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Uh what I didn't do in that CNBC article uh was talk about the impact of the increase in the gold price. I said all other things equal. Well, all other things have not been equal. Uh the the stable coins have accelerating accelerated taking uh some of the role away from Bitcoin. . Kathy Wood argues strongly that inflation is falling and the indicators outside government prints already confirm it.
Bond market signaling deflationary pressure. The 10-year Treasury yield is pricing inflation expectations at around 2.5% and trending downward. This is one of the most reliable real-time indicators available. Trueflation confirms the trend. Trueflation, which tracks tens of thousands of items in real time, has also moved from roughly 1.5% to 2.5%.
Still showing a benign and decelerating inflation environment. Tariffs are a temporary distortion. Tariffs are temporarily lifting inflation, but Kathy believes these in the no, which I did last Friday. Uh but the summary here is uh we are in a bit of a liquidity squeeze. We think it's temporary. Uh there are three reasons.
One, we've seen uh the Fed as of the last meeting um not uh end quantitative tightening. Many people expected it them to do it at the last meeting. We think they will do it at the next meeting. So that's December 10th. Uh the second liquidity squeeze was uh is related and and hopefully we can say now was related uh to the Treasury general account.
When the government was shut down, the Treasury's cash balances were building. They were were not dispersing the cash. Uh the government uh shutdown is over. is going to take a a little bit of time to ramp uh and and get everything back to normal, but we think that source of a liquidity squeeze is behind us.
And now we're dealing with the third and it really has to do with interest rates. Uh will they continue to come down? Uh the market had been thinking yes, they would and we'd get another cut in December. Uh we think we will get another cut in December. Uh and that the Fed will shift from what seems to be a hawkish tone right now uh back into a more dovish tone as we approach that date.
Uh we're seeing inflation really come down significantly. Um maybe we don't have the government statistics uh but we do have the bond market which is helping us understand that as measured by the 10-year Treasury yield the inflation expectations have been coming down for the last few months. Uh we're in roughly the 2.5% range on that metric.
Uh same is true for true flation uh which is a real time indicator 10,000 uh items monitored 10 thou tens of thousands I think it is uh monitored in real time and that uh metric is at roughly 2.5%. Now it was uh down to 1 point roughly 1.5% has come up here. Tariffs of course uh are a big reason. Uh we think tariffs are going to wash through as well and some may even come down.
I I think the administration is taking the election results, New Jersey uh and New York in particular, um as significant as a significant warning that if uh affordability does not continue to improve, the midterm elections are going to be very difficult uh for at least the Republicans. Um, we're seeing other metrics though that suggest that affordability is is going up.
Um, uh, one of those is oil prices. Uh, West Texas Intermediate cracked $60. Uh, and there are cyclical and secular reasons for oil prices to continue falling. housing prices and shelter in the CPI is roughly 40% of the CPI. Housing prices uh new home prices have been falling for roughly a year. Existing home prices or home price inflation is down to 1.5%.
And that will get into the CPI over the next year. And then finally, we're seeing a lot of technology uh indicators uh and this is our bread and butter. Uh the metrics we follow and the original research we do suggest that the undercurrents uh of deflation associated with new technologies evolving are building.
And uh we would not be surprised to see a real break in inflation once the tariff uh tariffs have passed through uh in the next year. Now the burden of proof is on us. I've just given you three uh indicators that suggest uh inflation could come down significantly in the next year. Uh but it has been stuck for the last year in that 2 and a half% range give or take a little.
So, uh, we think it will resolve on the low side of expectations. We're surprised at what the Fed uh is is saying right now. The various Fed governors, uh, especially because the employment indicators are weakening significantly. Sure, we don't have the government employment indicators, but ADP is out and uh month after month now uh they are saying that uh employment is either contracting or expanding very very slowly.
uh and we're also seeing new graduates that employment unemployment rate is uh is increasing uh more rapidly than any other cohort's unemployment rate and I think the duration of uh unemployment for everyone is approaching 30 weeks. Uh so these are indicators that suggest uh that the velocity of money uh is going to it has already flattened out uh and we think it will go down on a year-over-year basis.
Uh M2 right now is up 4.8%. If the velocity of money falls on a year-over-year basis, that means nominal GDP will probably drop below 4% or 3%. And nominal GDP includes both real GDP and inflation. So the combination at 3%, something's going to give. Uh and right now it seems like uh uh the real side of the economy is starting to capitulate as measured by labor at least.
Uh as productivity increases maybe uh it won't hit the real growth line but it is hitting uh it is hitting labor and of course uh inflation would be the other give. Uh so we'd think this liquidity squeeze will pass as the government opens fully as quantitative tightening ends and as interest rates continue to come down in response to weakening employment and uh inflation indicators that are pointing down.
So with that Dan uh take it away. The reason I love it is many people are worried about that uh that risk out there and uh this in comparison to what was going on in the tech and telecom bubble is night and day. In the tech and telecom bubble, sure you had some value investors saying this doesn't make sense.
uh no one was listening to them and you had growth investors uh just throwing money at the dream at the dream back then. The seeds that were planted in the 20 years that ended in the tech and telecom bubble uh have been germinating for the last 25 to 30 years. Uh back then the technologies were not ready.
The costs were way too high. We didn't get the cloud until 2006. We didn't get the first real breakthrough in AI until 2012 deep learning and then the even bigger breakthrough uh um in uh 2017 that was transformer architecture and of course we had the chat GBT moment uh uh as uh in late 22. Uh we think the this AI story has just begun.
We are in the first inning and uh the only thing that I will flag as a nuance and uh is is related to an MIT uh research paper that came out on this topic a few months ago uh basically saying corporations aren't seeing any productivity gains because of uh AI. This this is completely elusive. It's uh it is a bubble and the the only nuance here is for enterprises to trans restructure and transform completely which they will have to do in this new age um is hard work and [snorts] it will take time uh uh and and yet uh on the consumer side it is flourishing.
So I think that bifurcation is something uh that that we think about a lot. Uh but if Palunteer is any indication and we think it is, you have uh CEOs and and and strategic decision makers saying we've got to do this or we're going to lose our competitive edge out there. And that's why US commercial business was up 123% last quarter.
far surpassing anyone's expectations including our own. There is a strategic imperative now and it will take time. It will take time to play out in terms of those productivity measures. Uh individuals are seeing big increases in productivity with these tools that will percolate into some of the productivity measures.
But we think the real productivity gains uh the needle moving uh it will start within the next year. Um and already we're still at 2 and a half%. So that's the starting point. Uh so we're pretty excited about the implications uh for productivity and real GDP growth which we think is going to accelerate to levels people cannot uh uh imagine.
Now, you know, longer term, we're seeing that growth, real GDP growth globally accelerate into the 7 to 8% range because we're in a technology revolution. The last time we were in a technology revolution, growth accelerated globally, real GDP growth from 0.6% 6% during the 400 years and Brett did this work uh 400 years uh ended in 1900.
For the last uh 125 years we've been at 3%. So that was a five-fold increase in the growth rate and here we are saying 7 to 8%. To us that's conservative given the kind of technology revolution uh we're in. We've never seen anything like it. This total portfolio approach uh as you know allocators assess where the risks are they they will be informed more by uh a strategy like ours where the risks are in private in their private uh allocation.
So uh we think that uh that the rush by uh private credit and and private equity into software as a service for example is a mistake. Uh we think software as a service is is being disrupted. Of course there are going to be some winners a little bit like in retail Walmart and Costco have uh have accommodated the move the shift toward online.
There will be some winners uh but there are going to be a lot of losers and I think it will become more apparent uh as uh asset allocators listen to you know uh uh at least our point of view where the disruption in the traditional world is going to take place. I was on CNBC uh w with Andrew Rossin and made the comment that compared to our original forecast way back in 2015, 10 years ago, um what has happened is uh that stable coins are usurping one of the roles we thought that Bitcoin would play.
uh meaning an insurance policy for emerging markets uh meaning the individuals in emerging markets whose wealth and purchasing power uh are destroyed regularly by bad fiscal and monetary policies or by corruption. Uh and that is not happening. However, what is happening at an accelerated rate interestingly is the scaling of stable coins which I think have have scaled to nearly $300 billion.
The other side of that is this has become a natural buyer for US Treasury securities. uh as China and other c countries are diversifying away from the dollar, we've got a big force here and we think it's only the beginning uh in the form of stable coins which are backed primarily by US Treasury securities.
Uh what I didn't do in that CNBC article uh was talk about the impact of the increase in the gold price. I said all other things equal. Well, all other things have not been equal. Uh the the stable coins have accelerating accelerated taking uh some of the role away from Bitcoin that we expected at least, but the gold price appreciation has been far greater than we expected.
So net net, our bull price, uh, which most people focus on that one, uh, really hasn't changed. Kathy Wood's latest insights paint a picture of a global economy at the crossroads of tightening liquidity and accelerating innovation. While short-term pressures from QT to employment softness may create turbulence, the deeper forces shaping the next decade point toward profound deflationary innovation, rising productivity, and an economic expansion unlike anything seen before.
In her view, the world is not entering a bubble. It's entering the early innings of the most transformative technological revolution ever recorded. &
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