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- [00:00]
A
Good morning, Mr. Arnold. How are we doing?
- [00:04]
B
Well, great. Mother's Day, bullishing all the moms out there feeling good.
- [00:08]
A
I know Mother's Day is gone. You know, you have your one day. But you know what? We're throw it out to all the mothers out there who listen. I know there are tens of thousands of you listening as you take care of your families. Thank you. Thank you for being a mother. Most important job in the world. Second most important job is trying to read the tea leaves of what the hell is going on in the world. As we barrel towards a digital economy built on agent E Commerce, a multipolar geopolitical world that seems to be fraying at the seams. An increasingly chaotic global financial system that is backed by fiat currency that is being. I don't want to say attacked, but it's being. There's a new competitor on the block. It's called Bitcoin. And we've been doing this podcast for. I think we're officially past the point where it becomes a habit. I think we've done, I think, 21 days makes a habit. Have we had 21 episodes?
- [01:00]
B
I don't think probably not. That'd be good for the memes, but I don't think so yet.
- [01:03]
A
Not yet, but we're almost there. Point being, we've been making calls on this show, which is a recap of John Arnold's 1031 timestamp newsletter. So really, John's been making calls in the newsletter that we've been recapping. I've really been hitting pretty hard and coming to fruition, and we've seen a continuation of that, particularly with the Apple intel news that dropped last week over the weekend. But before we get into that, I think just staying on the theme of the meta war that we've been talking about, the US really trying to pull levers to get asymmetric leverage in the geopolitical realm, particularly against China. And we have some data in from independent refiners, imported oil refining margins out of China. It's not looking good for them, which would signal that the US actions in the Middle east, if we believe this meta war is going on behind the scenes, are being. Are very successful for US Leverage.
- [02:03]
B
Yeah, you know, it's we. We monitor the situation so all the moms out there can do the most important job in the world. And I think the situation monitoring has certainly the patterns emerging from that, I think are getting more and more clear. You know, my usual caveats apply that nothing is ever set in stone and everything's Pat dependent and probabilistic and things can always go a bunch of different ways. But yeah, I definitely think the last six months have pointed pretty clearly in one direction on a variety of these data points and we just keep getting more and more I titled the timestamp this week going vertical and we're going to talk about I think three vertical charts that I saw this week in a world where we're just getting more and more of them every day. Seemingly this is the first one. A fairly notable chart out of ZeroHedge highlighting the margins for independent oil refiners in China. These are commonly referred to as teapot refiners. They're like semi under the umbrella of government and kind of semi do the bidding of government. Semi independent, historically a very big buyer of Iranian oil, sanctioned Iranian oil, and they are currently undergoing a fairly notable trend shift relative to the last 10 years of deeply negative margins as spiking input costs are not allowed to be passed on fully to canad users in China. Take all Chinese data with a bit of a grain of salt as there's a lot of uncertainty and manipulation and frankly manipulation both from the Chinese government but also from people who have an axe to grind in the west presenting the data. So it's all big grain of salt on all this, but this is a notable enough move that I thought it was definitely very meaningful and worth talking about because if it's directionally true, I think it points exactly to an outcome that I think you'd be naive to believe certain parties in the US were not anticipating or trying to create. By doing what the Dow has done in the last couple of months in the Persian Gulf and throwing a major net oil importer into relative disarray, it's definitely the case that from what we can tell, China has significant petroleum reserves. I think they were probably more aggressive and more forward looking in stocking up over the last five to 10 years relative to to the US following the massive SPR drain of 2022. We did not even come back close to the high water mark and so we're not in a fantastic position there, but we do have the advantage of being a major net exporter of various crude products. So once again just highlighting this kind of meaningful asymmetry the two poles to the extent that we want to entertain the analysis that those two poles are getting more and more opposed.
- [04:46]
A
Yeah. And I think now that we have the luxury of the ability to look back retrospectively on this war and again, if we're running down this thesis, if we want to Appease it. Just thinking about the war in Iran starting at the end of February, many people saying, hey, why is the US Getting dragged into this war? It seems like we're fighting on behalf of Israel. This is not what I want. As an American citizen, I was told no more Middle east wars. But if you look at the sort of scheduling of the meeting that President Trump had in order with President Xi of China, it was originally scheduled for late March, early April, and that got postponed to this week. And so they're going to meet later this week. And again, running with this analysis, maybe Trump was looking at the war with Iran back in late February, early March as a way to sort of send a message to President Xi before these meetings. And it looks like they're happening today. John said, look at this chart. Not looking great for the refineries within China. And as we can see, their crude oil imports have fallen significantly. And I would not be shocked if we, if we come to find when the history books are written ultimately by the victors, who knows that this was more calculated than people understand, because you had the meetings originally start the war, postpone the meetings, let the ability for data to gather and come in. And of course, the week of this meeting with between President Xi and President Trump, it seems like Trump's going to have a ton of leverage.
- [06:26]
B
Yeah, definitely. Probably more leverage than people expected six months ago. And I think it's important to highlight, once again, not endorsing any of this, not necessarily happy about a lot of it, but just trying to objectively analyze it as clearly as possible. And I think I still see the narrative that the CIA, Mossad, whatever, nexus is kind of driving this, the deep state, as it were. And the deep state means different things depending on whether your guy is in office or not. But in any case, the people who think in 20, 50 year increments somehow didn't know that the first response to striking Iran would be that the Strait of Hormuz closed, even though the National Security Strategy document that was released late last year specifically listed keeping the Strait of Hormuz open as a key priority for the US despite the fact that it's never been closed. So I think there are a lot of people out there who still want to believe that the US Is just flabbergasted that this happened. And it's like, I mean, come on, guys, come on. The pieces are, I think, aligning pretty well. Again, it may or may not work. There's going to be blowback and downstream issues. But I think as an investor, an Analyst of the markets. As someone who's just trying to protect a portfolio, you do yourself a disservice by maintaining a narrative that the, the people who are really behind the levers of power are that stupid and lack foresight to that degree, particularly when they were very explicitly signaling it six months ago. But in any case, you're seeing the impact already here on Chinese crude imports. You could say that's because of they're choosing to drain the SPR instead of importing much more costly oil. You could also say it's independent refiners responding to the fact that they can't actually pass on cost fully by lowering imports. But either way, China is definitely still maintaining this posture of strength. And certainly they have many, many cards to play. You saw it's not on here, but you saw last week, for the first time, China basically explicitly told refiners and various other companies to not worry about U.S. treasury sanctions on Iranian oil. And so I think that's kind of posturing that they're in a great position. Some of the actions that they also took though last week, I think point to maybe a little more hedging on that top headline, especially telling banks to deposit loans to sanction refiners. So it's kind of talking both sides of their mouth there. And then to your point on the Trump G meeting ahead of that, apparently, again, you take all these headlines with a grain of salt, but sources say, for whatever that's worth, that China behind the scenes is pressing Iran to wind this down, find a compromise and get Hormuz opened again, which would not suggest a desire to see this or an ability to watch this go on forever. So, yeah, I think these are all kind of meaningful data points in that whole story. And again, I think it would behoove everyone, every investor, anyone looking at the market, markets to just think carefully about the constraints and incentives and goals of all the actors that play in kind of an honest way.
- [09:28]
A
Completely agree. And I mean, we're just going to keep going down the list here because he's going vertical. And the next chart we have is the intel stock chart, which you were sending screenshots of many different charts over the weekend, but this was one of them. And it's pretty astonishing how vertical this one. But again, it confirms something that we've been talking about for some time on this show particularly, which is you have this massive effort to re industrialize the US Manufacturing base, bring the supply chains home. Obviously, the Trump administration took a stake in intel last year and people are wondering what they were going to do with it or how they were going to try to use that stake to influence what's going on in intel and their chip production. And lo and behold we had some news again I think a week before this meeting between President Trump and President Xi, very intentionally that the government is pressuring. And it seems like Apple and Intel are on board saying that Apple should be using intel chips and their products, which hasn't been the case for many decades. Apple famously uses tsmc, which is obviously a hotbed topic in the geopolitical realm because TSMC obviously is headquartered in Taiwan, which is becoming more contested as stakes continue to increase. And so just another I think massive chess move leading up to this negotiation with Xi by the Trump administration. And again a confirmation of the fact that we are really not kidding when we say we're going to re industrialize or at least attempt to re industrialize the U.S. economy.
- [11:17]
B
Yeah, I think that's right. I don't think we're doing the show yet, but I remember writing about in the newsletter and I think we talked about it on Bitcoin Alpha rip, the predecessor of the show. When the initial intel deal came out in September of the administration converting grants to equity stock popped then. You can barely even see that pop on the chart now.
- [11:37]
A
Now.
- [11:37]
B
But I think we were talking about how this is a really kind of meaningful move and kind of opening salvo in what has now become very clearly and apparently US industrial policy. Right. It was one thing like the MP Materials deal last summer or kind of these little onesy twosie things with very small companies that have strategic positions but that people haven't really heard of. Intel is the ultimate probably example or paragon of American innovation in the last 100 years. One of the most important tech companies and companies full stop of all time. So for the US government to take a stake that they did I thought was incredibly symbolic and meaningful. Certainly you've seen a continuation of the momentum rot from that since then with that chart. And I think it's related to the first vertical chart insofar as it's like to the extent that you think that the US government is hyper focused on effectively buying back or wresting back hegemony and uncontested hegemony in control of its own destiny on critical industries and supply chains. The question you'd have to ask is what cards do they have to play? If China manufactures all of our has a chokehold over critical minerals, has a chokehold over critical defense industries and supply chains, what cards do you have to play. Well, the first one is energy. We just talked about that. And the second one I think is capital markets. We have the deepest, most liquid, most desired capital markets in the world for now. And I think you have seen that the administration has the ability to. Here's a great chart indicating that despite, despite Covid, despite money printing, despite Ukraine and freezing Treasuries, despite Trump being elected again and many people really, really being suspicious, and perhaps rightly so, of Trump and his capabilities. Another chart that has gone borderline vertical here is net portfolio inflows into the US And US Markets over the last few years. And this is a clear increase in a clear acceleration. The slope of that line is increasing meaningfully over the last few years. This is another big element that I think the administration is clearly trying to we weaponize. And if you flip back up one slide, I think there's this good point that Gavin Baker made, who's a really good semi analyst, probably the best one out there. Just about relative population growth kind of needed to sustain the demand that TSM is seeing, unless they want to resort to massive immigration into a relatively small and homogenous country. Meanwhile, there's clear desire to have reshoring anyway. There's clear desire to have what he calls American wafers regardless. And we've got all this kind of latent capacity with this, this old man in intel who needs to get up off the mat and do one more fight to see if he has it in him. All of those tailwinds point in a certain direction. And to be very clear, none of this has materialized yet. All of that chart above on intel, that's multiple expansion, earnings haven't meaningfully inflected, revenue's not there, free cash flow hasn't really meaningfully changed. It's not even totally clear what chips intel will be producing for Apple. Is it probably not the leading edge? Because intel doesn't really have anything like TSM's capacity for it. So you don't really know what the scope of it is, how meaningful it'll be long term. And there are a lot of questions that need to be answered there. But I think both of those, the verticality of both of those charts is telling you that there are two very critical levers that the US has and it is kind of aggressively using them, aggressively playing those two cards that it has. And I think those charts are telling you about we're seeing a phase shift, seeing a phase change. This is discontinuous, nonlinear changes that the market's trying to grapple with. And I think there's long term reason to question whether there's mean reversion there, which we can talk about on both of those. But I think those two charts especially just tell the story of the week and really even the last few months.
- [15:34]
A
Yeah, and say what you will about Trump bull in a China shop. Unorthodox, uncouth, maybe a little dealings with DJT and World Liberty five with his family. Like a little. Some people go as far as to say corrupt. But I don't know. As an American looking at all this, it seems like we're giving it a college try to actually strengthen the homeland. And I know we've had this discussion about whether or not our ideological, philosophical, economic belief systems align with the way in which she's going about it, but how do you. I'm like proud to be an American. The fact that we're bringing it all home, it's like you're trying to. At least again, to your point, nothing is manifested in terms of the financial health of Intel. Can Apple and Intel actually do something productive with each other? Can intel produce the chips that is yet to manifest? But it seems like we're giving it a college try, which I'm happy to see.
- [16:34]
B
I hear Toby Keith getting fired up in the background. I hear the song starting. No, I mean I hear you. And I sympathize definitely to a degree. I think even more generally, if you've looked at a lot of these dynamics over the last 10 to 20 years and the relative fragility of the United States position on a lot of key trends and key metrics, I think it was always just going to have to be this way. It was going to be the fall of Rome, which it may still be, but it was going to be just complete downtrend controlled demolition. Basically the US becomes, sorry to say this to our European friends, But basically the US becomes Europe over the course of the next 20 years and fully cedes its industrial capacity and its relative influence and standing in the world, its relative wealth in the world to up and coming players like China or it was going to have to be something very aggressive like this. There was never going to be a multilateral set of carefully considered agreements and white papers that led to a careful reintegration of industry in the US distributed even between the US and Europe and different stakeholders, making sure we check all the ESG boxes along the way. That was just never going to happen. There are too many interests at play on the other side of the world for anything like that to actually make it through it was always going to be. If we tried that, I think it was always going to be slow played. It was always going to be, wait until Trump's out of office and another guy comes in if he's still trying to do the same thing, backpedal, delay, do as much as you can to make it difficult if you want to. If you wanted anything like this to happen ever, this is how it was going to happen. Tbd whether it will ultimately be net good, I think for the US tbd, whether it'll actually work. But I think for a lot of analysts that have sat around saying, well, the US can't fight a war without China, well, okay, we're trying. This is how it would look if we were going to try. Right?
- [18:34]
A
Yeah. It's fascinating and interesting to observe and monitor the situation. It's a fun situation to monitor at the very least.
- [18:44]
B
Phone's one word for it. It's interesting. The old Chinese proverb is may you live in interesting times. And we certainly do.
- [18:51]
A
We certainly do. We're talking about, hey, Intel, Apple, what are you going to do now with the emergence of AI? Maybe they should just make an Andy Grove agent. Maybe they should just take everything Andy Grove did in his life while at Intel. Make no mistakes, load it into an LLM. Make no mistakes, bring Andy, Andy Grove back from the dead in robot form. I mean, who knows? The next vertical chart is the progression of these large language models, particularly how they are performing on these benchmark tests by a meter. And it looks like Claude Meathos, the preview that these guys got in March at least, is another step function order of magnitude improvement in terms of what these LLMs can do. Will.
- [19:39]
B
Yeah, I mean, scaling laws are holding, right? I think that's what this is telling you. And this is like the third big chart of the week that was kind of going vertical. And I think it's the most interesting because the other two, as I wrote about in the newsletter, are subject to the ultimate laws of gravity of the supply response. The forces of supply and demand just hate vertical charts. The market wants to force vertical charts to mean revert. When people see intel, new supply comes online both in terms of actual capacity to respond to the potential for well above market profits. New supply comes online in terms of equity issuance. You could imagine intel could absolutely be very economically issuing a lot of new equity against prices like this. Insiders can very easily make the case for taking some off the table at prices like that. And the flip side too, with China, there are various market forces that will tend to Push that downward vertical line back to the mean. And I wrote about some of that in the piece or in the newsletter this week. But this is a vertical chart that it's one of the only vertical charts in the world that doesn't really have an obvious market constraint to bring it back down. This looks like a one way function, kind of a one way vertical takeoff. And I think it's telling that the meter chart on the left is the Mythos performance. It's early, but it's literally off the charts. They don't even show it because it's so high as to be maybe unreliable or not sure about it. It in the chart on the right you can see kind of a less cropped version from an anthropic researcher. But I think this is really the chart that is in some way driving the other two, because this is kind of like if this continues, this is the next great game geopolitically. The thing that you have to do if you're in the seat in the White House or the Dow, if you're in the seat in Beijing, is you have to to try to be the one that owns this line. And moreover, you're thinking that the other guy is also thinking that he needs to own the line. And so that starts to make certain calculations a lot more tractable. It starts to make certain decision paths a lot more inevitable. I think it's an open question, but if you listen to a lot of heavily AGI pilled people who are sitting in the Bay Area right now, there's a lot of view that this is a winner take all game, or at the very least a winner take most game. And a six month lead is equivalent to a ten year lead in any other conventional industry. And I think it'll be interesting to see if open source and distilled models out of China can really kind of keep up with this, especially as the weights and the key data here become more and more like nuclear launch codes. And we're seeing more and more kind of encroachment from the government and the Department of War onto these companies and these tools. So all that is to say, I think this really tells the story of the prior two charts and why they're happening kind of the way that they are and why they're happening now. And the one constraint that you could argue that is on the growth of these charts is just the physical reality of Watts needed to make more and more gains that are kind of parabolic and vertical like this. But I think if you flip to the next chart or the next page you'll see I think a few data points highlighting what the solution to that is going to be or what the attempted solution to that is going to be.
- [23:05]
A
Yeah, sorry, I was reading up on Fermi's paradox in the Great Filter because as you were explaining that it's like are we just speed running towards the Great Filter and do we make it through? But here's the next chart. It is insane when it comes down to it. Like you said, these charts are beginning or not only beginning but are materially affecting the physical economy and I think will continue to for decades as we race through or towards the Great Filter. But this is ISO manufacturing PMI. Today AI data center investment is hitting 20 billion every two weeks. Capital outlay estimates in the multi trillion dollars, I think approaching $10 trillion over the next decade latest I heard.
- [23:47]
B
Yeah and so I think this is the thing, right, if you're going to say well the constraint on that last vertical chart is physical reality. The how are you going to possibly physically scale to sustain gains like that? How are you going to pay for it? And I think it's very clear that whether they succeed or not, they're going to try. There's a clear push on both the private and public side to aggressively re industrialize and to use that as an engine for what you're seeing here, earnings growth to further support the market and to further support GDP to make this all tractable. And so I think to me that's why it all ties together. Right? The need to decouple from China in the administration's view, the need to support local industry champions like intel. That's all directly related to winning this race. And this would be the only shot that the US really has to growing its way out of the debt and reestablishing some level of legitimate industrial dominance that will be necessary to sustain the next hundred years of say the dollar system and the US military. So it's all kind of like one trade, it's all kind of one chart. Chart. And thus far again this is TBD. But some pretty crazy earnings growth out of Q1 thus far.
- [25:02]
A
It's insane. Yeah, 27.7% actual growth rate for the quarter. We'll mark the highest earnings growth rate reported by the index since Q4 2021. Obviously that's a bit of an anomaly because we're coming out of the economic lockdowns coming from a significantly smaller base baseline. And so this is I think, think it's hard to judge it to Q4 2021 and think there's any signal there? I think.
- [25:25]
B
But it makes it more impressive, right, because it's like Q4 21 is kind of this artificially inflated number and we're getting right up there despite the fact that the base was not nearly as low on the prior year this time around.
- [25:35]
A
Yeah, fascinating stuff. But to your point, we're going to have this insane, I mean, to extend your point, we're going to have this insane growth, earnings, gdp, but then it's going to be be very discombobulating for people because you're going to see these headline numbers at a pmi, GDP growth, revenue growth and it's going to be like, oh, everything's incredible. But at the same time we're going to see mass layoffs, it looks like. So we have a bunch of headlines here from over the weekend and last week, Kraft Heinz CEO pushes value. Consumers are literally running out of money. And so you have this juxtaposition of everything going on in the world of AI and the real economy seems to be suffering. I think that's the big question in the way that in which the AI economy is affecting the physical world. Can it produce enough blue collar jobs, I guess you can say, to save the American consumer? I don't know. Will the deflationary effects the productivity gains of the technology just be a tsunami that no amount of blue collar jobs can overcome? We shall see. But we have Heinz and McDonald's basically saying consumers are hurting. At the same time we have Cloudflare upwork bill cutting anywhere between 20 and 30% of jobs. And you don't have to hear, but in the industry last week Coinbase cut I believe 15% of their workforce.
- [26:56]
B
Yeah. And I think it's an open question whether some of these are using kind of AI as air cover for just cutting bloat work structures. And none of the companies on here are durably profitable and they all have decelerating growth anyway. So it's like maybe that explains a decent amount of it. But either way I think you probably are seeing the early signs of it. Either way, there's this clear K shaped economy that's only going to increase as all AGI pilled people will tell you over the next 10 years if they're right. So just collectively, and this is before, by the way, you even get to robotics, the physical AI physically instantiated AI over 10 years from now. What that does to right now, the re industrialization of America is maybe an offset to some of this. What happens when the robots take our jobs? Jobs, the Physical jobs that are still available. That's an open question. So I think it's just like all these headlines together make me just think this is how I concluded the timestamp was just like, okay, what if they're right? What if the AGI thesis, the government's thesis of just run it hot into building out American AI dominance. What if that's totally right? Well, what is that going to mean for the labor market, both white collar and blue collar eventually? What is that going to imply for the need for, as Elon Musk calls it, universal high income or universal basic income or whatever to deal with that reality? And the flip side is like, okay, what if they're wrong? You mentioned $10 trillion of expected infrastructure outlays being financed in probably increasingly creative ways. What does it mean if the demand isn't ultimately there, if the products can't be integrated in the way that it would be needed for the ROI to really make sense? What does it mean if you have too big to fail AI companies and data infrastructure companies, data center companies not able to pay their bills, et cetera? Okay, well that's going to create a massive hole in the national balance sheet as well that needs to be papered. So kind of in either side, either direction, you get into the in game conclusion. That number will always go up, number of dollars will always go up. Right. And there will always be a supply response of dollars when it's required to solve one problem or another as things get too socially volatile, too geopolitically volatile. And that increasing supply of dollars either way is going to be necessary to get us to any version of the future that the administration wants to see. And so it just kind of leaves me with, it always comes back to Bitcoin. And that's not just a contrivance. That's truly what we believe. That's why we believe this is in any environment over time the most interesting thing to be focusing on the one asset in the world that has no conceivable supply response. And I just highly recommend people go study why that's the case and build an intuition for why that's the case. This is a screenshot from Parker Lewis and Drew Bansal talk from last year. I forget exactly what it's called. I think it's in search of a finite monetary policy. If you look that up, great 30 minute video to explain the intuition behind that. But ultimately I think it's all just leading. All roads will converge on and lead to exactly this kind of regardless of who in the administration is right. Or who in Beijing is right or wrong.
- [29:59]
A
Yeah. Never. Boring. John. We'll do this again next week.
- [30:03]
B
Of course. It's a habit now.
- [30:05]
A
Enjoy your haircut. Enjoy your haircut, sir. See you guys. We'll be back.