By Peter Tchir of Academy Securities
In this industry we are always trying to decipher the signal from the noise. That is never easy, but the level of “noise” coming out of D.C. and elsewhere is making it extremely difficult to identify signals. Some weekend T-Reports write themselves (thankfully) and some are a struggle.
- What economic data is relevant and indicative of potential trends going forward?
- How much of the data is largely irrelevant if policies shift dramatically?
The level of noise is so high that all I could think of was Spinal Tap and how they were fortunate that their amps went to 11, while everyone else’s only went to 10.
Given all the hype surrounding the first 24 hours and all of the executive orders, I’m surprised that I am more confused, rather than less confused, by the trajectory of this administration (one week into it).
Most Surprised by…
Bitcoin. I am most surprised that Bitcoin isn’t a lot higher. This administration seems keen to embrace crypto. There is a lot of chatter about the potential for Bitcoin or crypto reserves. Is Bitcoin failing to break a lot higher because people believe that there are enough politicians in D.C. who think it isn’t a good idea (or even think that it is a bad idea) to use tax dollars to buy and hold crypto? Is there a belief that the crypto community can’t donate enough money to politicians to get some kind of a deal through? Or is the question on Kalshi too narrow and the reserve will include things other than just Bitcoin? We linked to that betting site in last weekend’s report - $Trump, TikTok, and Trea$urie$. Or, quite simply, has so much been priced in that we will need to see a lot more out of D.C. to get another big rally? If so, that has implications for the broader market.
Least Surprised by…
The number of responses on this month’s Around the World. Academy’s Geopolitical Intelligence Group weighed in on:
- The Ceasefire in Gaza.
- Iran Signing a Strategic Partnership Pact with Russia.
- The Escalation in the War between Russia and Ukraine.
- The Chinese Cyber Threat.
- The U.S. “Engagement” with Greenland.
Most Intrigued by…
DeepSeek. Given all the “noise” around TikTok, you would think that would be a focus, but DeepSeek caught my attention. It seems like this AI model may have been out there for some time, but it exploded in my social media timeline this weekend. On the face of it, we have an AI tool that is cheaper to build and possibly better than existing AI platforms. The “catch” is that it is a Chinese developed AI engine. Given privacy concerns and the cyber threats, I cannot help but wonder who would (or should) use it?
That is, assuming it is real. Periodically we used to get stories about some group achieving “cold fusion” that never turned out to be real, and lately, some similar claims about quantum computing have yet to pan out in reality.
In any case, if extremely good AI can be built with “old school” chips, it would have a lot of ramifications for this market. It does seem unbelievable in some ways but reminds us of the discussion we’ve been having about China’s efforts to develop chips of their own.
- The smallest chips require state of the art tech manufacturing to be built efficiently. However, small chips can be made inefficiently using old tech. It isn’t an efficient way to make the thinnest chips, but it can be accomplished to a degree, which is presumably how China is making some of its smallest chips (assuming they haven’t figured out how to get access to state of the art tech that the U.S. and others are trying to prevent China from obtaining).
- The “packaging” (vertically stacking multiple chips) may play a bigger role in semiconductors continuing to adhere to Moore’s Law (or some variation of it) as opposed to just creating smaller and smaller chips. While packaging is also challenging, it is not necessarily “state of the art” challenging, which would reduce “our” lead over Chinese chipmakers.
Given the importance of AI in our markets (if not yet in our economy), this “story” could be interesting (and also harkens back to the question at the end of the first section – how much is priced in already?).
A Little Concerned by…
Delinquencies. This is something we are digging into in more detail as it has become a common theme in more meetings. With student loan forgiveness becoming a thing of the past (it was never really a thing) and no real clarity on how things like not taxing tips will play out, there are more and more questions about some segments of the consumer. With hopes of much lower interest rates being dashed (for now) the concern about consumption is increasing (at least for those who didn’t load up on crypto).
We are digging through the various metrics on delinquencies to figure out if this is something that should be a larger concern or not. The fact that it is coming up more in conversations means it definitely warrants some further digging. If it is true that consumers are stretched, then it shines a different light on what policies are needed, and how quickly they are needed, to ensure that the economic data doesn’t tumble.
A recession isn’t on anyone’s mind right now, and maybe it should be? It surprised us by not showing up when everyone was talking about it, so maybe a recession will make a surprise entrance? Doubtful, but time to start digging into the data that is concerning and possibly difficult to turn around.
A Little Confused by…
Inflation. Too much to unpack here, but we are working on a chart package. Of all the economic data that will be influenced by policies out of D.C., inflation is the most significant, so maybe it is a fool’s errand to think too much about it, but here are some things that keep coming to mind:
The owners equivalent rent (OER) is once again lagging virtually any “real time” measure of rent. This time around it is overstating rent inflation in CPI data. We discussed the quandary of Making Policy on Bad Data and that remains a concern.
Can the president tell the Fed what to do? No. Can the president enact policies that reduce inflation and allow the Fed to cut? Yes, but that might be difficult.
Is inflation simply oil? No, though the president, in my opinion, is not completely wrong to focus on getting oil prices lower as a strategy to lower inflation.
What impact will tariffs and immigration policy have on inflation? We still don’t really know how these “day 1” policies are going to play out, so it is difficult to estimate. Frankly, what has been done on the tariff front and on immigration has been fairly benign. That may continue, though the risk of a hiccup on the tariff front is rising as so much (maybe too much) good news is being priced in.
It is difficult enough to form good policy when the data is noisy, but when we are surrounded by even more noise out of D.C., it will be increasingly difficult not to make policy mistakes.
Bottom Line
Set your amps to 11 and prepare to deal with the noise! Fortunately, from a T-Report perspective, noise fits our 2025 theme of “messy, but manageable.”
Expect weakness in both bonds and stocks in the coming days and weeks. So much good has been priced in that it will be difficult for bonds or stocks to surprise to the upside. We’ve been looking to Bitcoin as a “tell” and even that isn’t sending a strong buy signal any longer (even with mounting evidence that it should be).
Caution is the order of the day as we try to filter the signal from the immense amount of noise and also get back to looking for the trends that will be difficult to turn around.
Good luck and maybe before or after football today, it is worth finding and watching a good mockumentary – we could all use a laugh or two.
