Dear Fellow Traveler:

Last night, a report landed on my desk, and I read it six times to make sure it didn’t contain some sort of language that would get me a phone call at 2 a.m.

So, a Goldman analyst wrote yesterday that equity gains have been a major contributor to household wealth growth and consumer spending.

Goldman estimates AI-related equity gains accounted for a meaningful portion of that effect. How meaningful? The gains have contributed roughly 0.2 percentage points to annualized consumption growth through wealth effects.

And since the top 10% of wealth owners account for roughly half of consumer spending, it follows that the performance of AI stocks may not just be holding up the market.

It may be supporting the marginal side of the consumer economy as well.

That… hold on…

Meanwhile, several Wall Street analysts have spent the last few weeks arguing that the market’s performance in the second half of 2026 will depend heavily on consumer spending.

Well… get your pencils out… What we know is that blue-collar consumers are out…

Gee… hope those some college people start feeling fired up about the new McDonald’s menu items… and college grads find a 60,000 dimes in the couch…

So…

Can we all see what is happening?

I’ve argued that the stock market doesn’t reflect the performance of the economy.

And the economy doesn’t anchor to the stock market in a world of loose policy.

But if rising stock prices make wealthy households spend more money, and that spending is supposed to support the perception of corporate earnings...

...then we’ve built ourselves a rather interesting feedback loop… haven’t we…

This is the loop… The market goes up… and people feel richer.

People spend more, and the economy looks better.

Corporate earnings hold up, and the market goes up again.

At some point, this starts to resemble an extension cord plugged into itself.

But, let’s take a step back… and look in the mirror with this arrangement.

On Friday, the semiconductor trade got hit with a frying pan. (We’ve been barking about the leverage all week… I called this week LEVERAGE week for a reason.)

The numbers do no lie…

On Friday, SOXX fell roughly 10%.

SOXL, the leveraged semiconductor ETF, fell roughly 30%. It’s almost like I warned about this all week…

This all raises an uncomfortable question.

If AI stocks are helping to support consumer spending through the wealth effect...

...what happens when the wealth effect goes the other direction?

Because the mechanism works in reverse, too.

The market goes down.

People feel poorer.

People spend less.

Economic activity slows.

Earnings weaken.

And suddenly everyone discovers that feedback loops work both ways.

That’s the part of the Goldman note that caught my attention.

Not the suggestion that stocks are helping support the economy.

The suggestion that a relatively small group of AI-related stocks may be helping support the spending behavior that is supporting the economy.

Read that sentence five times, and if your nose isn’t bleeding by the time you’re finished, you win a free Goldman lanyard.

Just show up at the office and ask for it.

(Actually don’t do that. I’ll definitely get a phone call about that. Never mind.)

Let’s Chart Party.

Chart No. 2: I’m Mathematically Agnostic

No victory lap. No joy in markets going down.

The only thing I’m happy about is that three days ago, as our signals started to suggest that Friday’s downturn was increasingly likely (negative momentum at the end of the day is a probability assessment of sharper downturns and higher volatility), was that I told our Money Printer Pro readers that it was time to start thinking about some hero trades… I said go out a week or two, find the SPY put that is trading at $1.00 or less and buy it…

And you know who bought it? BillWho…

Bill Who?

No… BillWho.

These signal switches are where the money can be made… Everything else is noise.

That said… I’m not a bull… I’m not a bear.

I’m just a man with a machine.

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The machine went bearish on Thursday. The crowded positions imploded on Friday. I don’t think at all that any of this was tied to any of this bullshit…

A lot of people who I’ve talked to on what we do are either on board or not. The ones who are not sound like Deputy Gerard…

They’ll say… “That’s right Garrett... I don’t care. I’m not trying to solve a puzzle here...”

To which I reply: Well, I am trying to solve a puzzle. And I just found a big piece!”

Chart No. 3: V Shaped Recoveries…

Look at the chart below.

See the sharpest rebounds? See the start of the selloffs?

The selloffs started on our screens on July 14, 2024…

Before the Nikkei crash with a second confirmation on August 1, 2024.

February 21, 2025… with a short squeeze, followed by institutional dump on March 26.

March 7, 2023…

January 28, 2026… with a second selloff around mid-March…

The rebounds? All marked largely be policy shifts, insider buying, and mechnical purchasing after low volume squeezes.

November 24, 2025…

April 7, 2020…

April 23, 2025…

April 6, 2026….

Don’t fight this. The markets have different incentives. They’re not broken…

They’re designed differently than what you were taught and you didn’t get the memo when they made the changes….

Scott and I discussed this today on our episode of “What Are We Missing?”

This is not a stock market anymore. Can we please… agree on this?

Can we please… stop the hammering?

No. 4: Retail Shouldn’t Trade Agriculture

I read enough sell-side bullshit for a living to call this one out…

There’s a lot of chatter around the expectation for higher food prices in 2026 and beyond. And what ticker keeps popping up as a complementary part of the analysis…

That narrative is lazy, and it costs people money.

DBA doesn’t own farms or fertilizer companies.

It owns futures contracts, and futures expire.

Every month the fund sells the cheap expiring contract and buys the pricier next one.

That is negative roll yield, and it bleeds the fund lower even when the commodity goes sideways.

Corn can sit flat for six months and DBA still loses.

The story can be dead right and the vehicle still falls.

So “food inflation” is really four different trades…

You need to know the grocery shelf (staples are getting crushed), the raw commodity, the ETF, and the equities.

They move on different clocks, and most people buy the wrong one.

If you want the theme, own the chain, not the fund.

Fertilizer names carry real operating leverage… and they have their own problems...

The processors and shippers collect a toll whether the farmer wins or loses. (We’ve been long ADM…)

The lesson runs bigger than ag.

Know the mechanics of what you trade, because being right on the story and wrong on the vehicle is still a loss. Everything else is noise…

No. 5: Leverage on Display

This is the MAG 7 against the S&P 500… over the last week… As our signals have been breaking down and we’ve been worrying around leverage in the system.

If the every buyer thesis works on the way up…

It unwinds on the way down… All of the people who ask if they “can buy” something… suddenly flip…

Anyone who disagrees with this thesis, please let me know… Come on my show and make the case… I’m trying to put together a puzzle.

No. 6: Every Buyer Thesis on Display…

… wanna hang out and talk passive flows on What Are We Missing?

Cause I think this is bigger than passive ETF flows… and now VOO just went over $1 trillion in AUM.

We’re in a world where Micron can go from $500 billion to $1 trillion in weeks…

And people are still talking about DRAM… but they’re not actually following the plumbing, the forced buyers, and the massive passive flows… Down the rabbit hole…

No. 7: They’re Raising Interest Rates Everywhere…

This is gonna go to hell fast if rate hikes bleed more than what is expected…

Bank of America’s Hartnett noted that private sector financial assets are at new all-time highs as a stake of GDP. This is “financialization…” and our continued appetite for financial risk while we just allow it all to eat capital at the expense of financing real business and real industry. I know that our best and brightest are building ETFs instead of bridges… Incentives matter… and this chart tells us so…

Oh… and in a world that refinances debt instead of refinancing growth… the debasement and the stagflationary conditions will only re-emerge faster and suddenly. We don’t have sound money… And we’re relying on stock prices to drive consumer spending from a pool of “spenders” that is shrinking.

In the words of Moe. - “Don’t shoot the messenger… it’s not his fault.”

“It’s just such a drag when you’re the last one to know…”

No. 8: The Next Micron

Well… if you’re still wondering how the Every Buyer Thesis works… do me a favor… Wait a little bit. If this market sells off because of pressure… wait until our S&P 500 signal turns positive again… from whatever the story is...

Then when it turns Green again… by Marvell (MRVL).

This is the every buyer thesis. If it’s going to $1 trillion, wait until the leverage starts to pile in… until it justifies a lot of thematic ETF exposure, crowding in the top semiconductor names… and lots of passive flows…

Then watch as this company that I confuse for a Disney franchise ends up trading at $1,000 a share. It’s inevitable because the markets create buyers.

Just saying… and then saying it again… I explained it all last week.

No. 9: SpaceX and the Age of IPOs…

I think there are a lot of questions right now about the SpaceX IPO and where this price ends up. To me, it feels like Facebook and/or Snap. But we know that there’s a lot of forced buying out of this… This could moon… this could bust. I don’t care…

What matters to me out of this is the questions around what comes next…

There is this weird debate right now about where the money will come from to pony up $75 billion for SpaceX, and then a ton more for the other AI names going public.

There is ample capital floating around… It’s not really about if the money exists… as it does, and this IPO is already oversubscribed.

What matters is what else is happening in the financial system.

You could pull $75 billion out of money market funds tomorrow and fund a SpaceX IPO.

The question is where the money comes from, and what stops happening because that money got redirected.

You can raise $75 billion in an IPO while $100 billion of leverage is being unwound somewhere else. You can have abundant capital and declining buying power at the same time. Friday was evidence of this..

Those are not contradictions. They’re, by definition, different measurements.

People keep using the word “liquidity” as if it means one thing.

It doesn’t.

There’s always money somewhere in the system.

But there is marginal buying power available to support asset prices.

Those are not the same thing.

A market can have trillions sitting in money funds while hedge funds delever, risk budgets shrink, margin contracts, and investors sell other assets to fund new purchases.

The existence of capital does not eliminate the consequences of reallocating capital.

Yes… SpaceX can and will raise $75 billion.

The more interesting question is what has to be sold, redeemed, financed, or unwound to make room for it. This is what I do for a living…

Chart 10: Learn It. Know It. Live It.

Without commentary…

I hope you all have a great weekend.

Stay positive… and go Knicks…

If you’re not a member of Money Printer Pro… now is the time to be bout it, bout it…

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Garrett Baldwin

Well… I was a day early yesterday with the TZA, but it snapped back hard today, with an 11% move. The key thing is that we were red yesterday for a little while before that squeeze into the jobs report.

As I warned earlier this week, the leverage in the market was to the tilt… and it only took some news to snap this. It’s clear that the …

Read more

Dear Fellow Traveler:

Well, we spent a week on the leverage side warning about the extreme positioning.

The Russell 2000 reading went negative yesterday morning only to lead us to a squeeze yesterday and an ensuing dump today…

Then… it just gave out today… in a pretty standard “risk off” selling event… It’s VERY comparable to the leverage that unwound after a Yellow reading on January 26. Two days later, the reading went red… and then gold and silver prices cratered as leverage unwound in those positions...

Today, the leverage is coming out of semi and AI trade…

The pressure right now on the Russell is clean in four sectors… Consumer cyclicals, healthcare (biotech especially), basic materials (miners), and technology. That tech IS the problem - as I warned about the start of selling on the IGV and software names this week after the squeeze.

Ark Innovation (ARKK) is down 7.8% today…

Which is a reminder… when this signal flips on the Russell… it’s time to buy Tradr 1X Short Innovation Daily ETF (SARK). It popped 7.8% today…

My prefered hedge Direxion Daily Small Cap Bear 3X ETF (TZA) popped 10.8%, and the $4 call for next Friday has run from $0.43 to $0.68… The trade I like that will buy a box of baseball cards…

Now… the media is blaming the jobs report…

I’m not really even sure that this jobs report was all that great in terms of the economy looking healthy. And we explained this week how so much of the actual lending in this economy is going to… other lenders… who are lending through alternative structures.

Mom and Pop aren’t getting the money…

All the while, it was a strange report in that about 50,000 of the new jobs came from the government, with a heavy lean toward local governments. And the new jobs were largely linked to hospitality - which could be seasonal… but also represents stickiness in the inflation side of services. We already knew that hiring was weak yesterday…

I’m a firm believer in looking for where the narratives shift…

How we suddenly have a qualitative shift to justify a clear quantitative environment that was out of buyers. The Direxion Daily S&P 500 Bull 3X ETF (SPXL) was crushed today… taking about a 30% hit, all while we’d warned about the leverage and the crowded nature of this trade when we started the week.

MicroSectors FANG+ Index -3X Inverse Leveraged ETNs (FNGD), which surged a stunning 15% as the tech sector now faces real pressure. The question now is whether the mechanical buying that dominated the last few weeks now has to turn to mechnanical selling - and what sort of media narrative we’ll tell if it does.

This was… the very “Risk off” type of selling that has occurred at extremes like in mid-2022… and in mid-August 2024… and right in that January window.

I think we’re only going to see more of these extremes based on the Every Buyer Thesis that I have… It all unwinds at once…

People are calling this selling healthy… I’m calling it what it is…

An unwind of max-level leverage that revealed itself earlier this week (Tuesday and Wednesday over at our paid letter.) In addition, the narrative is also shifting to rates.

I went through all of the implications around interest rates earlier today on YouTube.

Now, let’s get to the other things that are on my mind…

Thing I Think No. 2: Solomon’s Greed Bit

This week, at the Economic Club of New York, Goldman Sachs (GS) CEO David Solomon stood at a podium… He then told a room full of older men in slightly fitted blazers that greed has overwhelmed fear in financial markets…

He suggested that liquidity is ample, and that the system is ready to absorb a $1 trillion wave of AI IPOs starting with OpenAI, Anthropic, and SpaceX.

He also warned that greed could reverse to fear at any moment, by which he meant at any moment that does not happen to fall during a Goldman Sachs IPO fee window.

Seems that we might have had a historic S&P 500 win streak end on cue…

That’s the kind of timing that, if it happened to a tarot reader, would be called divination.

When it happens to a Goldman partner, it is called the schedule.

If a narrative shift comes… watch how quickly people will have forgotten about this rally. There is clear stress building in the system… and it tends to start at the Russell 2000 and Bitcoin levels.

For now, we’ll see if we hit oversold and get a little bit of a bounce… remember markets don’t tend to go straight down over a series of days until the 1% pattern emerges and funds sell back into whatever strength markets can manufacture.

Thing I Think No. 3: The SpaceX Math Makes No Sense

Morgan Stanley sent a deck to its top investors this morning projecting SpaceX revenue of $3.4 trillion in 2040, with EBITDA of $2.7 trillion at an 80% operating margin.

Well, those numbers are insane… And they haven’t existed at any company at any point in commercial history.

Somehow, that math actually got through review on a Microsoft Excel file… after I assume some junior analyst ran out of conservative assumptions and just typed in what his managing director told him to type.

A guy named Brandon Carl, who has both a calculator and a few hours, ran the implied math and concluded that the Morgan Stanley projection requires the entire US economy to grow…

Seriously…

It would have to grow at 14% per year for 14 years in a row…

That figure is about double the long-run rate and requires a level of growth that would require either fusion, a lottery jackpot of biblical proportions, or a sustained collective hallucination.

The bankers have not retracted the deck.

The IPO is oversubscribed.

Thing I Think No. 4: The Twenty-One Banks on the Roster

There are 21 banks on the SpaceX underwriting syndicate.

There are also at least 21 New York Yankees on the active baseball roster at any given time.

The Yankees have a bench, which is where you sit when you are not contributing meaningfully to the inning at hand.

The 21 banks on the SpaceX deal also have a position called the bench, which is where 19 of them are sitting while Goldman and Morgan Stanley are eating the lead underwriter fees up at the plate.

The other 19 will list this deal in their year-end pitch decks as proof of capability, and the capability they are proving is the capability to be in the room when the room is doing the deal, which mainly requires sitting through an enormous number of meetings without anyone asking your opinion.

The compensation for that is, surprisingly, excellent.

Finally… On Amelia..

Amelia is eight and a half years old next week…

She’s wearing goggles that fog up immediately every time she puts them on…

She then handles that problem by ripping them off, scolding them as if they are a small dog that has misbehaved, and then putting them back on with the conviction that this time will be different.

She believes in fairness, in sharing, and in the proposition that I’ll eventually come into the water.

Two out of three of those beliefs are probably going to survive past tenth grade.

I’m hoping the third one survives long enough that I don’t have to learn what it feels like when she stops asking.

The market is going to do what the market is going to do.

Solomon is going to do what Solomon is going to do.

The 19 banks on the bench are going to do almost nothing, very expensively.

And I’m going to go swim.

If you’re not a member, check out MoneyPrinterPro.com for updates on the state of affairs. Whether this is the start of something bigger or just some haircuts on a the back of overbought territory, we’ll find out… but the numbers do not lie… especially if this turns into something bigger around interest rates, private credit… and Japan.

I hope you all have a great weekend… Chart Party will be tomorrow…

I’ll be solo again tomorrow on What Are We Missing…

Stay positive,

Garrett Baldwin

Here is the PDF from today’s conversation…

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LIVE - What Investors Are Getting Wrong... And What Lies Ahead

Everyone, everywhere now an expert on Japanese cross-border flows...

Garrett Baldwin

Jun 05, 2026

Good morning…

I’ll be live at 8:30 am right here..

Go Live Here

Good morning:

I start today with a loaded schedule over the next week. We have a string of potential landmines that must be navigated.

It’s all heavily focused on data that will tell us just how healthy the plumbing in the global system is. And it culminates with Third Friday (OpEx) on June 19.

So… let’s go Thunderdome…

On Japan

The most important story in the next two weeks is Japan’s interest rate decision.

I must go back to a May 17 article in the Financial Times for context.

The surge in Japanese yields are triggering big bets that domestic investors will repatriate their money. Japanese investors own something like $6 trillion in foreign assets. And I’ve said that flows BACK to Japan could trigger broader selling in leveraged positions here in the U.S. and maybe even lead to passive selling too…

Okay, the story is no longer the property of macro tourists on social media.

It was in the FT with named institutional voices on the record.

Again, this is the number one macro risk I have flagged all year.

The day Japanese money decides it has been overseas long enough. It would especially hit U.S. Treasuries hard, given that Japan is the largest single foreign holder. This ownership has been a leverage layer beneath every dollar-denominated bull market of the last generation.

The Bank of Japan meets Tuesday. The market is pricing a hike to 1%. That would be the highest level in a generation (1995).

But… let me walk you through what’s happening now…

Japan Is the World’s Banker

For 30 years, the Bank of Japan ran interest rates at or near zero.

Japanese savers and institutions had to look elsewhere for yield.

They found it in the United States through Treasuries, stocks, real estate, and yes, private credit. According to the FT and BoJ Flow of Funds data, Japanese investors are by far the largest foreign holders of US government debt.

Most of the pile sits unhedged.

And, therefore, an unhedged Japanese investor in American assets is long the U.S. dollar by default.

Each time that the dollar got stronger or the yen got weaker, that investor was paid in two directions.

Assets went up in price, and the currency went up in translation. For three decades, the carry trade was more or less… “free.”

This big pile of international capital has helped support U.S. asset prices for 30 years.

I can’t say that this was the intent… but it was the math.

The third-largest economy in the world parked half of its institutional balance sheet elsewhere. The markets received that capital trade at much higher mulitples than they should have. The American equity multiple is partially a Japanese subsidy.

Three Pillars Can Crack at Once

This is where it gets dangerous.

There entire reason why an unhedged Japanese investor would want to stay in American assets rests on three legs of the same stool…

They’re all weakening right now.

First, yields in Japan are rising. They’re the highest in decades.

Their five-year and twenty-year bonds both both recently hit record highs that same week. For an institution that held foreign bonds because domestic bonds yielded nothing, the domestic alternative finally yields something.

Next, the BoJ WILL hike its interest rate to 1% on Tuesday.

Again, that’s the highest Japanese policy rate since 1995. The expectation is that we’ll see 1.25% sometime in 2027…

And every time they hike, the more attractive domestic rates are to Japanese investors...

Finally, the yen at 160 is historically cheap.

An unhedged investor returning home converts dollars at a favorable rate by any long-run measure.

Now, Japan’s Finance Minister Satsuki Katayama has admitted this set up is there…

She told reporters that government bond yields are rising across the world’s biggest bond markets and that, in her words, these developments are creating a compounding effect.

So… now… if you accept this framework, the question of when Japanese money rotates home is not whether, only when.

Institutional Money Is Already Positioning

Matt Smith, a fund manager at Ruffer, told the FT in May that pressure is building, that long-end domestic yields are rising, and that the institutional framework in Japan is now please bring this money home.

Smith said yen strength will happen slowly, then quickly.

How would this happen?

The unhedged Japanese investor holds a U.S. Treasury or a U.S. equity.

To bring the capital home, the investor sells the asset in dollars, receives dollars, then sells the dollars to buy yen. The selling shows up as three simultaneous moves. U.S. Treasury yields rise. U.S. equity prices fall. The yen surges against the dollar.

If a small share of the $6 trillion pile moves at once, the moves are absorbable.

If a meaningful share moves in the same direction in a compressed window, the moves are the August 2024 carry trade unwind on a larger scale.

The Nikkei fell more than 12% in a single session that morning.

The S&P fell more than 6% across three sessions.

The leverage that unwound was the cross-currency carry trade built quietly over decades.

The Loaded Gun Is Not Yet Fired

But I want to stress something… this is all a big headline story…

And right now, Wall Street just isn’t seeing the flows just yet.

Japanese investors haven’t taken the bait of rising JGB yields.

The reason, per Keshvani, is that Prime Minister Sanae Takaichi has been clear about her preference for more fiscal spending. The supply of new JGBs will not fall meaningfully.

If yields keep going higher because supply keeps going higher, investors are reluctant to step in front of the move.

Japan’s financial plumbing data tells the same story.

The Ministry of Finance’s International Transactions in Securities release shows the Banks line has turned negative since the start of the year, which is the first signal of Japan Post Bank selling.

The BoJ Flow of Funds report through Q4 2025 shows Post Bank bought more JGBs and also continued buying foreign assets.

The signal has not yet flipped.

Now, let me highlight the most important part of this…

GPIF, the Government Pension Investment Fund, is the investor that really moves the yen.

GPIF holds nearly $1 trillion in foreign assets, invests mostly unhedged, and sets the template private pensions follow.

GPIF completed its five-year strategy review in 2025.

The next is not due until 2030.

Its targets are locked. GPIF can rebalance within its policy bands, with roughly $85 billion of capacity to rotate, but the published quarterly data shows GPIF and private pensions have continued buying foreign debt and selling foreign equities through the latest reporting period.

Effectively, trying to guess when this is going to happen is an impossible task. So, we have to continue to watch the plumbing and the GPIF. And we have to actually focus on our signals as they tell us where to look. Remember, our S&P 500 signal turned negative on August 1, 2024. Four days later was the implosiion of the Nikkei.

So, I want to stress that it’s likely to happen gradually then suddenly…

We’ll continue to keep our focus on the flows through our Momentum Signal.

What To Watch

1. If the BoJ signals reduced JGB purchases at the same time it hikes, the yen rallies hard and the carry breaks faster. The hawkish surprise is the bigger move than the hike itself.

2. Any move that narrows the gap is a step closer to GPIF making the math work. A Fed cut, a soft US payroll print, a sudden disinflation surprise, any of those narrow the gap and move the institutional rotation closer.

3. The 160 line is the Ministry of Finance intervention level. A break below 160 toward the 150s is the first signal that real money is rotating, and that the unhedged repatriation has begun.

Remember, this dog has not barked.

But the dog is still in the room.

There is about $6 trillion leaning against a door marked home.

It will be there… but don’t bet until we actually see evidence or real justification for flows. This is the single most important macro story that I’m watching like a hawk…

Now, let’s get to the trader update…

Good Morning,

Traders Focus

As we await this morning’s jobs report, momentum continues to pull back in the short-term readings across all three indexes.

This has been the story all week. The names that ran the hardest got stretched, and now the air is slowly coming out of them.

You can see it in the bigger readings too. A week ago, the S&P cap-weighted side sat at +151, with the equal-weighted side at +62. Five days later, the cap is down to +52, while the equal-weight holds at +46. The money is leaving the biggest names, the ones that have been carrying things higher.

This is part of the concern. If capital is leaking out of what has been working, the market stumbles unless it rotates into something else. Yesterday it rotated, and the Dow closed at a record while the Nasdaq went red.

This is a lot like a car racing down the highway. The driver is easing off the gas now. We are still moving, just a little slower, and now would be a good time to brace in case he has to hit the brakes. He could just as easily floor it again, so be ready for both.

The job numbers today will be a big decider. Consensus is around 85,000, down from the 150,000 average over the last two months, with unemployment holding at 4.3%. Anything above that keeps the Fed handcuffed.

Watch the wage number, not the headline. A hot wage print is what drags the rate-hike conversation back to the front. But a number that comes in too soft has its own problem, because it feeds the story that AI is starting to eat jobs. Tech alone announced more than 38,000 cuts in May, the heaviest month in two years, with AI the top reason cited.

Options are pricing about a 1% move on the S&P off the number.

The one bright spot this morning is the FAZ, the 3x bearish financials ETF we watch as a read on the financial sector. It fell almost 8% yesterday, a big improvement, even if it feels strange against what crypto is doing right now.

The FNGD is our bigger concern, jumping almost 5% yesterday and still climbing toward its 20-day moving average. This is where we start pounding the desk about keeping one eye on your Six Rules of Negative Momentum and one eye on the door. The semis are sitting right at their 8-day, and the MAGS (the Magnificent Seven ETF) is fighting to hold its 20-day. The warnings are building. Not screaming yet, but growing.

Take the sugar away from a market that has been running on a sugar high and you get some cranky behavior. Crypto and the Russell are the first places it shows up.

Crypto pulled back again overnight, with Bitcoin down to around $60,000 and Ethereum really taking it on the chin at a new low near $1,668, a level we have not seen since last year.

Coinbase (COIN) is getting hit hard. If this is all about the SpaceX IPO next week pulling air out of crypto, it is a little funny, because Coinbase just launched pre-IPO perpetual futures on SpaceX. These guys are doing it to themselves.

Oil eased slightly overnight, with WTI at $92.50 and Brent at $94.50 after Trump softened his tone toward Iran. The OILU is back above its key moving averages, so the sector remains elevated. The dollar remains pegged around 99, where it has sat for the last month.

We are still seeing some real rotation right now, which tells you money wants to stay in the market and just change seats.

Health care is breaking out. Eli Lilly (LLY) and AbbVie (ABBV) are hitting our breakout list. If you want to play the group, the XLV is a cleaner way to do it than the LABU, which holds some of the higher-beta names. The cap-weighted names are doing the lifting in health care right now, so the XLV is the better ETF there.

DaVita (DVA), GM, NXP (NXPI), and Norwegian (NCLH) are also new to our screamers this morning.

Albemarle (ALB) is one to watch on the crasher side. It finally cracked under its 100-day after a monster run, up more than 300% since last year’s Liberation Day low.

That puts a name we like in sale territory. It has held the $157 level more than ten times, so that is where you look for your best entry. Lithium sits at the center of the battery, data center, and EV buildout, and the government is leaning in. We want the trades the government is backing.

Utilities are under some pressure, with Constellation Energy (CEG) on day two of our breakdowns. If you like the space, this is the time to take a small taste on names like Constellation, or lower your cost basis if you already hold. Dominion (D) has held up better than Constellation lately.

A couple of earnings to watch today around VWAP, with options expiring. Planet Labs (PL) beat and raised its 2027 outlook but is down about 3.5% premarket. Into the SpaceX hype next week, this is a name to trade off VWAP. Look for a pullback and a shot higher.

Lululemon (LULU) is getting crushed on its report. If it fights back toward $110, that is where you take the short into the close. If it pushes back above, you are wrong, so just cut it. It is a one-directional trade.

We are going to wait for the jobs reaction, let the first fifteen minutes shake out, and then use VWAP to target the names expiring today for the bigger swings.

On a pivot day like this, the play is not to guess direction. It is to have your levels charted in advance.

Know your entries, your targets, your stops, and where you sit relative to VWAP before you put anything on. The moment a trade does something outside your plan, cut it, because the reason you got in is no longer valid. This is a market where you have to be disciplined, or you end up a bag holder.

For now, the music is still playing. We keep dancing around the chairs, making sure we are close to a seat when it stops.

Market outlook

• Treasury yields drift lower across the curve before jobs print; May payrolls seen slowing from April’s 115,000 with rate at 4.3%

• Gold consolidates near six-week lows as Iran war drags on; metals weighed by central banks countering energy-driven inflation shock

• Trump invokes Defense Production Act for coal; $700M investment includes new export terminal in California and new plants in Alaska and West Virginia

• Lululemon (LULU) cuts full-year outlook as incoming CEO O’Neill inherits sluggish growth; stock down 11% afterhours

• Sempra (SRE) starts LNG production at ECA Phase 1 in Mexico with first cargo from Permian Basin; Pacific Coast location offers shorter Asia route than Gulf

• S&P keeps megacap IPO rules unchanged for S&P 500 after consultation; SpaceX (SPCX) and other mega-IPOs must still serve 12-month seasoning

Momentum - Holding

The AI names pulled back Thursday and the rest of the market picked up the slack. Broadcom fell about 13% on a soft outlook, taking the chips down with it, leaving the Nasdaq as the only index in the red. The S&P still closed higher, the Russell ran more than 1.5%, and eight of eleven sectors finished green. The money rotated out of the AI trade rather than leaving the market.

The trend readings backed it up where it counts. The Russell’s equal-weight anchor, which had slipped below zero on Wednesday, is back to +19, and the anchors are positive across all three indexes. The daily side stayed whippy, surging into Thursday’s close and cooling again overnight, but the trend readings that drive the signal held the ground the rotation gained. The one soft spot is the cap-weight, where the chips carry the most weight and where the selling landed.

Healthcare led the day at better than 3%, with financials and real estate behind it, and tech was the only group down by any real amount. The move into the value names ran strong enough to push the Dow to a record even with the AI trade selling off. The leadership changed hands for the day, with the broad market carrying the load the AI names usually do.

Insider Buying: Still Underwhelming

• The ratio of Buys to Sells: 1:72 ($14M to $1B)

• Top Buy: $4M of Xometry (XMTR) by Director Alexander Biewald

• Top Sell: $221M of NVIDIA (NVDA) by Director Mark Stevens

Top Insider Buys of Last 10 Days - Form 4 Documents

Market Liquidity

The thing that’s quietly changed under this market is the flow of money into it. For most of the year it was getting topped up. The Fed was still buying bills, and with US rates sitting so far above everyone else’s, foreign money kept pouring in. That’s fading now, and a few things are pulling it the other way at once.

Central banks are tightening again. Europe is expected to raise rates next week, and Japan is likely to follow at its meeting the week after. As their rates come up, the gap that made US assets the place to park money narrows, and some of that foreign cash starts to head home. The Fed’s next move is now seen as more likely to be a hike than a cut. And the wave of giant IPOs led by SpaceX is about to pull a lot of cash out of the market all at once.

You can see it starting to show up in the data. The Chicago Fed’s financial conditions index spent the spring loosening, then flattened out, and has now begun to tighten. It isn’t dramatic, but the direction is what matters. For the first time in this run, conditions are getting tighter rather than easier, and they’re doing it with stocks still at record highs.

That’s the setup heading into summer. The market’s holding up fine on the surface, still near its highs. But the easy part is probably behind it, the stretch where money kept showing up on its own looking for a place to go. From here it has to hold these levels with less and less help underneath.

Stay positive.

Garrett Baldwin

I’ll be live at 8:30 am right here..

Go Live Here

Good morning:

I start today with a loaded schedule over the next week. We have a string of potential landmines that must be navigated.

It’s all heavily focused on data that will tell us just how healthy the plumbing in the global system is. And it culminates with Third Friday (OpEx) on June 19.

So… let’s go Thunderdome…

On Japan

The most important story in the next two weeks is Japan’s interest rate decision.

I must go back to a May 17 article in the Financial Times for context.

The surge in Japanese yields are triggering big bets that domestic investors will repatriate their money. Japanese investors own something like $6 trillion in foreign assets. And I’ve said that flows BACK to Japan could trigger broader selling in leveraged positions here in the U.S. and maybe even lead to passive selling too…

Okay, the story is no longer the property of macro tourists on social media.

It was in the FT with named institutional voices on the record.

Again, this is the number one macro risk I have flagged all year.

The day Japanese money decides it has been overseas long enough. It would especially hit U.S. Treasuries hard, given that Japan is the largest single foreign holder. This ownership has been a leverage layer beneath every dollar-denominated bull market of the last generation.

The Bank of Japan meets Tuesday. The market is pricing a hike to 1%. That would be the highest level in a generation (1995).

But… let me walk you through what’s happening now…

Japan Is the World’s Banker

For 30 years, the Bank of Japan ran interest rates at or near zero.

Japanese savers and institutions had to look elsewhere for yield.

They found it in the United States through Treasuries, stocks, real estate, and yes, private credit. According to the FT and BoJ Flow of Funds data, Japanese investors are by far the largest foreign holders of US government debt.

Most of the pile sits unhedged.

And, therefore, an unhedged Japanese investor in American assets is long the U.S. dollar by default.

Each time that the dollar got stronger or the yen got weaker, that investor was paid in two directions.

Assets went up in price, and the currency went up in translation. For three decades, the carry trade was more or less… “free.”

This big pile of international capital has helped support U.S. asset prices for 30 years.

I can’t say that this was the intent… but it was the math.

The third-largest economy in the world parked half of its institutional balance sheet elsewhere. The markets received that capital trade at much higher mulitples than they should have. The American equity multiple is partially a Japanese subsidy.

Three Pillars Can Crack at Once

This is where it gets dangerous.

There entire reason why an unhedged Japanese investor would want to stay in American assets rests on three legs of the same stool…

They’re all weakening right now.

First, yields in Japan are rising. They’re the highest in decades.

Their five-year and twenty-year bonds both both recently hit record highs that same week. For an institution that held foreign bonds because domestic bonds yielded nothing, the domestic alternative finally yields something.

Next, the BoJ WILL hike its interest rate to 1% on Tuesday.

Again, that’s the highest Japanese policy rate since 1995. The expectation is that we’ll see 1.25% sometime in 2027…

And every time they hike, the more attractive domestic rates are to Japanese investors...

Finally, the yen at 160 is historically cheap.

An unhedged investor returning home converts dollars at a favorable rate by any long-run measure.

Now, Japan’s Finance Minister Satsuki Katayama has admitted this set up is there…

She told reporters that government bond yields are rising across the world’s biggest bond markets and that, in her words, these developments are creating a compounding effect.

So… now… if you accept this framework, the question of when Japanese money rotates home is not whether, only when.

Institutional Money Is Already Positioning

Matt Smith, a fund manager at Ruffer, told the FT in May that pressure is building, that long-end domestic yields are rising, and that the institutional framework in Japan is now please bring this money home.

Smith said yen strength will happen slowly, then quickly.

How would this happen?

The unhedged Japanese investor holds a U.S. Treasury or a U.S. equity.

To bring the capital home, the investor sells the asset in dollars, receives dollars, then sells the dollars to buy yen. The selling shows up as three simultaneous moves. U.S. Treasury yields rise. U.S. equity prices fall. The yen surges against the dollar.

If a small share of the $6 trillion pile moves at once, the moves are absorbable.

If a meaningful share moves in the same direction in a compressed window, the moves are the August 2024 carry trade unwind on a larger scale.

The Nikkei fell more than 12% in a single session that morning.

The S&P fell more than 6% across three sessions.

The leverage that unwound was the cross-currency carry trade built quietly over decades.

The Loaded Gun Is Not Yet Fired

But I want to stress something… this is all a big headline story…

And right now, Wall Street just isn’t seeing the flows just yet.

Japanese investors haven’t taken the bait of rising JGB yields.

The reason, per Keshvani, is that Prime Minister Sanae Takaichi has been clear about her preference for more fiscal spending. The supply of new JGBs will not fall meaningfully.

If yields keep going higher because supply keeps going higher, investors are reluctant to step in front of the move.

Japan’s financial plumbing data tells the same story.

The Ministry of Finance’s International Transactions in Securities release shows the Banks line has turned negative since the start of the year, which is the first signal of Japan Post Bank selling.

The BoJ Flow of Funds report through Q4 2025 shows Post Bank bought more JGBs and also continued buying foreign assets.

The signal has not yet flipped.

Now, let me highlight the most important part of this…

GPIF, the Government Pension Investment Fund, is the investor that really moves the yen.

GPIF holds nearly $1 trillion in foreign assets, invests mostly unhedged, and sets the template private pensions follow.

GPIF completed its five-year strategy review in 2025.

The next is not due until 2030.

Its targets are locked. GPIF can rebalance within its policy bands, with roughly $85 billion of capacity to rotate, but the published quarterly data shows GPIF and private pensions have continued buying foreign debt and selling foreign equities through the latest reporting period.

Effectively, trying to guess when this is going to happen is an impossible task. So, we have to continue to watch the plumbing and the GPIF. And we have to actually focus on our signals as they tell us where to look. Remember, our S&P 500 signal turned negative on August 1, 2024. Four days later was the implosiion of the Nikkei.

So, I want to stress that it’s likely to happen gradually then suddenly…

We’ll continue to keep our focus on the flows through our Momentum Signal.

What To Watch

1. If the BoJ signals reduced JGB purchases at the same time it hikes, the yen rallies hard and the carry breaks faster. The hawkish surprise is the bigger move than the hike itself.

2. Any move that narrows the gap is a step closer to GPIF making the math work. A Fed cut, a soft US payroll print, a sudden disinflation surprise, any of those narrow the gap and move the institutional rotation closer.

3. The 160 line is the Ministry of Finance intervention level. A break below 160 toward the 150s is the first signal that real money is rotating, and that the unhedged repatriation has begun.

Remember, this dog has not barked.

But the dog is still in the room.

There is about $6 trillion leaning against a door marked home.

It will be there… but don’t bet until we actually see evidence or real justification for flows. This is the single most important macro story that I’m watching like a hawk…

Now, let’s get to the trader update…

Good Morning,

Traders Focus

As we await this morning’s jobs report, momentum continues to pull back in the short-term readings across all three indexes.

This has been the story all week. The names that ran the hardest got stretched, and now the air is slowly coming out of them.

You can see it in the bigger readings too. A week ago, the S&P cap-weighted side sat at +151, with the equal-weighted side at +62. Five days later, the cap is down to +52, while the equal-weight holds at +46. The money is leaving the biggest names, the ones that have been carrying things higher.

This is part of the concern. If capital is leaking out of what has been working, the market stumbles unless it rotates into something else. Yesterday it rotated, and the Dow closed at a record while the Nasdaq went red.

This is a lot like a car racing down the highway. The driver is easing off the gas now. We are still moving, just a little slower, and now would be a good time to brace in case he has to hit the brakes. He could just as easily floor it again, so be ready for both.

The job numbers today will be a big decider. Consensus is around 85,000, down from the 150,000 average over the last two months, with unemployment holding at 4.3%. Anything above that keeps the Fed handcuffed.

Watch the wage number, not the headline. A hot wage print is what drags the rate-hike conversation back to the front. But a number that comes in too soft has its own problem, because it feeds the story that AI is starting to eat jobs. Tech alone announced more than 38,000 cuts in May, the heaviest month in two years, with AI the top reason cited.

Options are pricing about a 1% move on the S&P off the number.

The one bright spot this morning is the FAZ, the 3x bearish financials ETF we watch as a read on the financial sector. It fell almost 8% yesterday, a big improvement, even if it feels strange against what crypto is doing right now.

The FNGD is our bigger concern, jumping almost 5% yesterday and still climbing toward its 20-day moving average. This is where we start pounding the desk about keeping one eye on your Six Rules of Negative Momentum and one eye on the door. The semis are sitting right at their 8-day, and the MAGS (the Magnificent Seven ETF) is fighting to hold its 20-day. The warnings are building. Not screaming yet, but growing.

Take the sugar away from a market that has been running on a sugar high and you get some cranky behavior. Crypto and the Russell are the first places it shows up.

Crypto pulled back again overnight, with Bitcoin down to around $60,000 and Ethereum really taking it on the chin at a new low near $1,668, a level we have not seen since last year.

Coinbase (COIN) is getting hit hard. If this is all about the SpaceX IPO next week pulling air out of crypto, it is a little funny, because Coinbase just launched pre-IPO perpetual futures on SpaceX. These guys are doing it to themselves.

Oil eased slightly overnight, with WTI at $92.50 and Brent at $94.50 after Trump softened his tone toward Iran. The OILU is back above its key moving averages, so the sector remains elevated. The dollar remains pegged around 99, where it has sat for the last month.

We are still seeing some real rotation right now, which tells you money wants to stay in the market and just change seats.

Health care is breaking out. Eli Lilly (LLY) and AbbVie (ABBV) are hitting our breakout list. If you want to play the group, the XLV is a cleaner way to do it than the LABU, which holds some of the higher-beta names. The cap-weighted names are doing the lifting in health care right now, so the XLV is the better ETF there.

DaVita (DVA), GM, NXP (NXPI), and Norwegian (NCLH) are also new to our screamers this morning.

Albemarle (ALB) is one to watch on the crasher side. It finally cracked under its 100-day after a monster run, up more than 300% since last year’s Liberation Day low.

That puts a name we like in sale territory. It has held the $157 level more than ten times, so that is where you look for your best entry. Lithium sits at the center of the battery, data center, and EV buildout, and the government is leaning in. We want the trades the government is backing.

Utilities are under some pressure, with Constellation Energy (CEG) on day two of our breakdowns. If you like the space, this is the time to take a small taste on names like Constellation, or lower your cost basis if you already hold. Dominion (D) has held up better than Constellation lately.

A couple of earnings to watch today around VWAP, with options expiring. Planet Labs (PL) beat and raised its 2027 outlook but is down about 3.5% premarket. Into the SpaceX hype next week, this is a name to trade off VWAP. Look for a pullback and a shot higher.

Lululemon (LULU) is getting crushed on its report. If it fights back toward $110, that is where you take the short into the close. If it pushes back above, you are wrong, so just cut it. It is a one-directional trade.

We are going to wait for the jobs reaction, let the first fifteen minutes shake out, and then use VWAP to target the names expiring today for the bigger swings.

On a pivot day like this, the play is not to guess direction. It is to have your levels charted in advance.

Know your entries, your targets, your stops, and where you sit relative to VWAP before you put anything on. The moment a trade does something outside your plan, cut it, because the reason you got in is no longer valid. This is a market where you have to be disciplined, or you end up a bag holder.

For now, the music is still playing. We keep dancing around the chairs, making sure we are close to a seat when it stops.

Market outlook

• Treasury yields drift lower across the curve before jobs print; May payrolls seen slowing from April’s 115,000 with rate at 4.3%

• Gold consolidates near six-week lows as Iran war drags on; metals weighed by central banks countering energy-driven inflation shock

• Trump invokes Defense Production Act for coal; $700M investment includes new export terminal in California and new plants in Alaska and West Virginia

• Lululemon (LULU) cuts full-year outlook as incoming CEO O’Neill inherits sluggish growth; stock down 11% afterhours

• Sempra (SRE) starts LNG production at ECA Phase 1 in Mexico with first cargo from Permian Basin; Pacific Coast location offers shorter Asia route than Gulf

• S&P keeps megacap IPO rules unchanged for S&P 500 after consultation; SpaceX (SPCX) and other mega-IPOs must still serve 12-month seasoning

Momentum - Holding

The AI names pulled back Thursday and the rest of the market picked up the slack. Broadcom fell about 13% on a soft outlook, taking the chips down with it, leaving the Nasdaq as the only index in the red. The S&P still closed higher, the Russell ran more than 1.5%, and eight of eleven sectors finished green. The money rotated out of the AI trade rather than leaving the market.

The trend readings backed it up where it counts. The Russell’s equal-weight anchor, which had slipped below zero on Wednesday, is back to +19, and the anchors are positive across all three indexes. The daily side stayed whippy, surging into Thursday’s close and cooling again overnight, but the trend readings that drive the signal held the ground the rotation gained. The one soft spot is the cap-weight, where the chips carry the most weight and where the selling landed.

Healthcare led the day at better than 3%, with financials and real estate behind it, and tech was the only group down by any real amount. The move into the value names ran strong enough to push the Dow to a record even with the AI trade selling off. The leadership changed hands for the day, with the broad market carrying the load the AI names usually do.

Insider Buying: Still Underwhelming

• The ratio of Buys to Sells: 1:72 ($14M to $1B)

• Top Buy: $4M of Xometry (XMTR) by Director Alexander Biewald

• Top Sell: $221M of NVIDIA (NVDA) by Director Mark Stevens

Top Insider Buys of Last 10 Days - Form 4 Documents

Market Liquidity

The thing that’s quietly changed under this market is the flow of money into it. For most of the year it was getting topped up. The Fed was still buying bills, and with US rates sitting so far above everyone else’s, foreign money kept pouring in. That’s fading now, and a few things are pulling it the other way at once.

Central banks are tightening again. Europe is expected to raise rates next week, and Japan is likely to follow at its meeting the week after. As their rates come up, the gap that made US assets the place to park money narrows, and some of that foreign cash starts to head home. The Fed’s next move is now seen as more likely to be a hike than a cut. And the wave of giant IPOs led by SpaceX is about to pull a lot of cash out of the market all at once.

You can see it starting to show up in the data. The Chicago Fed’s financial conditions index spent the spring loosening, then flattened out, and has now begun to tighten. It isn’t dramatic, but the direction is what matters. For the first time in this run, conditions are getting tighter rather than easier, and they’re doing it with stocks still at record highs.

That’s the setup heading into summer. The market’s holding up fine on the surface, still near its highs. But the easy part is probably behind it, the stretch where money kept showing up on its own looking for a place to go. From here it has to hold these levels with less and less help underneath.

Stay positive.

Garrett Baldwin

Dear Fellow Traveler:

Well, the Equal Weight on the Russell 2000 turned negative in premarket hours, and it set us up for a squeeze. Markets bounce back and remain resilient… right after open.

It’s not a false signal, as the CW never went negative…

This is a reminder why I don’t tend to take direct aim at the downside of the markets unless our Cap Weight turns negative…

And even then, here we are with a bit of a pop today on… what news exactly?

This is a reminder that we’re not in a trend-driven market outside of the crowded names and the one specific trade dominating everything. Today was a short-squeeze day, and if you need proof, Chargepoint (CHPT) - that dumpster fire - popped 9.2%.

Groupon (GRPN) added 6.8% (62% short float) and 1-800-Flowers (FLWS) gained 4.2%. Another weird day, and a reminder to follow the Cap Weight and go to the downside when we break under a key moving average like the 20-day. I’m early…

But I’m hedging for a reason… Tomorrow’s jobs report comes fast…

Let’s Have Some Fun

Today, we dig into a fun topic… What’s going to happen when Wall Street runs out of ideas?

In the 2000s, it was leverage around Mortgage-backed securities.

In the 2010s, it was the growth of private credit and volatility products…

In the 2020s, it was more private credit, 0DTE options, and V-shaped, mechanical rallies…

In the 2030s, it’ll be what poor bastard is willing to sign asome random term sheet.

If I were going to bet, I’ll assume they’ll get even more creative in the off-blockchain gambling markets… hyper-leveraged decentralized crypto, and some bizarre way to 5x a Russian ping pong match on margin…

But let’s look at a few ideas that I’m happy to license to Wall Street…

Here are five things they will sell you in the wreckage (unless you join our team…)

The USA Distressed BDC Recovery ETF

Let’s launch a Distressed BDC Recovery ETF.

After all, we have some Wall Street firms opening promoting private credit investment while warning clients about the possible problems at the insurance level.

In the words of John Tuld “There’s going to be a lot of money to be made coming out of this mess and we’re going to need all the brains we can get around here.“

So, how would this work?

First, the credit cycle would just create a whole lot of wreckage that can be repackaged… hopefully for yield.

If that happens, let’s go fInd a bunch of BDCs trading at 40 cents on the dollar…

We can then go talk to someone like State Street and pitch the SPDR Distressed BDC Recovery ETF. We’ll have the ticker be BDCR.

Our pitch is that we’re buying quality balance sheets at cycle lows.

But in reality, we’ll just attach underlying assets that are the bankruptcy estate of the funds that gated sometime this year… (If the Fed prints after we lock this up… awesome, since everything can just go back to par, and we can still collect fees.)

We’ll charge an expense ratio 1.4% and try to find a way to lock up some assets for a very long time - even while we sit here using the public market like a skin suit..,

We’ll launch it the day that CNBC books a manager on Squawk Box who tells people that the “The Best Time to Buy Is When There Is Blood in the Streets.”

We’ll buy ads.

People will say that’s stupid…

We’re playing the game…

Let’s Launch a “Pension Allocation Rescue Vehicle”

You know that certain teachers unions are pretty ticked off that they have to buy SpaceX right now…

The fact that their passive investment flows pile into a finite number of publicly available shares at a 90x/sales valuation is a huge punch in the gut to anyone who viewed Elon Musk as a political adversary during his DOGE years…

Yeah… that’s where we are right now…

Well, let’s imagine a world where pension funds get gated out of their private credit positions and eventually need capital to fund Q4 retiree distributions.

We can ask some fund to purchase the gated positions out at like 60 cents on the dollar. The vehicle we’d pitch to a name like Apollo and call it the “Great American Liquidity Solutions Fund.”

The structure would be… really… really simple.

Check this out…

It’d just be a Cayman-domiciled feeder that lends to a Bermuda master fund that turns around and lends to a Delaware SPV that buys the LP interests directly.

It’ll take about 45 minutes to set up with Claude…

The pension fund will say thank you…

The teacher will say something else that starts with “You…”

And that portfolio manager at Apollo gets a new place to hangout in the Hamptons.

The Bank Capital Relief Trade

Don’t you for a minute think that I’ve forgotten about the poor, suffering bankers who dominate the commercial banks.

All these banks have hundreds of billions of dollars in exposure to Nondepository Financial Institutions (NFDIS)…

That stuff would really look bad in a stress test if central bankers did their job.

So, let’s get out in front of it…

We could propose to Goldman Sachs that they structure a credit-linked note that transfers the first 7% of losses on the bank’s NDFI book to a fund that nobody can find anywhere… not even if there is a fire...

We’d get the fund rated by a bond agency… or by the brother of a guy who works at a bond agency. As in we could say that we got the bond rated by Kroll…

But not Kroll Bond Rating Agency…

Nick Kroll…

This would provide capital relief to the bank, while the fund gets a coupon payment… from the bank.

We’d allow the bank to count this structure somehow as a hedge…

Then, when someone from the Federal Reserve asks where all the risk went, we just smile and point to the dinosaur bones that we bought with all the origination fees.

Stupid?

The Delmarva Retail Whiplash Fund

Okay.

So let’s think about the retail investors.

Let’s imagine that Robinhood says - largely by accident - that retail outflows are accelerating out of private credit interval funds. That seems confusing, because I’m not sure that they really know what that is… because everytime I think of Robinhood, I think of Cricket Wireless for some reason…

Anyway, let’s say that Vanguard announces plans for a Retail Sentiment Recovery Fund, because we’ve pitched them this idea…

Basically, a fund would by whatever retail is selling at the bottom, and sell whatever retail is buying at the top.

Our fact sheet would come up with the term “Behavioral Alpha,” allowing us to basically charge something like 200 basis points and get our own personal chef.

This would be marketed on TikTok by 23-year-old influencers on TikTok who get stumped when we ask them what a credit cycle is…

It’s just stupid enough to raise $11 billion in 90 days…

Finally, Get Drunk and Gamble on Rock-Paper-Scissors

Now we get to the best idea so far…

There are two guys at a bar, but there’s only one shot of Mellow Corn for one person...

And some sort of canned light beer for the other person.

These two guys throw rock-paper-scissors. The loser shoots second in Golden Tee.

Going second means watching the first guy clear Bayou Burner clean and then trying to remember whether it was the second click or the third click that got him there.

Going second is losing.

So, JPMorgan could structure a credit default swap on the loser of rock paper scissors.

The CDS pays out when the loser loses the throw.

The credit event is documented as “Failure to Deliver Favorable Shooting Position.”

The reference entity is the specific individual at the bar, identified by driver’s license.

The contract is documented under ISDA Master Agreement with a Bar Game Annex.

JPMorgan’s quant team publishes a 147-page white paper titled: The Persistence of Throw Selection Behavior Among Midwestern Males, 2009-2028.

Their conclusion is that some guy named Brian remains fundamentally overexposed to Paper.

A competing report from Goldman argues Brian’s recent Rock usage represents a structural regime shift rather than a cyclical deviation.

The stock drops 6%.

The notional is sized at $50,000 per throw.

And the premium is paid in 12 monthly installments by Venmo.

I’ve got 15 people who will take this idea right now…

This Thing Would Snowball

By 2027, the CDS market on bar rock-paper-scissors could easily top $4 billion.

The protection buyers would be hedge funds in Greenwich.

The protection sellers could be life insurance companies in Des Moines.

Nobody in Des Moines knows who Brian is.

Brian doesn’t know who they are.

Yet somehow a retired schoolteacher in Iowa now has indirect exposure to Brian’s decision-making process after six Coors Lights and two failed marriages.

Turns out, Brian used to throw paper a lot because his ex-girlfriend liked paper…

But in 2028, a hedge fund may discover that Brian has suddenly been throwing ROCK for six straight months. By 2029, Brian’s throw history may become an asset class.

Bloomberg adds a terminal function:

BRIAN <GO>

Traders can monitor:

• Rock Frequency
• Paper Momentum
• Scissors Volatility
• Ex-Girlfriend Adjusted Win Rate

A boutique research firm upgrades Brian from Neutral to Outperform after a three-week stretch of aggressive Rock deployment.

The hedge fund buys $400 million of protection on Brian.

The hedge fund then pays the premium for 18 months.

Them, Brian thinks about his ex-girlfriend, and he throws… paper for some reason...

The CDS triggers… and the Des Moines insurer pays out.

Then, the Des Moines CIO is fired.

The CFO soon writes a letter to policyholders that uses the word unforeseen four times. There’s a classic liquidity run on top of existing problems in private credit that have gone on for the better part of there years.

The Federal Reserve wants to protect private credit, so it conveinently convenes an emergency facility to distract attention…

They call it The Rock-Paper-Scissors Liquidity and Stability Program.

The facility purchases Brian-linked securities at par. Treasury officials insist the bailout is necessary because Brian has become systemically important.

Brian remains unaware… as he just met Amber Lynn, who will be his third marriage…

He’s still at O’Malley’s arguing about whether Golden Tee peaked in 2007. He’s also still never even heard of JPMorgan… and banks at a credit union.

Finally, the Institutional Investor runs a piece titled “How JPMorgan Sold 4 Billion Dollars of Credit Protection on a Guy Named Brian.”

Someone at the bank randomly asks me if I know the editor and can kill the story…

I can’t even share my screen properly… People forget a year later…

They’ve moved on to leveraging “Pick a Number 1 to 10.”

Call It A Day…

We laugh because it sounds ridiculous.

Then again, somebody once convinced investors to buy a leveraged ETF linked to volatility futures that didn’t actually track volatility.

Compared to that, introducing leveraged rock-paper-scissors derivatives might be the most sensible product Wall Street has launched in 20 years.

This is modern finance… And the parody is less absurd than reality…

In the end… leverage wins… and leverage is the story. Don’t forget it.

Now, if you’ll excuse me… it’s Amelia’s first day of summer… and the pool calls.

Stay positive,

Garrett Baldwin

Live at 8:30

Good Morning,

For the last week, I’ve watched a strange disconnect develop around private credit.

On one side, industry leaders continue to insist that the risks are contained.

The message is familiar: underwriting is sound, defaults remain manageable, and the system is resilient.

Maybe they’re right.

But then I look at what institutions are actually doing.

Banks are conducting surveys. Investors are stress testing portfolios.

Analysts are publishing scenario analyses.

Risk managers are asking increasingly detailed questions about liquidity, leverage, valuation marks, insurance exposure, and interconnectedness.

That’s what confuses me.

If the risks are trivial, why is so much effort being devoted to measuring them?

Nobody spends time mapping escape routes from a building they believe can’t catch fire.

To be clear, I’m not arguing that private credit is about to implode.

I’m arguing that the behavior of sophisticated institutions suggests the conversation is more nuanced than the public narrative. Content

And when I look at market action, I see additional reasons to ask questions.

Some of the weakest momentum in financials continues to show up around alternative asset managers, insurers, and firms tied to the private investment ecosystem.

Maybe that’s coincidence.

Maybe it’s unrelated.

Or maybe the market is beginning to price risks that industry participants would prefer to discuss quietly rather than publicly.

That’s not a prediction.

It’s a question.

And right now, I think it’s a question worth asking.

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Dear Fellow Traveler:

It’s been a long day…

So… I explained to readers this morning, the pros were maxed out to the max…

Prime brokerage gross leverage just hit a five-year high of 322.7%… with net leverage at the 85th percentile and long-short books at the 99th.

The trend-following funds are loaded up… and if things go wrong, they’re going to be dumping… hard. The line in the sand remains 7,500 on the S&P 500.

That said… the Russell 2000 is showing serious signs of cracking. I’m looking for that Equal Weight figure on Russell to go negative, and I may start to hedge with the TZA.

We can blame interest rates and the Fed… but we can also have a little chat about the fact that the short-squeezes are handing back gains, software stocks are taking another bath (IGV fell 4.5% after yesterday’s note on software unwinding), and now we start to look again at the wall of zombie stocks that fill the roster of the Russell 2000.

We’re close to even now on the Equal Weight Russell reading… with that index’s technology sector about to head in the wrong direction. We’re watching the Equal Weight, but this is the first mover worry… I’m still going to tell you the obvious…

Watch the CW of our signal at MoneyPrinterPro.com… the FAZ is already above key moving averages, and markets are giving back some gains. What’s the issue?

There’s a problem with Japan… and there’s still a screaming problem in private credit.

Need proof on the latter?

Having the Same Conversation…

I recently had a conversation where the chatter evolved into a rather interesting excuse around the financial system.

The story goes that private credit surged in the post-2008 world because “banks got out of lending…”

The argument is that Dodd-Frank forced banks to hold more capital and reduce risk.

Therefore, private credit took over as risk exited a regulated system.

I’d say that story is half right.

Banks pulled back from certain types of direct loans… but they never exited the full credit machine. They just changed their jobs and put on new ties… and changed the words around their jobs (bro, bro). Now they live in Gramercy…

Rather than directly lend to companies, banks started to lend to the financial organizations that lend to the companies. That sounds counterintuitive, but once again - it all comes down to incentives…

We can prove this behavior just by looking at a public database.

There’s the Fed’s H.8 release. Let’s dig in…

The Loan Growth Illusion

I’ll start with the H.8.

It calculates the weekly aggregate balance sheet of U.S. commercial banks.

In the Fed H.8 release dated May 29, for the week ending May 20, total loans and leases in bank credit came in at $13.82 trillion.

That figure is up from about $12.8 trillion in April 2025. It’s about a $1.01 trillion jump.

Since April 2025, that is nearly 8%.

That looks like a healthy economy - one where there’s money flowing to businesses…

Right?

But let’s do something that a lot of people won’t… dig into the numbers.

If we strip out loans to non-depository financial institutions (NDFIs), you get a pretty interesting breakdown.

Lending in that space increased from $1.56 trillion to $1.98 trillion during the same period. About 42% or $425 billion in total bank loan growth came from capital directed to non-bank lenders.

That’s not direct bank lending to operating companies or households.

It’s bank lending to financial intermediaries that may ultimately lend to companies, consumers, or investors.

Strip NDFI out and the rest of the bank loan book grew from $11.25 trillion to $11.84 trillion. That’s about a 5.2% increase combined to the 27.2% jump for NDFI.

The banking system looks like it is lending.

But a much larger share is swishing directly to the firms that exist because banks supposedly stopped lending.

Now… let’s step back…

What NDFIs Are (They Are NOT an STD)

So, there’s lots of chatter about whether private credit is a systemic issue…

A lot of banks… that happen to be in private credit… will of course say there’s nothing to see here… But there’s real risk (just not like 2008 bad).

Luckily, we can just look at the same data sources that most of the research desks use… largely because it’s all public information.

For example, the Fed’s H.8 footnote spells out what qualifies.

The category covers mortgage, business, and consumer credit intermediaries, private equity funds, hedge funds, pension funds, insurance companies, investment funds, and securitization vehicles.

These are all banks that lend to the groups that lend, invest, lever, securitize, warehouse, or finance other assets.

So, as you see… traditional banks aren’t just lending to the economy.

They are lending to the lenders.

Lending to Lending is Systemic… It Just Is…

So, let’s explain this with the right sort of corn…

If a bank lends to a small business, that risk layer is just a single layer deep…

If that business fails, the bank takes the loss - and we hear about writeoffs…

But when a large bank lends money to a non-depository lender (one not backed by the FDIC), that lender turns around and lends to a business.

We now have two layers of risk.

The fund would take the loss, and the bank would lose if the fund fails.

Now… this is where you tell me to shut up…

Because - like a dad explaining to the kids on the long ride - it turns out that two layers of credit is… Leverage.

The fund uses bank financing to boost their returns…

And the bank gains exposure through a financing relationship rather than direct ownership of the underlying loans.

Both companies operate according to their own incentives and disincentives.

Just like different groups in the financial system buy equities and futures for reasons that escape the ecosystem of other participants…

Now… let’s multiply all of these actions by a nearly $2 trillion category that’s growing 27%, and you have a pretty large swing in how companies manage risk…

I stress that while some people say this isn’t an issue, I do the thing that a lot of people really don’t like to do when it comes to finance. I listen to lawyers.

A recent whitepaper by White & Case LLP on JDSupra walked through various structures last month.

They explain that total return swaps are increasingly being used to bolster returns.

Funds might be posting collateral at around 30%, while the bank provides the rest of the funding. We’re talking about loan-on-loan facilities, where a special purpose vehicle (SPV), holds the fund’s loans and then the fund borrows against them.

You dizzy yet? I am…

Why This Matters Now

I doubt you’re ever going to read the Fed Financial Stability Report…

Or the FSOC Annual Report,

Or the freaking the IMF Global Financial Stability Report,

Or BIS NBFI papers…

But they all flag the same picture in careful language. And it’s why it’s not possible for anyone - if something goes really wrong - to say that they didn’t see a problem coming. And it’s not like 2006-07 when people are casually dismissing subprime.

It doesn’t matter what the asset class is. The structure looks safe when asset prices are rising.

But things go awry when credit losses show up, marks come down, redemptions surge, and funding lines have to reprice.

That’s where bank lines get pulled from banks, and the fund might have to dump assets for less than what they believe them to be worth…

The problem again is that the bank might also be holding collateral that also isn’t worth what they thought when they established the credit line…

You don’t need it to start at scale.

It just requires one or two prominent funds or vehicles to find themselves in trouble.

The Tricolor and First Brands failures are not proof of a systemic crisis.

They’re reminders of how quickly opacity, receivables finance, and bank exposure can collide.

Reuters reported on First Brands exposure across multiple lenders.

JPMorgan’s Jamie Dimon warned that more problems could emerge after a string of private-credit failures.

Some banks have already paused or repriced back-leverage lending.

Not yet a crisis.

The early language a credit cycle uses before it learns the long words.

The 2008 Lesson

The lesson of 2008 was not that every crisis starts in banks.

It was that leverage moves through institutions faster than anyone can map it.

The GILT Crisis was about leverage… the Silicon Valley Bank crisis… leverage… the Nikkei crash? Leverage… The unwind of the basis and carry trades in recent years?

Leverage…

For me, I have to do all I can to make sure that I’m watching how this impacts momentum… These massive breakdowns in momentum - the ones that have come since COVID - are directly tied to what lives upstream of my world…

And I have to read some of the most boring stuff in the world to know what’s happening at any given moment.

In the future, pay attention to the Fed H.8 for NDFI.

We’ll watch the FDIC for the longer trend.

And I’ll do my best to set an alarm for the SEC Form PF to see what is happening with leverage in the private investment space… Isn’t finance wonderful?

Stay positive,

Garrett Baldwin

Go Live Here...

Side Note: I am taping the pilot of a new show for Option Pit at 9:20 am… here.

If you want to check it out, we’ll be talking about SpaceX, diet pills, energy swing moves, momentum, and a few other things… it will run for about 45 minutes. The link is here… and I’ll be shooting it each day at 9:20 am at the exact same link…

Good morning…

The Strait of Hormuz moves close to 20% of the world’s oil, and Wall Street now expects it to be shut until September…

A variety of Wall Street reports today were very bearish and stated that a closure would strip out about 2.5 billion barrels of supply.

Front-month Brent is grinding higher toward $98, yet the longer-dated contracts remain much lower. This market is betting that this will all blow over.

RaboBank says it doesn’t, modeling a peak near $140, gasoline at $6.50 per gallon, and diesel above $8 per gallon. They estimate the diesel squeeze alone adds 15 to 25 basis points to inflation.

Oil drives everything downstream from here.

We talked about Cheniere (LNG) yesterday… and it gained 3.5% on the news…

Still bullish.

The Data and the Fed

Yesterday’s jobs numbers were pretty wild.

Total job openings just jumped 731,000 to 7.77 million, the highest since 2024, and the ratio of openings to unemployed workers crossed back above 1.0 for the first time since last June.

Quits stayed near cycle lows, so workers are stuck, but demand is firm.

Wall Street expects ADP to land today at around 120,000, and Friday’s payrolls are seen near 75,000 to 95,000, with unemployment at 4.3%. With inflation already back to 3.8% in April, the market has stopped pricing a cut and started pricing a hike.

Kevin Warsh, confirmed 54 to 45, runs his first meeting on June 17.

Positioning Is Maxed Out

Follow the funds… and this flow is wild…

Prime brokerage gross leverage is at 322.7%, a five-year high, with net leverage at the 85th percentile and long-short books at the 99th.

The trend-following funds hold roughly 93 billion in equities and would dump around 100 billion on a one-month down tape, against just 37 billion of buying on the way up.

Implied correlation printed 0.24, the lowest on record, and dealer gamma flips negative on a 4% move.

Even when maxed out, these funds lost to the index in May, with the index gaining 3.35% against 4.55%.

The buyback blackout that pulls 30% of the bid opens in mid-June.

Synchronized Global Tightening

This is not just the Fed.

The European Central Bank is fully priced to hike on June 11 and again in September, lifting its deposit rate from 2.00% toward 2.50%, with eurozone inflation at 3.2%, the hottest since September 2023, and core at 2.5%.

The Bank of Japan is seen as having an 80% chance of hiking to 1% on June 16, even after Tokyo burned a record 11.7 trillion yen, about 73 billion dollars, defending a currency that fell right back to 160.

Brazil is heading to a 13.25% policy rate.

Every major central bank is tightening in response to the same oil shock at once.

All with STRETCHED leverage and positioning…

The Rarest Rally Since World War II

The S&P 500 has run 16% in two months, a pace seen only four times since 1945.

Three of these events were rebounds out of recessions.

The lone exception, with no recession behind it, was 1987, when the index climbed 39% by late August and then fell roughly a third in a matter of weeks, including a 20.5% drop on Black Monday.

Today, the index sits near 7,600 after nine straight weekly gains, with the top ten names making up more than 40% of it.

The bull’s defense is real, since first-quarter earnings grew about 30%. Even so, a move this rare demands respect.

But, watch our momentum signals… These crashes can’t statistically happen without a signal switch first… and that’s important… Stay up to speed at MoneyPrinterPro.com.

Now… let’s get to the actual trading insight…

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Dear Fellow Traveler:

Former Congressman Ron Paul wrote a piece this week where he blamed the Federal Reserve for a lot of people’s misery.

Now 90 years old, Paul has spent his entire career crusading against the Fed’s role in boom-bust cycles, inflationary policy, constitutional gray zones, and the creation of moral hazard.

A key paragraph in his short piece highlights economic conditions that continue to lurk beneath a stock market sitting at all-time highs.

“With inflation rising more than incomes, many Americans have suffered a loss of purchasing power even though their nominal income increased. The erosion of Americans’ purchasing power has led to a debt-based economy. This has created a number of bubbles that likely will soon burst. According to an analysis of Federal Reserve data by economist Mike Shedlock, total car, credit card, and student loan debts are now higher, measured in real dollars, than nearly 20 years ago during the Great Recession.”

His focus on credit card debt and student loan debt is important to our conversation today. Consumer debt remains a massive problem for the average person. Consumers feel the higher prices. What they rarely see is how the debt system puts them at a disadvantage before they ever swipe the card.

Today, I’m going to explain why inflation is only part of the inequality story. The other part is the structure of the debt system itself.

Some groups get access to cheap credit and leverage at the source. Others get expensive debt after the prices have already moved.

What Are We Missing?

The standard inequality story has largely been incomplete for 30 years.

The argument goes that wages stagnated, asset prices ran, technology rewarded the capital class, the top decile pulled away, and everybody is angry about it.

All of those statements describe what happened.

None of them explain the plumbing of how it all works…

Now, I’ve explained the Cantillon Effect in previous issues.

But I want to go a little further on what it means…

To start, Richard Cantillon figured out 300 years ago that new money never enters the economy evenly.

Whoever receives it first gets to buy assets before prices adjust. Whoever receives it last pays the higher prices. The basic political economy has not changed much since Cantillon described it.

But we’re no longer talking about a monetary system backed by gold or silver.

The first issue is where new purchasing power enters the system.

The second thing that matters is the definition of money, which has changed drastically…

New money in 2026 is not paper.

New money is credit. And credit is handed out in a hierarchy. The people closest to the source borrow cheaply, lever aggressively, and buy assets first. The people farthest away borrow expensively, usually to pay bills, rent, tuition, or groceries.

Then, when the leverage breaks, the bottom is told the bailout was necessary to save the system.

Let’s walk down the hierarchy and the inequality story stops being abstract.

The Top of the Credit Chain

A primary dealer at JPMorgan, Goldman, or Morgan Stanley can borrow in the repo market at rates close to the policy rate. Pledge a Treasury bill as collateral. Get cash for the day.

They’ll pay something near SOFR.

In normal times, that collateral can be reused through the system, supporting additional repo, derivatives exposure, and balance-sheet capacity beyond the original security. It does not create money in the simple textbook sense. It creates something just as important in markets: deployable purchasing power.

The cost is basically the institutional floor of money… SOFR, currently around 3.65%.

Must be nice.

The Hedge Fund Tier.

A multistrategy fund borrows through those same prime brokers. The fund may pay something like SOFR plus 100 basis points.

The fund deploys five to ten times its equity across rates, equities, credit, and derivatives. The leverage is cheap because the collateral is liquid and the relationship is decades old.

The Corporate Treasury Tier

A multinational hedges FX and rate exposure with derivatives. The bank counterparty extends credit lines a few hundred basis points over the curve.

The corporate can transfer billions of dollars of risk without posting cash dollar-for-dollar against the exposure.

The Family Office Level

A high-net-worth household borrows against its securities portfolio at a private bank.

The rate may be around 250 basis points over SOFR.

The loan-to-value can run to 50% against marketable securities.

It turns out effective leverage can reach one and a half to two times, and the proceeds can be redeployed into more securities.

The Retail Margin Borrower

A brokerage customer at Schwab or Fidelity pays 11% to 13% for margin.

Interactive Brokers runs cheapest at roughly 6% to 7% for large accounts and prices up fast for small ones. Effective leverage two times against marginable equity, expensive enough that the math only works for short holding periods.

The Homeowner Tier.

A homeowner pulls a HELOC at 7.5% to 9%.

The line is capped at roughly 80% combined loan-to-value.

So, leverage exists, but it’s not deployable into other assets without a real spread to clear.

The cost of carry eats most strategies that are not housing-adjacent.

The wage earner.

Credit card rates run 22% to 29%. It’s just awesome, isn’t it?

Personal loans run 15% to 25%.

Buy-now-pay-later often looks harmless upfront…

However, late fees, merchant economics, and refinancing loops can make it another form of expensive household liquidity.

This is not leverage for investing.

It’s basically leverage for groceries, which is the visible version of the dynamic I covered in the money waterfall piece.

The Bottom of the Chain (Where You Don’t Want to Be).

Payday and title loans often run at triple-digit annualized rates, with payday loans commonly cited near 400% APR.

The credit is technically available.

Nobody who calls this leverage has ever taken one out.

That’s the Great American Financial Chain

That is the advantage.

No political spin is required. The system already tells the story.

It is not only about who earns what. It is about who can borrow, what collateral they can borrow against, how much they can borrow, and what rate they pay.

Wall Street has the edge that really matters.

The institutional borrower borrows near SOFR against high-quality collateral.

The wage earner borrows at credit-card rates against future income.

We can understand that these are two completely different systems, right?

The dealer’s borrowing expands purchasing power inside asset markets first. That demand can lift prices, improve collateral values, and make the next round of borrowing easier.

The wage earner’s borrowing… that services existing debt or pays the rent.

That’s the impact of leverage in the system.

The asset-vs-wage inequality story isn’t a mystery.

And it isn’t even a left versus right matter…

The mystery is that anyone expected anything else from a system organized this way.

I’m not saying that wages or taxes don’t matter.

And the Fed didn’t create inequality on its own.

But it’s clear that we don’t discuss the upstream allocation of cheap credit enough.

The old Cantillon question asked who gets the new money first.

The modern question asks who gets to borrow against collateral first, cheapest, and largest, and who gets rescued when that leverage goes bad.

And then we wonder why people like Bernie Sanders want the government to take 50% of major AI companies in stock, and why that kind of idea may find more support than Wall Street and Silicon Valley expects.

Don’t shoot the messenger for pointing out the obvious in what comes next.

Stay positive,

Garrett Baldwin

Live Here in 15

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Note: It’s THE “Three-Day Holiday”… the one that matters. For three days, I get to work and broadcast from a pool in the middle of Maryland. For the next three days, the adults have the pool to themselves… as the first schools don’t get out until late Wednesday. The good news is that public schools still have two more weeks…

That said… no “vacation” is ever safe… Today, we received an unusual Divergence reading across all three Indices, meaning our Pulse numbers (short-term momentum) have frozen up. This is linked to events happening in the Middle East.

This is a time to consider looking at your portfolio and asking these questions.

Momentum is still strong, but the Cap Weights have pulled lower at the Top. We’re not calling a Top, just calling attention. Pay close attention to the MOVE Index, which tracks expected volatility in U.S. Treasury bonds. When it rises, it often means stress is moving from stocks into the funding system.

Dear Fellow Traveler:

Yes, it’s Leverage Week, and LEVERAGE will be my primary subject over the next few issues. I have to stress something important when it comes to the Big Story of June.

A funny thing is happening in markets right now… Everyone is running around looking for the next big pop that could come from the SpaceX IPO…

SpaceX is reportedly targeting June 11 for pricing and June 12 for trading, according to Reuters.

The fun part of this story is that the bankers running the deal are on the verge of finding out that the IPO model is facing stress…

Here Garrett Goes Again

A traditional IPO goes like this…

A company picks a Wall Street bank to set a price below where they think the stock should trade.

They build a large book of institutional buyers who agree to buy large amounts of that stock at this price.

Then, when the stock opens, people who couldn’t get an allocation will chase that stock higher. The chase produces a rather famous IPO pop if it’s “undervalued.”

The first day pop gives the press a week of headlines… and everyone celebrates the bankers for effectively engaging in a parlor trick.

But remember something… the pop only works if there’s a wall of buyers who have been locked out of the trade until the morning of the public launch.

SpaceX may not just be the biggest IPO of the decade.

It may be the first mega-IPO where the opening print is no longer the first real price.

The IPO pop used to depend on pent-up demand.

But what happens when some of that demand has already found a side door?

SpaceX is naturally unique because the public float is expected to be tight relative to its headline valuation…

If SpaceX qualifies for fast-entry index inclusion under recent rule changes, passive funds could be forced to buy a limited supply of shares on a compressed timeline.

But what about all the other IPOs that come later based on what I’m about to tell you?

For weeks people have already been trading synthetic exposure tied to SpaceX’s expected public valuation.

Over on a mix of centralized and decentralized exchanges, traders have been able to take positions on contracts that attempt to track the implied value of SpaceX shares.

So, traders no longer have to wait for the opening bell to express a leveraged view on a private-company IPO.

On the crypto-native side, the matching engine is just a piece of software that’s called a “smart contract.”

That’s sitting on a public blockchain… People connect a crypto wallet to this website, post digital cash in the form of stablecoins as collateral, and pair directly with someone else automatically.

In crypto-native markets, settlement might happen through smart contracts, collateral, and liquidation engines instead of the traditional stock-exchange plumbing.

That doesn’t make the system magic.

It just means the plumbing is different.

And… get this… there’s no closing bell…

Because all of this runs 24/7.

Some of the largest crypto-native exchanges now process enormous volume with a fraction of the headcount of traditional exchanges.

Deal flow has reached a point where the traditional operators at the NYSE and Nasdaq are already blinking… and saying they need to extend their own hours.

So… yes, go get some stablecoins and an internet connection, and you can take a position on SpaceX today…

There’s a contract sitting on certain venues right now that is tracking the price of SpaceX shares… This contract is known as a perpetual future… which sounds like one of the biscuits at the tea table in Alice in Wonderland.

This is a contract that never expires, allowing holders to maintain a position as long as they want. They simply pay or receive a small fee every eight hours to keep their price anchored to the underlying asset.

That SpaceX contract has been around for weeks, and anyone with enough stones has been able to take leveraged positions on the largest private company in America, around the clock, without having to ask Schwab for permission.

So, what does this have to do with the SpaceX IPO price?

Glad you asked…

For weeks, these traders have agreed on a price for SpaceX shares… every 60 seconds… for each day… since the contract launched.

That price is not the official market for SpaceX shares. But it is a live, leveraged shadow market for what traders think SpaceX should be worth when it finally opens.

The price moves with news, rumors, funding rates, leveraged demand, and the willingness of traders to take the other side. It is not perfect price discovery. But it is price discovery.

So, by the time the targeted pricing window of June 11 rolls around, a shadow market on venues with serious volume has been actively guessing at the price of SpaceX for well over a month.

This impacts my perception of what sort of “pop” can come.

Some buyers who might otherwise have waited for allocation may already have found synthetic exposure elsewhere. The retail crowd that might have chased this thing can already access the on-chain contract…

The hedge funds that might have arbitraged the IPO… well at least the smart ones… already took action weeks ago.

So, if SpaceX prices at $360 with the shadow contract sitting at $400… what are the odds that this just opens at $400 a share and just trades sideways…

If that happens, bankers aren’t heroes.

And the old IPO bargain starts to look different: issuers, underwriters, institutions, retail traders, and synthetic markets all begin fighting over where the first real price gets discovered. That fight could start with the single most-watched IPO of the decade.

Pre-IPO derivatives may not kill the IPO pop.

They may simply move part of the pop into the pre-listing synthetic market.

Isn’t finance wonderful?

I’m not saying that people shouldn’t participate.

I’m not saying that this thing couldn’t go up significantly. I’m just telling you that if not much happens the day this goes live… understand one of the primary mechanisms that could fuel sideways trading… or worse… it might somehow fall on Day 1… which would be a disaster bigger than the failure of its rival’s Glenn Rocket.

Now… Welcome to Leverage Week

What I’m explaining today really isn’t about SpaceX.

It’s really a story about leverage.

This is a story about how leverage has quietly shifted from the places it used to live to a place it has never lived before.

Why it has moved across markets the way it has will be a subject of each piece this week.

Leverage is complex… and easily one of the most misunderstood concepts in finance.

Most people associate leverage with vice and gambling.

They think of people who trade on Reddit… and picture people blowing up accounts on Triple Bull Nasdaq ETFs like the TQQQ.

Some of that criticism is fair… but none of it offers much of a structural picture.

Leverage has a clean definition if you just allow it to be simple and don’t send me emails that start with… “Well, actually… leverage… is…”

No… leverage is “borrowing against something you own to buy more than you could with the current cash you have.”

The something that you own is known as “collateral.”

The borrowing that you do against that collateral is just credit.

And the “more than you could with the cash you have” is just a very fancy way of saying that you have taken a “position” on an asset, fund, or whatever you’re bullish or bearish on.

Now… how do you want to move into subcategories… that’s up to you and the choice of the whiskey you’re going to use to unpack this article. I recommend Mellow Corn.

You can go with margin debt… or repo markets… or futures positions… or swaps… or securities-backed loans that go against your existing stock portfolio.

Or we can go with something as simple as the mortgage you have on your home.

All of these things define leverage.

A perpetual contract on a tokenized SpaceX contract is leverage too…

It may run on a smart contract instead of through your traditional prime brokerage.

Now, I have to stress this.

There is an important factor about leverage that matters more than anything…

It’s not “What the leverage is…”

It’s WHERE the leverage lives.

The cheapest and largest pools of leverage on this spinning blue Earth exist in three rooms where you will likely never get a chance to enter… and if you have… please tell us what sort of skulls the occupants are drinking from…

Those rooms are the prime brokerage desks at Goldman Sachs, JPMorgan Chase, and Morgan Stanley.

They finance pretty much every hedge fund that is worth listing in a notebook…

Here you’ll find the repo desk that lends the same Treasury bill across five trades a day, all while financing dealer inventory in the process. These jobs sound boring… but when you see a yacht with a really boring name… the guy running that desk owns it.

Here we might find the options dealer book that writes contracts against retail investment flow and hedges in massive amounts against futures markets.

Here is where all that leverage hides inside a Greek Alphabet that most retail traders can’t pronounce and usually run away from for good reason…

These three rooms shape the marginal prices of most asset classes on Earth…

And everyone takes that price as the input for their decisions. Even the most hardcore libertarian publishers and trading groups in the world are still focused on what these prime desks are doing…

No one is foolish enough to believe that they’re not the center of the universe…

So… the story of the SpaceX cold open is that some of that third room… is now hosted on crypto-native venues…

Some 22-year-old kid in Brazil with $2,000 in Tether and a cell phone can deploy 50x leverage on a tokenized stock at 4 am local time before the U.S. public markets open.

Some of the price discovery that used to happen on a Goldman desk can now happen on order books that no one at the SEC really even knows how to regulate or define yet…

This isn’t a crypto story…

It’s the story of where leverage is transferring… and why it matters so much…

And more important than ever, it’s the story of who actually gets to use that leverage.

Why Leverage Is Coming This Week

I’m publishing six articles on leverage, starting today. This is one of those areas that goes untaught for a reason. Your ability to get leverage - and where you stand in the financial system - determines your rank. It’s the real source of inequality and status in the Global Financial System.

Tomorrow, we will discuss why leverage is really at the core of the Modern Cantillon Effect.

If you’re not familiar with that concept, don’t worry, I have you covered.

It’s going to be a week…

Stay positive,

Garrett Baldwin

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Live at 8:30

State of Momentum .

Good morning:

Thankfully, the pool is finally open.

So, once I’m done recording today, you’ll find me working outdoors, and not from this retirement looking picture from yesterday morning. I had another person over the weekend send me an email saying that they don’t have time for morning videos. I am aware. That’s why I write the following recap of the markets for you… and send it out before we even shoot the video.

So… if you can’t watch the live video… read the entire brief that I wrote this morning.

THE FULL WRITE UP IS BELOW…

I start this morning with the obvious…

The OILU has bounced directly off the 100-day moving average, has started to come out of oversold territory on the hourly charts, and could soon accompany yet another narrative shift on oil prices. On Friday, I tried to get into a position with the $38 APA Corp. call expiring for this Friday at… $.31. But I put in a limit order, and it didn’t fill… (should have been $0.32)… and now I get to watch APA pop 2% this morning…

It’s just a reminder that speculating small when we crash off that 100-day on OILU is worth it… keep an eye on that contract, because it could make a run…

So, what’s the narrative shift? The latest is that Exxon Mobil (XOM) is now warning that we could soon see $150 per barrel in crude.

Exxon’s case for higher oil prices rests on inventories, not politics.

The company’s CEO points to commercial stockpiles of crude and refined products…

That means gasoline, diesel, and jet fuel stocks are falling down to what he calls “unheard of” levels.

The logic is that when buffer inventories are healthy, the market can absorb supply disruptions by drawing on stored barrels… That basic process keeps prices contained.

But that cushion is finite.

Global observed crude inventories sit at record lows, having drawn by 129 million barrels in March and another 117 million in April, according to IEA figures.

On-land stocks alone fell roughly 5.7 million barrels per day in April. With supply running well below demand, the market is pulling barrels out of storage at a record clip to bridge the gap… Meanwhile, physical inventories can only fall so far before they hit operational minimums.

Exxon’s view is that once stocks reach that critical floor, price becomes the only remaining thing that can adjust…

At that point, models suggest dated Brent could spike toward $150 per barrel.

The current $90 range, the CEO argues, has been artificially “mitigated” by inventory draws that can’t continue indefinitely. Basically, all that stuff we pulled out of stockpiles is now going away…

Remember though that the thesis is ultimately self-correcting…

If prices start rising that high would trigger demand destruction, as fuel becomes unaffordable and consumption falls until supply and demand rebalance.

But the near-term implication is that with inventories near exhaustion and draws continuing, the conditions for a sharp upward price move are already in place rather than hypothetical. This suggests that we get a rebound - and stay in a technical range, until one of two things happen… a serious breakout to the upside… or a breakdown that reminds us of destruction we saw in 2009 and 2014…

Regardless, use the OILU and key moving averages as a guide.

And remember… there’s always money in the midstream… regardless…

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Dear Fellow Traveler:

We went to a small circus yesterday in Timonium, Maryland.

It wasn’t a corporate one with lasers and the synced music.

It had a single ring under a single tent on the cement grounds of the fairgrounds.

There were maybe 12 performers, all of them living in campers parked behind the tent.

Amelia was transfixed.

There were some things that were… perhaps… well… death defying… and familiar.

I’ve always liked the circus… Th simplicity of it… the single most important element of what it is supposed to be about… It’s job… is always… to entertain.

The clown at the center of it was remarkable…

The circus is honest about what it is…

The wires are real… the risk is real… at one point, the aerial artist had to abandon a position where she was supposed to dangle from her jaw because she couldn’t get the grip correctly… but they made it look seamless, like nothing went wrong at all…

The entire circus only works because everyone… the performers and the crowd… agrees to take it seriously… together… Until the show is over.

That’s true of markets too.

Markets look like chaos, or a room chock full of people screaming at the same time about different things. But underneath the noise there is choreography. And that choreography is hard to uncover unless you’re explicitly studying it… the same way that I seemed to catch the aerial artist abandon her position without any fanfare…

Somebody is timing the lights.

Somebody is hitting their mark.

Somebody is going to get the grip right, every time, until the night they don’t.

The Show Always Goes On.

There’s something deeper about the circus that I’ve always focused on…

That the performers continue to do it. It’s not the most glamorous thing in the world… and the campers that checker the lot behind the tent is the real story of the circus.

I’m a fan of a Los Lobos song that I alway return to from time to time…

It’s called “When the Circus Comes to Town.”

Phish has covered it…

But Hidalgo and Pérez wrote it on Kiko in 1992.

The line goes… “Never thought I could make it this far…With a pain in my soul and a hole in my heart… Never thought I could. Never thought I could.”

It’s supposed to be a heartbreak song…

But I’m writing now and today in Postcards about what I feel it really means.

That when you’ve been around something long enough, the thing has cost you something, but you stayed anyway.

Those performers, they live in campers, driving from fairground to fairground… to entertain. It’s not glamorous. But that’s the real story… that’s the real show.

It’s a commitment.

Don’t forget it.

Let’s get to Chart party…

Chart No. 1. From $500B to $1 Trillion. Micron, the Fastest in History

Apple (AAPL) took roughly 1,700 trading days… or seven years of patient compounding… to get from a $500 billion to $1 trillion.

Berkshire (BRK.B) took longer because Buffett didn’t believe in being in a hurry…

Well, Micron (MU) just did the same trip in about a couple of months.

How is this even possible…

One theory…

On Saturday, I walked through the Every Buyer Test.

Instead of asking a stocks value and worth, like Buffett side, I’m theorizing that everyone in the market is looking at the same stock from different angles and simply asking… “Can I buy this?”

Seven buyers… all of them looking to allocate capital in an expanding environment.

In a world of “cyclical” capital creation… and that money needing to go somewhere, it’s clear that the story here is at least fueled due to the nature of market structure.

It’s not just because of valuation… but because someone also needs to allocate capital… and an incresing number of buyers… appear price-agnostic.

I’m suggesting this trillion-dollar bracket is increasingly a velocity story, and can’t be limited to a fundamentals story. And, yes, I understand that Micron has strong earnings numbers and is trading at nine times forward earnings (a figure that actually would increase my caution while increasing optimism…)

The buyer-pool checklist predicts velocity, not necessarily quality.

Once the seventh box cracks open, the move can be enormous.

The major things that have changed include the marginal dollar, index inclusion speed, options chains on AI names, and the share of the market allocated by rule instead of opinion.

The rails are CLEARLY faster.

It’s what I’ve , which is the point I have been hammering since in August 2024 when I went on about how the next trillion would happen before you could spell it.

Chart No. 2. PURR (Hyperliquid Strategies) — Here We Go…

Ahead of this, let me disclose that I do have a stake in Hyperliquid Strategies (PURR), and I’ll give kudos to for their coverage since January 2026.

This Capital Flows piece this week said the thing everybody in crypto pretends not to think.

Crypto’s actual product was never internet money…

Sure, it was originally supposed to be a replacement for traditional finance.

But it’s really become a venue for leverage, the unsexy plumbing under every interest-rate and FX trade on Earth.

Hyperliquid is the bet that crypto-native rails do that job better than the legacy version. This week, ICE founder Jeffrey Sprecher said this is bigger than Nasdaq…

We’re witnessing something important in finance. Jamie Dimon is going on about Robinhood and Coinbase because the centralized banking platforms face serious competition… Now, we have people looking at the Nasdaq as a possible dinosaur…

Things move quickly…

And PURR is what happens when somebody wraps that bet inside a Nasdaq ticker and lets the dealers do the rest.

Capital Flows is optimistic about a possible PURR gamma squeeze on the horizon.

I’d be fine with this…

But let me talk about this through the context of markets as well…

Any comparison to the GameStop squeeze requires some caution… not because of one equity… but because of the conditions that align.

That would have been back in January 2021… just a few weeks before all the meme stocks and post-COVID liquidity names hit their top. From there, it was nasty and short for those names, but the rest of the MAG 7 carried the market through the rest of the year. We’ve been under strong squeeze conditions for two weeks…

That eventually has to give…

One final thing…

For those who don’t know, a gamma squueze is when traders pile into call options, and the dealers who sold them must hedge by buying the underlying asset.

They must be short gamma, industry-speak for “the higher this goes, the more I have to buy.”

That hedge buying lifts the stock, which forces more hedge buying, which lifts it again.

It’d be a forced-buyer chain wearing a Nasdaq lanyard, and it’s the same chain I was shouting about when the leverage cracked open and we all paid the bill.

This explains a few other charts below as well…

Chart No. 3. S&P 500 Equity Risk Premium — Lowest Since 2004

This was Syz Group’s chart of the week. And it’s screaming at us right now…

The equity risk premium is the fancy term for how much extra return you get for owning stocks instead of sitting in Treasuries like a normal middle-aged person.

The last time it was where it is now, we were pulling Saddam Hussein out of a hole in the ground.

The chart at negative 0.84%.

That’s not calling a top, but it is pointing out that bonds are now compensating you better than stocks for the same unit of dread.

This is one of the reasons, I assume that Vanguard was turning to bonds and duration.

That’s very fascinating… and it would technically align with a traditional cycle… only thing is that the concentration in the AI side is still holding.

Whatever upside lives in the next 12 months has to come out of the buyer pool instead of valuation. This is the rabbit hole I was already down when I called the whole thing a state of perpetual crisis.

Chart No. 4. S&P 500 Up 84% Since ChatGPT

The S&P 500 has absolutely surged since November 2022.

ZeroHedge notes that the 84% move on the index aligns with the day OpenAI cut the ribbon on ChatGPT and a meaningful percentage of you outsourced your wedding toasts.

Before we start the analysis… please note that this period also aligned with the bottom of the GILT Crisis and the bottom of the Liquidity Cycle…

Now, James Bianco ran the math…

AI-related stocks added $23.1 trillion since that day…

The S&P ex-AI added $9.87 trillion.

That means about 70% of the post-ChatGPT bull market is one cohort attached to one technology story… and where that liquidity is crowding. Again… Every Buyer story.

That’s not a market doing well.

That’s a sector wearing the market’s letterman jacket and walking around the party telling everyone the team is undefeated.

Subtract AI and you have priced bonds and disappointment, which is what I was saying when I argued AI is not a valuation bubble… It’s something harder to fix.

Chart No. 5. SOX Goes Vertical

The Philadelphia Semiconductor Index just printed a monthly RSI of 87…

That’s the most overbought it has been since 1999, the year people were taking home equity loans to buy Pets.com.

RSI is not a top-caller. But it is a short-term stretch gauge.

When the rubber band is this stretched, small mean-reversions produce terrifying moves in the big AI names…

Those names are the size of mid-sized countries.

That’s the speculative spring beat I have been harping on since Tower Semi was the early sign nobody was paying attention to in February 2024.

Chart No. 6. Equal-Weight Consumer Discretionary vs S&P… Yuck!

Well, this is the future…

The Band of America chart is the cleanest picture of the American economy you can put on a screen.

Equal-weight consumer discretionary divided by the S&P just made a new low…

And we haven’t seen anything like this…

It’s now under where it bottomed during the actual GFC.

The stock market is at an all time high…

This proves the bigger story that we continue to focus on.

Perpetual support through policy created this… It’s impossible to suggest otherwise…

The top is megacap services, cloud, AI. The bottom is anybody whose revenue depends on a regular American having cash left after groceries.

The index level is doing PR for itself and gaslighting everyone who clocks in for a living… That’s where I was mid-rant in the money waterfall piece.

This also partially explains why we see political leanings move away from the center… which people - for some reason - continue to associate with the status quo.

As I said in my podcast yesterday… we have to stop looking left or right…

And look UP… at the monetary policy.

Chart No. 7. Almonds vs Data Centers — Annual US Water Use

The brown line is annual US almond water use.

The blue line at the bottom is annual US data center water use.

Almonds are using approximately a hundred times more water than every data center in the country combined.

That is not a defense of AI’s environmental footprint… It just explains how stupid California at natural resource management…

California agriculture is the actual US water story and has been for decades… I’ve been writing about it for over a decade.

The proportional water argument is mostly vibes…

Probably backed your lobbyists at Big Almond.

That’s all I have for today…

Stay positive,

Garrett Baldwin

Dear Fellow Traveler:

Apologies for the delay today with the release of Episode 2… of What Are We Missing.x

I’m learning about the wonderful world of video rendering… We tried the 4K version… then the 1080 version… and after all that…

Part I is above… and we’ll ensure the rest of the links are attaced,…

This is a very long video. So, my apologies again for this arriving later than expected. It’s not a live show, and this happen…

I didn’t get a chance to film this until this morning…

In the time that it took to render, I took Amelia to the circus… which is extremely underrated by the way…

This balancing guy is a person who exists. I assume that he’s doing this because he bought Bitcoin at the peak in 2021 and sold in October 2022 when FTX collapsed…

I can only imagine he’s thinking as he climbs this tower of terror….

“I should have bought Palantir at $6.00”

What’s On Tap

Last week, Pieter at Compounding Quality joined me on our first episode of What Are We Missing. I will call that Episode Alpha.

Today’s episode is much longer… and it dives into the full world of financing. We trace upstream liquidity, market mechanics, momentum screening and readings, insider buying, and the ongoing efforts of central banks and the Treasury to backstop markets.

Now, before someone in a Patagonia vest starts screaming ‘endogeneity’ into a LaCroix, let me say the quiet part out loud.

This show is called What Are We Missing? for a reason.

It is not called Garrett Solves Markets.

It is not called Shut Up, I Found the Spreadsheet.

It is called What Are We Missing? because I’m trying to figure out what the hell is actually going on.

Today’s presentation is my best map of the machine.

Is every part of it right? Probably not.

Markets are too big, too weird, too leveraged, too political, too mechanical, and too full of people doing things in spreadsheets that sound illegal but are apparently just ‘basis trades.’

So if you are a quant, a trader, a portfolio manager, a repo person, a rates person, a CFA, a plumbing expert, or a guy who lives inside a Bloomberg terminal and eats printer toner for breakfast, and you think one of these slides is wrong, great.

And if you read something that somehow rhymes with something a guy wrote about at Citi in the 1980s, while I was playing Mike Tyson’s Punch-Out… I assure you that I probably didn’t read it… But send me his work… and I’ll invite him on the show…

Come on the show.

Pick the slide.

Explain what I missed.

But explain it in English.

For many people in finance… this stuff is common knowledge… for 95% of my audience, however, they don’t know how CTAs work, how rehypothecation works… or why no one takes the time to actually explain all of this stuff to them…

Please, don’t send me some 4,000-word ‘but actually’ blog post written like a hostage note. Come explain it so the audience can understand it.

Because that is the whole point.

I am not here to win a debate.

I am here to make the machine easier to understand.

If the thesis is wrong in places, fine.

Good.

That means we found the next episode.

The real problem is not being wrong.

The real problem is that finance stays so coded and so full of private language that normal people feel like the whole thing is a secret.

I hate that… because markets actually tell the story of the world, and everyone should be able to understand it… view it positively, and never live in fear…

So this is the map I have.

If you have a better map, bring it.

And come on the show…

Til then, I’ll be at the pool writing a novel while Amelia swims for the first time this year.

Stay positive,

Garrett Baldwin

P.S. No… go find yourself someone who likes you as much as this guy loves juggling...

Dear Fellow Traveler:

Tomorrow, I will release the second episode of What Are We Missing…

And the guest is… Me.

As we start this podcast, it’s important for me to actually explain how this financial system and equity markets work.

I’ve taken the origins of The Wave Speech - and added a very simple thesis on what you will witness tomorrow…

Mark it down at 12 pm. It will arrive in your inbox then.

This will answer every question you have about how the stock market works… and, I feel, that when I’m done… I can finally move on in this world… to figure out what others might know… and how to strengthen this thesis.

The Markets Create Buyers

Here’s the thesis I want you to carry around for the next few days, because tomorrow I’m going to spend two hours proving it to a room full of people, and I’d rather you hear it from me first.

The purpose of a market may be to sell…

But the function of the bond and equity system is… today… to create buyers.

And the buyers… whether they care or don’t based on their incentives… create price.

This financial system dreams in total darkness…

After 18 Years…

I did all of the schooling…

Most of use were taught the opposite of the story I’m going to tell you tomorrow.

We were told… explicitly… that a price goes up because the company got better, and the higher price then attracts more buyers.

They’ll tell you prices first and buyers second.

They’ll tell you that fundamentals lead and money follows.

That is a tidy, and almost convenient story in how the world is supposed to work…

I have spent years believing that tale, I read the textbooks, collected the degrees, and used to repeat the story because everyone around me repeated the story.

Then, I started watching how money really moves instead of the narrative, and it has been the last few months that has cemented my conviction.

The order has reversed on all of us…

In the modern market, an enormous share of the buying has nothing to do with whether a stock is cheap or even overpriced…

It happens on a schedule, or by a rule, or because somebody’s risk model said so.

Watch.

Your 401(k) contribution hits on payday, and a passive fund buys.

It doesn’t check the price to earnings ratio.

It doesn’t watch the news.

Cash arrived, so it buys.

Passive flows create buyers.

A company’s board authorized a buyback last quarter, so every day the desk goes into the market and purchases its own shares, regardless of valuation.

Buybacks create buyers.

A trend follower’s model sees a line going up, so it buys more, because that is the entire strategy.

CTAs create buyers.

A dealer sold somebody a call option and now has to hedge, so it buys the underlying stock to stay balanced.

Dealer hedging creates buyers.

Volatility fell, so a risk parity fund is allowed to add leverage, so it buys.

Vol targeting creates buyers.

A hedge fund’s collateral rose in value, so its prime broker raised its limits, so it buys more.

Leverage creates buyers.

Treasury bills get financed in the repo market, that financing turns into balance sheet capacity, and that capacity goes looking for something to own.

Repo creates buyers.

None of those buyers woke up with an opinion about anything.

The math simply demanded that they buy.

The uncomfortable part is that half of this market is not expressing any view at all.

It’s simply following a rule or a prospectus’ weighting and thematic focus…

Once you see that, a mystery that has bothered investors for 18 years starts to dissolve.

Why do the same names keep winning?

Why does Nvidia get bought on every dip while your perfectly sensible, reasonably priced industrial stock sits there for three years and does nothing?

You can try to make the argument that Nvidia is a better company than every other company on earth.

But the truth is that Nvidia is an asset almost every kind of buyer is allowed to own at the same time.

I call it an Every Buyer asset.

Run the checklist.

A Buffett style value investor can own it.

The passive index machine owns it, because it is an enormous index weight.

The momentum funds chase it.

The CTAs trade it.

The options desks need its deep, liquid option chain.

The pensions hold it.

The sovereign wealth funds can build a position in it without moving the price.

And retail loves it.

That is eight separate pools of capital, with eight separate reasons, all reaching for the same stock at the same moment.

Now run the same checklist on a random mid-cap in the consumer cyclical space.

It satisfies one, maybe two.

The same wave of liquidity rolls through the system and hits both of them, and only one is built to absorb it.

So one becomes a $3 trillion gathering place for capital, and the other disappears.

At some point a stock like that stops being a stock at all.

It becomes a zip code where the world’s money goes to live.

So Who Is the Villain…

Tomorrow, people will expect me to name a villain…

They’ll want the names of the bankers, politicians, and fund managers…

I have looked for villains, but found systems.

I looked for conspiracies, and found spreadsheets.

The truth is that there is a villain.

But it’s not the one that you think…

It’s the reason why the Treasury needs buyers for its debt.

Why banks need collateral.

Why funds demand leverage.

Why pensions need returns.

Why politicians needed growth.

And why central banks need stability.

The villain is actually something you wouldn’t think of… and completely rational…

Tomorrow Matters

I’m not telling you any of this to make you cynical.

I’m telling you so you stop being the exit liquidity.

The retiree thinks he is playing the same game as the hedge fund.

He’s not.

In fact, as I’ve found, about 95% of Americans don’t even know this other game exists…

Tomorrow, I’m going to lay it all out…

I realize right now that I’m not going to be invited to conferences anymore… I’m not going to be invited to launch parties for multi-strategy events… and there’s a very low probability that anyone in the IT crowd of finance will end up taking my book at some point, because this is all a MUCH richer man’s game.

So, I’ll just lay out how this whole game works - after 18 years of work - and leave it all out there for CFAs, economists, money managers, and everyone else to take shots at the messenger… but almost no capacity to attack the message.

In very simple terms, how this all works… over and over…

I’ll explain how liquidity becomes collateral, collateral becomes credit, credit becomes leverage, leverage becomes buying power, buying power concentrates into a handful of names, concentration becomes momentum, momentum becomes price, price eventually breaks, policy shows up with a hose, and the whole loop starts again.

That’s the whole thing… start to finish… the same thing over and over since 2008…

The same extraction model.

So consider this your tease.

The market no longer spreads money.

It concentrates money.

Tomorrow I’ll show you exactly how.

This is the Masterclass… the full thesis… and an AMF moment to that guy in Los Angeles who said that the “Wave Speech” was incomplete and suggested that since I hadn’t managed money, my view didn’t matter…

Okay.

Well, I’ve been taking batting practice all week…

The next What Are We Missing podcast drops Saturday at 12 p.m. Subscribe to the YouTube channel here or just wait for this to hit your inbox…

This one is going to be longer… and it will be available on podcast sites that don’t have any exposure

Stay positive,

Garrett Baldwin