has said the US needs to think about terming out the debt more Well. That's going to keep more pressure on the long end and it's probably going to keep interest rates higher than not. So I think small caps that struggle to get capital are not necessarily a place I want to rotate into.

Speaker 2:

I think there is rotation that will happen within mid and larger cap names out of big tech into more infrastructure plays, more energy infrastructure, oil service, mlps. I mean Trump. I think that is one part of the Trump plan that will happen. We will get that push to bring on 3 million barrels a day of incremental energy production by the end of 2028. And that's going to be more oil service, more pipelines, more gas distribution. So that's good for MLPs, it's good for Schlumberger, halliburton, osx names, and so I think those are areas of the market that can thrive under Trump, and as far as probably other commodity-related industries too, we need more rare earths, we need more lithium, we need more copper, and so I can envision a scenario where we start rotating further capital out of big tech into old economy-type areas. And so, look, I think, after we start to get more clarity on what the tariff regime will look like, then we can feel a little more comfortable about, you know, really getting more aggressive in gold I'm sorry in silver and copper and uranium and things like that.

Speaker 1:

Craig, for those who want to track more of your thoughts, more of your work and of course you know those are familiar with Larry's content as well when would you point them to and maybe give sort of a little bit of a pitch as far as Bear Traps report, yeah, and so I'm on Twitter I'm streaming now, but CES921 is my handle and I post a lot on there.

Speaker 2:

I mean the Bear Traps report and, larry, what we're trying to do, is you know, is really get a sense from what the buy side is thinking and saying and doing, and so we are surveying our client network of over 600 institutional accounts around the world. Larry and I have been developing for the last 20, 25 years on the street, and so we're aggregating all this information and analyzing it and then disseminating it out back to our network in an anonymous way. And so, you know, folks have an understanding of what the narrative is, why things are moving, how crowded things are, you know, with respect to AI or commodities or the Fed or what have you. And so I think we do a pretty good job of surveying the buy side and really understanding where consensus is and where the narratives are. And I think that's important for investors to understand is you know, as you're trying to decipher and get a sense of, you know, the next direction or you know where money is moving to. Having a qualitative approach is as important as a quantitative approach In my view.

Speaker 2:

I know there's been a heavy push towards quantitative, you know, approaches and strategies and everything is about the math and the rotations.

Speaker 2:

But, uh, there's still large pools of capital that are driven, uh, humans, um, who are looking for, um, you know, large returns over multi-year periods of time.

Speaker 2:

And so I think our relationships with the street, uh, and with the buy side, you know, is very over multi-year periods of time, and so I think our relationships with the street and with the buy side, you know, is very helpful in that regard. And what we've been trying to do more recently is bring that research to the broader financial community and so the product now where we're hosting a channel on Discord where we're bringing that information to financial advisors, to high net worth individuals and to some more active traders who are looking for that color, looking for that access to research and analysis about what's going on. So I'm constantly providing proprietary content in our channel Larry is as well, and the team is doing so too, and so we think it's a great tool for investors to help filter through the noise of Fintwit, of everything you're seeing, because that's what I'm doing all day and that's what the team is doing is kind of going through all the information and try to bring it back out in a highly concise, curated manner about what's really important on any particular day.

Speaker 1:

And there is a lot of noise on X and Twitter to curate through Everybody. Please make sure you follow Craig Shapiro. Hopefully you enjoyed this conversation and thank you, craig, appreciate the time here. Thanks, michael, appreciate it.

People on this episode

Head Shot

Michael A. Gayed, CFA

Host