How To Trade The AI Productivity Boom | Weekly Roundup

**Felix** (0:00)
Nothing said on Forward Guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice, or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk, terms and conditions apply. Do your own research.
What's going on, everybody? Welcome back to another round of edition Forward Guidance. I've managed to wrangle back hosting duties from the inmates after I let you guys take over the shop last week. Looking good with your haircuts, boys. What's up?

**Quinn** (0:48)
Thanks, brother. Not much, man. Short week, holiday here.
It's nice.

**Felix** (0:53)
Love a short week. It just feels right. Especially as the summer starts to hit, too.

**Tyler** (0:58)
Yeah.
This high and tight is feeling good in the hot weather. That's for sure. Yeah.

**Felix** (1:06)
You guys must be getting pretty hot for both of you down in the south.

**Tyler** (1:10)
Oh, yeah.

**Quinn** (1:11)
It's nice. It grows back quick, Tyler. I've been shocked at one week.

**Tyler** (1:15)
It's quicker than mine, bro.

**Felix** (1:22)
Sweet. Well, it feels like we're just saying before we record that it feels like just the macros a bit of the repeat of the same stories as we try to figure out which way this whole thing is going to break up or down. World War III or resolution. Every day we're waiting for a new deal to come from Iran and Trump and continue to do so as we start to enter the summer doldrums. But I do want to just start the conversation by just thinking through whether these rate hikes that are now priced in the curve. I haven't looked recently, but last I checked, it looks like by the end of 2026, we might even get the first hike. And if you just look at something like a Taylor rule function here, which I have on this chart, Fed funds rate is below policy rule prescriptions up to the last round of insurance cuts.
Even with Fed's R-star estimate included in this chart, it would be a larger gap under DB's R-star estimate. So basically, if you follow these Taylor rule traditional models, we should be hiking here. Curious if it's warranted or not. What do you guys think?

**Quinn** (2:26)
I mean, historically, they look through the energy supply shacks, but I think the case here is all of the other stimulative measures they're doing, like suppressing oil prices, suppressing yields, currency manipulation with the yen and dollar.
All of that stuff is stimulative. So when you do those things, it increases the chances that what started as just an energy price shock, then has better odds of seeping through other inflation metrics and into core. I think shelter, wages, a lot of big components are still disinflationary.
But if you don't act or lean against it, you definitely risk prolonging it. And I don't even know how there's much of a debate at this point. Like the Fed has, you know, inflation has been above the Fed's target for 60 plus months. So I don't like I get that worse is maybe slightly more hawkish. But then you have the offsetting factor of the Trump appointee and pressure. But Powell's been unbelievably dovish himself and all the balance sheet, RMP supporting the long end. All those shenanigans have been in many cases more stimulative than what rate cuts would have done. So I think it's a all encompassing policy shift that needs to happen. But despite what Warsh and Besson and all these guys have been saying in terms of reducing the footprint, et cetera, they haven't done it yet. And we know they're supporting markets at all costs. So I think it's nuanced. I'm not sure they should be hiking. I actually would probably lean against that, but they should be removing all of their other stimulative measures. But if they're not going to do that, then I don't know. Maybe they should hike.
It's wonky.

**Tyler** (4:25)
At this point, I don't think they're going to hike at all. I think this is wartime policy. And basically because we have a massive deficit, we have a trillion dollars of interest, a massive amount of debt to be rolled. I think we're getting our answer, which is the market's telling us we're growing our way out of this no matter what. On the short term, we've been wrong about this over the past week or so, but given the skew and the options and positioning, I would have thought the market would have taken a little short-term dip. Long-term, I think we all know the policy is just we're going to fiscally grow our way out of this and negative real rates are going to be here for good. And maybe the market is just getting ahead of that. But yeah, the positioning in the short-term is super extreme. Euphoria is around. And I hate taking risk when things grind up every day. And the VIX is sub 16 after being at, what was it? Like 40