Is The Fed Panic Already Fading?

5/6/2026 10:00:00 AM	short term cautious down	5 days later	+0.04%	-0.02%
4/24/2026 10:00:00 AM	medium term up	21 days later	+0.50%	+0.50%

5/8/2026 10:00:09 AM	medium term sharp up	21 days later	-5.59%	-8.39%
5/6/2026 10:00:00 AM	short term down	5 days later	-0.30%	+0.30%
4/10/2026 10:00:00 AM	medium term up	21 days later	-4.78%	-4.78%
4/3/2026 10:00:00 AM	medium term cautious up	21 days later	+0.45%	+0.23%

5/6/2026 10:00:00 AM	short term up	5 days later	+1.75%	+1.75%
4/24/2026 10:00:00 AM	medium term up	21 days later	+6.18%	+6.18%

5/15/2026 10:00:24 AM	short term sharp up	6 days later	-1.41%	-2.11%
5/8/2026 10:00:09 AM	medium term cautious up	21 days later	+1.47%	+0.74%
5/6/2026 10:00:00 AM	medium term sharp up	20 days later	+2.03%	+3.04%
4/30/2026 10:00:00 AM	medium term sharp up	20 days later	+4.75%	+7.13%

Tyler

The market was pricing in a bunch of hikes that shouldn't be priced in with nominal break evens going lower. The one-year break evens are right at 2% now. The dollar is rolling over, precious metals look like good value after the extreme reversal of the debasement trade. You just have to fade all the dumb narratives once they get extreme.

Centralized asset management is causing extremes: call skew at 90+ percentile at highs, put skew at 90 percentile at lows. The market is rotational, not like 2008. Industrials and banks are making new highs. The old economy stuff (Intel, IBM) is what works.

The bond market has been a straight line lower in yields, with the long end leading. The yield curve is flattening dramatically. We are traversing peak inflation and peak growth for the year. Fiscal impulse wanes in the second half. If the Fed doesn't hike in July, inflation will keep coming down and they won't do it before the election.

Felix Jauvin

Gasoline isn't following oil down anymore; crack spreads are surging. This is a bit of an issue because the refined products are the only part that really matters for the consumer.

Felix Jauvin

Quinn Thompson

The crack spread gap will close after the summer months. Refinery capacity utilization has been maxing out, but the supply chain lag will resolve.

We depleted all the reserves of fuel oil and finished products. We are heading into peak driving season, which is a confluence of factors.

Core PCE is still ripping. Even if this is the high in inflation, it's going to be a lot of work to get any meaningful disinflation. It's more likely to just chop around.

Felix Jauvin

Tyler

There is a floor at 3% inflation. 2% is not happening. The Fed is scarred from calling things transitory that weren't, so now they won't acknowledge when things actually are transitory. The oil price move is clearly transitory. The Fed can't get core inflation from 3 to 2% with monetary policy alone; it's a fiscal problem with 5-6% deficits to GDP.

Lower gas prices provide stimulus to the consumer, which reinforces core trends. If the Fed cranks up real rates any higher, they just cause market problems they have to reverse anyway.

Monetary policy tools like interest rates seem broken for dealing with AI-driven inflation from memory prices and data center buildouts. Micron earnings showed memory is ripping, Apple and Xbox are hiking prices due to RAM costs. It's archaic to think hiking rates will help when there's so much debt in the economy that higher rates just give more money to money market fund holders.

Felix Jauvin

Tyler

I think the system is actually working for the first time in a long time. You're getting real capex spend. High yield spreads are at their lows. SpaceX issued $30B in bonds and it was oversubscribed by $90B. There's so much savings from boomers that it keeps rates down. Even a 50bp hike doesn't matter when you have a trillion dollars of private sector spending this year and next.

Before, with super low rates, it wasn't advantageous to build anything because you could just buy back stock. Now we're playing capitalism again, not crony capitalism. The government getting out of misaligned incentives is happening before our eyes.

The Fed's balance sheet policy is way more impactful than front-end rates. The yield curve is historically suppressed, which tells you the problem is suppression of the long end. Worsh gets this; he mentioned balance sheet policy rejiggering multiple times. He gave implicit forward guidance to set the stage for not actually hiking.

Worsh astutely gave credence to the committee's hawkish dot plot (which was wrong) without throwing water on it. He knows the housing market looks restrictive but the stock market looks loose. The Trump admin may take air out of the AI trade if it shows up in inflation readings.

Felix Jauvin

Tyler

I don't think AI inflation is that bad. Apple raising prices 20% doesn't really affect me. What crushes me is healthcare going up 15% a year, daycare costs. Housing costs are actually going down now because of oversupply. Worsh nailed it by pegging to price stability and letting private sector supply and demand do its thing.

The long end has come down because we're actually listening to prices, not weird Fed slop forward guidance.

The positive correlation between DRAM/memory stocks and the Mag7 has flipped negative since Google announced its $80B equity issuance. Now we have to think about opportunity cost and ROI. The easy part of the trade is over.

Felix Jauvin

Tyler

The Mag7 performance vs all indices has been a straight line down since last October. People still get flustered when you talk shit about the Mag7 because everybody owns them in their retirement accounts. The hyperscaler complex is being rerated from a multiple basis because they are moving from cash-flow-rich profiles to leveraged balance sheets with no cash flow. This commands a totally different multiple, like an oil industry with boom-bust cycles.

If they stop their dumb spending, they fall behind in the AI race. Their models are already losing share to free Chinese and open source ones. They're in an unwinnable hamster wheel that continues to shrink margins. From a longer-term perspective, the upside on these things is very capped.

Tyler

The biggest loser in all this is passive management and closet indexers. There's so much dispersion in the market now, which is healthy. In a good case, this happens over a long period, indexes rebalance, and new leaders emerge. In a bad case, you'd see a crash in the indexes. I'm watching implied correlation to make sure it's not a crash scenario; it's currently at 10, which means a massively rotational market, great for active management.

There were crazy program trades smashing down large cap index names and then slowly finding their way to other parts of the market. You can see it in real time getting reallocated.

The return dispersion matches the 2010s secular stagnation when the only game in town was buying the Mag7 for buybacks. The 2010s was a depression in terms of innovation; the best we could do was social media and Google search ads. Now the investment boom, dispersion, and correlation are all changing at the same time. Higher rates are causing this flip.

I've been reading 'The Price of Time' by Edward Chancellor. At times of near-zero interest rates, you paradoxically get a lack of innovation and fundamental economic growth. Housing bubbles are correlated with economic stagnation because of massive capital misallocation.

Felix Jauvin

Tyler

In 2000, money came pouring out of tech and went into small caps at crazy valuations. In 2008, everything was levered and you had a systemic crisis. We don't have that anywhere just yet. You could potentially see a lot of money come out of large cap tech and go into other interesting stuff. It's really hard for mega cap tech stocks to stay on top for longer than 20-year cycles.

The Mag7 topping pattern is like crypto: Bitcoin makes its move, then mid-caps, then small caps start running while majors stall. These are characteristic of very long time horizon distribution and market topping patterns. The dispersion is healthy for main street type stuff, but overall it's a big long-term topping thing for 40% of the S&P 500. At some point that matters.

Felix Jauvin

Tyler

Brian Reynolds talks about how fixed income corporate bonds hone in on a sector and oversupply it. In 2008 it was housing, then commercial real estate, then commodities in 2015, then gold in 2014. We're doing that in the AI sector right now. At some point it will roll over, but right now it's guns blazing on the debt side.

The 2010s was a pillaging of the middle class using pensions and endowments. It was just social media advertising using your data, issuing debt to buy back stock. None of it was super productive compared to now: building SMR nuclear reactors, all sorts of new stuff.

There's a big difference between the stock market and the economy. The side effect of this rebalancing towards productive uses is secular inflation. The demand for financing increases the cost of financing. Money being put to work towards real economy things versus buying back shares of social media companies is inflationary. Growth is high, inflation will not go away to 2% anytime soon. They need to keep this plate spinning because everyone from Worsh to Bessent to Trump knows that growing your way out of it nominally includes inflation alongside growth.

For how hard the run-it-hot trade has gotten rinsed on the back of fake narratives that Worsh is a gigahawk, I wouldn't be surprised if that's where the hot money flows to next.

Felix Jauvin

Bitcoin has lost its narrative as an inflation hedge because with secular inflation and rates not at zero anymore, there are actually productive things to do with capital. MicroStrategy is really struggling. The best use of capital isn't to give it to Saylor to sit on or do financial leverage with.

Felix Jauvin

Tyler

It's interesting to hear people's bearishness hitting a crescendo on Bitcoin and Saylor's whole thing as MicroStrategy trades into its NAV par value. If you shit talked MicroStrategy for the last two years, you got harassed. The stock is down 90% from the highs. Now everyone is turning on him. This moment needed to happen to rinse the excess from the industry.

It's just rolling bubbles across sectors as capital rotates. If the rolling bubble that's getting popped is Mag7 and they're 40% of the S&P 500, that has longer term bigger picture ramifications.

Tyler

I would turn bullish on MicroStrategy at some point, but it's not here. I shorted it this year and I'm not short anymore. Things are looking capitulatory across its capital structure. But it's still unresolved. At current levels, his debt and pref service burden is 6% annual dilution on MSTR common. If Bitcoin just stays flat, he's diluting MSTR holders by 6%. It's just not going to work for a long time in terms of providing really good risk.

He's not going away overnight. The incentives are to keep this going forever. It's the same thing as last cycle: it trades at a discount to NAV, people dismiss it like GBTC, then eventually if the discount gets big enough (20-30%), people step in and buy it instead of Bitcoin.

Quinn Thompson

It has way more to do with AI power and the miners flipping over. It's so economical to sell your power to AI companies for a 10-year deal for billions of dollars instead of mining Bitcoin at a paltry sum. Electricity costs are rising because of all the data centers. The arbitrage between centralization and decentralization is about electricity. Bitcoin is still a cockroach you probably won't kill.

You'll have 10-year cycles where there are productive things to put your money in. The chart between Micron and Bitcoin is completely inverse. For 10 years it was just put your money in anything that doesn't debase. We're in a whole new era.

Tyler

The Mag7 are all monopolies. Breaking up monopolies or reducing their power is good for everybody except them. Remember when Exxon and Chevron were the largest companies in the world and they eventually bowed the knee. It forces innovation elsewhere. Now we have all sorts of different power sources like nuclear. Hopefully the same thing happens to social media.

Social media is becoming AI slop. Eventually people will just get off of it. There are already laws in Europe banning social media.

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