The AI Trade Is Finally Cracking | Weekly Roundup

**Felix** (0:00)
There's a lot of cracks forming, where the things that were pumping this to the upside aren't really working anymore.

**Quinn** (0:07)
That's all you needed, these two headlines, and suddenly you just have this momentum factor implosion that we're seeing.

**Felix** (0:13)
Yeah, I would be very cautious here if I was loaded to the gills with tech risk. You're reaching this crescendo, what I think is peak growth and peak inflation for the economy. There's just no reason for the Fed to act in either direction right now, because of the labor market.

**Quinn** (0:28)
A lot of things are coming together to me that it's just like I want to be focused on trades that express. 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.
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All right, what's going on, everybody? Welcome back to another round of edition Forward Guidance. Just the duo this week, Quinn and I. Tyler is on a road trip for the fourth. He is, I don't even know where he is right now, but he's got a car full of kids. I'm sure he has enough going on in his life other than just dealing with us two. So just us two today, taking us into the long weekend. What's going on, Quinn?

**Felix** (1:28)
Not much man, pumped, long weekend. Always trying to fit the same amount of work in the shorter days, but we get a reward on the back end. So it's nice.

**Quinn** (1:40)
Yeah. The market's also trying to do this job of fitting in multiple days of rotation into one day. Dude, so yeah, let's talk about market structure in this factor, implosion going on today. So this is just, I just read this out a few minutes ago, but momentum's seeing like a four, four sigma, four standard deviation unwind today. Total factor implosion today. It always feels like these happen right around, you know, it's funny, like the last one, I feel like that happened like this, was right around the yen carry trade unwind. They're just, it always seems to be that when the factors unwind is the same time that we see something happening with the yen. We had that happen today or at least overnight, we finally saw that yen intervention that we've been talking about. So let me just show on slide 23 It looks like we finally had this happen.
It's been overdue, but the Ministry of Finance does look that. It's interesting that they always seem, I actually, so this interview isn't quite out yet, coming out in the next week, but I interviewed Brent Dollany, who's just like a FX maiden. And he was talking, he's like, I think that they're going to try to time it around the NFP because they like to have a catalyst to really get some movement in. So it's interesting to see that happen. So, yeah, curious to get your take, Quinn, on market structure, these factors and it all happening at the same time as this job spread that we'll get into and this yen intervention.

**Felix** (3:10)
Yeah, I mean, it's funny because when it unwinds, everybody notices, but when it's going up and building, it's kind of like humans, right? We're like, when everything goes our way, we're the best, we're awesome, we're amazing. And then when things don't go our way, we're super unlucky, right? So it's the same thing in this case, right? So the yen has been weakening against the dollar, the Korean won, the Korean has been weakening against the dollar.
You've had flows, tremendous flows into the AI semiconductor, US equity tech trade that have been fueled reflexively by these actions and these loops.
And then it reverses and it's all intertwined and happens together on the downside because it's very correlated and intertwined to the upside too. So I agree with you.
It's funny to me, the US rescinded the Fable model ban from Anthropic.
No effect. Market did not give a shit. Which and then Trump's out here tweeting multiple times about Micron probably because he loaded up a fat position and is pissed that his manipulation tweets aren't working. So there's a lot of cracks forming where the things that were pumping this to the upside aren't really working anymore. And I think that, frankly, we've been talking about this for weeks now, where the Make 7 has been sucking wind. And everyone was pushing back, a lot of people anyways, that, well, once they're so cheap, they're going to bottom, then they're going to take leadership and they're going to blast NASDAQ to new highs. Well, what is actually more likely we've been talking about is, well, they started the weakness. And then eventually people catch on and say, oh, wait a second, they're going to stop their share price decline by cutting their CapEx to improve their cash flow or their leverage. And then you get this announcement from Amazon. And then the cracks start to spread outside of the generals into the semis, the AI, you know, into Korea, into Taiwan. So I think that it is oddly similar to July 24, where you have the Yen, you have, back then, remember, I specifically remember on this podcast, when we were like, the Fed is making a hawkish pivot mistake. We were, we can go back and look at those. We were like, we got the cold CPI in June or July it was. And then the Fed came out and they were still hawkish. They ended up reversing at Jackson Hole and then cutting, as we know, very similar setup, oddly, where committee pivots hawkish, they throw out all these dots, potentially three hikes in this year. And just at the time where today we see labor rolling over, we're gonna see inflation rolling over. We know what oil is gonna do and can project that out multiple months. So yeah, I would be very cautious here if I was loaded to the gills with tech risk. There, it doesn't need to collapse today or imminently, but just going from like two hikes priced in to one hike or no hikes, is marginally better for liquidity. But liquidity is showing tons of signs of not a great environment. And so we're going from worst to bad to neutral versus like, wow, rate cuts are coming and the markets are gonna get pumped. So I spoke a lot there, but that's...