Summary

U.S. equities are back at an all-time high, reflecting the simultaneous retreat of the three risks behind April’s selloff—but that does not mean the current level is worth chasing. Trump policy tail risk has narrowed; the market’s “end of U.S. exceptionalism” trade never materialized, America’s AI edge remains intact, and results from Microsoft and others show the AI story is still running; fears of the 10-year Treasury yield hitting 5% have also faded. But valuations no longer match a potential 4.6%-4.7% unemployment rate, making it “even less likely to add at this level.”
Shorting is difficult in the near term, but the upside offers no better risk-reward. The market is “not moving much on negative news”; CTA, vol control, and post-earnings corporate buybacks may still provide buying support. Hedge fund positioning is around 70% and the overall market around 60%, neither at an extreme. His execution discipline is simple: he did not cut during the selloff or add during the rebound, and even if the economy does not deteriorate in Q4 and sidelined money returns, “if you didn’t add, don’t add.”
AI semiconductors remain a long-term exception in a high-valuation market, but current prices are no reason to add. He believes America’s lead in AI and technology is “very difficult to shake,” and earnings visibility for the Magnificent Seven and semiconductors in 2025 and from early 2025 through 2026 is relatively strong; over a longer horizon, they are not particularly expensive. But macro expectations and valuations across the broader market are “too optimistic,” so investors should wait for fundamentals and valuation to become clearer again.
Iran may accept some form of peace arrangement in the near term, but whether its nuclear facilities were actually destroyed remains an unresolved tail risk. A former MI6 officer believes Iran has suffered “a complete military defeat,” the IRGC’s standing has been damaged, and Russia and China have almost abandoned Iran. If the centrifuges are gone, Iran will struggle to take 60%-enriched uranium to 90% in the short term; if they remain and the IAEA cannot monitor them, Iran may quietly advance its nuclear weapons program, leaving Israel to bear the “real tail risk.”
With the Middle East cooling and supply rising, oil offers a much weaker risk-reward profile than gold. The roughly $15 geopolitical risk premium has shrunk to a few dollars, while the rest of the world had already been building inventories at about 1.3M barrels per day, and OPEC could add roughly 1M barrels per day before August. If the economy and employment weaken and demand falls after July and August, the conclusion is that “oil is about supply and demand”: surplus pressure will cap prices.
Trump’s demand for 1% rates and heavy short-term bill issuance could produce an unpredictable mix of higher risk assets, inflation, and capital outflows if implemented. Short bills have a collateral haircut of roughly 0.5%, versus about 8% for a 5-year coupon bond; the former is close to cash and has a larger money multiplier. Breaking through the usual roughly 20% share of bills could compress credit spreads and lift risk assets, but it could also weaken the dollar and drive capital out of the U.S.—“no one has done this before.”
The stablecoin bill looks more like a money market that lets issuers keep the yield rather than a new funding engine for Treasuries, equities, or crypto. Stablecoin funds can only buy short-term bills, offering limited help to overall Treasury demand. The more meaningful change is the release of roughly $2T in eSLR capacity, against a $22T coupon market with about $10T freely tradable. He says its short-term “macro market impact is zero,” while acknowledging that easier payments could expand the dollar’s influence in countries with foreign-exchange restrictions.

Deep dive

1. U.S. stocks hit record highs as the three April risks recede together

He breaks April’s selloff into three forces: Trump policy created tail risk; the market traded the “end of U.S. exceptionalism” and treated AI as the core victim of America’s exceptional position; and investors repeatedly repriced the possibility of the 10-year Treasury yield reaching 5%.
He believes U.S. exceptionalism has not been canceled, and explicitly rules out both Treasuries falling to a 5% yield and a U.S. currency crisis. America’s lead in AI and technology, he says, “is very difficult to shake, whatever Trump does in the short term.”
He admits he may have overestimated the severity of the tariffs, which is why he neither added nor cut during the selloff, keeping only AI and semiconductors. Now, narrower tail risks, Microsoft’s results showing that the AI story is still running, and fading fears of 5% Treasuries have combined to push the index to new highs.

2. Shorting lacks a catalyst, while adding lacks risk-reward

The hardest part of the near-term trade is that “negative news doesn’t really move” the market. Unless China-U.S. tariff relations suffer another major rupture, ordinary bad news is unlikely to hold the market down, making shorting difficult.
Positioning is not fully extended. He estimates hedge funds are about 70% invested and the overall market about 60%, or “six out of ten.” CTA flows are still providing some buying support, but their buy-the-rise, sell-the-dip bias is broadly balanced; falling volatility could trigger additional vol-control buying, and corporate buybacks should resume after earnings season.
But valuations are “absolutely high.” A sizable pool of sidelined money is waiting for unemployment to reach 4.6%-4.7%, and he also sees a high probability of a move above 4.5%. If deterioration fails to arrive, that money could return to the market and push the index higher.
His discipline is not to forecast the next move, but not to chase: “Either add, and add decisively; if you didn’t add… don’t do anything.” Even if that means missing further upside in Q4, he would rather wait for a clearer signal from the economic trend or valuation.

3. AI semiconductors still have long-term earnings support, but Trump keeps tail risk in play

He still views earnings for the Magnificent Seven and semiconductors in 2025 and from early 2025 into 2026 as the high-certainty part of the market. Over a longer cycle, many AI semiconductor companies are “not particularly expensive,” and U.S. exceptionalism remains intact.
The distinction is that most companies across the broader market are already expensive, while the upside risk-reward in semiconductors is also insufficient. So even in his preferred sector, he would “not really add.”
This remains “a year of tail risk.” His summary of Trump is that “the first is that he wants to save face; the second is that he is an amateur managing professionals.” Policy outcomes may therefore repeatedly diverge from expert expectations and create volatility that is difficult to price in advance.

4. Iran may accept a peace arrangement, but its nuclear capability cannot be confirmed destroyed

He relays the view of a former MI6 officer reportedly named Alex, now a Political Economist at Goldman Sachs: Khamenei’s recent statement did not accept Washington’s proposal, but he also “doesn’t dare reject it.” The language was hollow, making acceptance of some form of peace arrangement relatively likely.
The first reason is that Iran has suffered “a complete military defeat”—one generation behind Israel and two generations behind the U.S. The IRGC has not only exposed its military weakness; as a warlord-style organization controlling substantial economic resources, it has also suffered a major blow to its domestic political standing.
The second is that its “big brother has abandoned it.” Russia and China have almost abandoned Iran, and Alex even believes Putin might trade away Iranian interests for gains on Ukraine. With the IRGC weakened, the clerical regime may permit limited reform and reduce its revolutionary export of support to Yemen and other anti-Israel forces.
The biggest uncertainty remains the nuclear facilities. On Iran’s stockpile of 60%-enriched uranium, he first mentioned roughly 40 kilograms and later about 400 kilograms of relatively high-purity uranium fuel. If the centrifuges were destroyed, reaching 90% enrichment would be difficult in the short term. If they survived and the IAEA cannot monitor them, Iran could use parameters from North Korea or Russia to quietly advance a nuclear weapons program without a nuclear test.

5. U.S. action in the Middle East may prompt China to reassess whether America is retrenching globally

At the NATO summit, Trump described Israel and Iran as “two children fighting—let them fight for two or three minutes.” Asked whether that made him the father, he replied, “Yes, I am the father.” His forceful, high-handed posture led the speaker to believe China may need to reassess America’s willingness to intervene in global affairs and continue positioning alongside its allies.
Except for Spain, allies broadly accepted the demand to lift defense-related spending to 5% of GDP within 10 years: 3.5% in direct military spending and 1.5% in related infrastructure such as roads. The speaker believes Europe’s rearmament will create “a very, very large” long-term spending cycle, making defense companies worth watching.
Alex’s second conclusion is that China may have misjudged the U.S. as preparing to withdraw fully from global affairs. The Iran operation suggests that while America does not want to bear all responsibility, it may still coordinate with allies to maintain its global positioning—an assessment that could affect China’s view of U.S. intervention around Taiwan and Southeast Asia.

6. Once the Middle East risk premium fades, oil faces excess supply

Oil previously carried about a $15 risk premium; only a few dollars remain. Regardless of whether the nuclear facilities were destroyed, Iran has little incentive to continue escalating: if they were destroyed, it needs to lie low; if not, it is more likely to advance secretly. The U.S. is also restraining Netanyahu, who wants to eliminate Iran entirely.
In the months before the open conflict, the world outside the U.S. had already been building inventories at roughly 1.3M barrels per day. Once the crisis de-escalates, OPEC could add another roughly 1M barrels per day of supply before August, making the supply picture looser still.
He draws a line between oil and gold: “oil is about supply and demand.” In the last survey, more than 70% of central banks said they planned to increase gold reserves, while none said they planned to reduce them. Oil, by contrast, faces both falling demand after July and August and the possibility of weaker U.S. employment and global growth, so he is “not particularly bullish.”

7. The Big Beautiful Bill ties Trump, Powell, and short-term Treasury-bill risk together

Trump wants rates at 1%; one motivation, he believes, is to defend the roughly 940-page Big Beautiful Bill. The bill includes tax cuts, reductions to Medicare and SNAP, and increased funding for immigration control, but its large deficit has triggered opposition within the Republican Party. Trump blames Powell for the interest expense—“responsibility is always pinned on someone else.”
The Senate vote was 53-47, meaning 3 Republican defections could block the bill. After facing threats to campaign funding, Tillis announced he would not seek reelection and would continue opposing it; Mitch McConnell and others could also defect. He expects the original version to struggle in early July, but believes a modified version will probably pass by the end of July.
The proposal to issue “all bills” is more dangerous. Short bills have a haircut of roughly 0.5%, versus about 8% for a 5-year coupon bond. A heavy concentration in bills would expand the money multiplier and could compress CDS spreads and lift stocks and other assets, before potentially reigniting inflation.
Bills normally account for about 20% of issuance; under Yellen, the share reached 23%. If the mix becomes even more extreme alongside rapid rate cuts, dollar valuation and capital flows could reverse. Assets may rise in the short term, but the eventual outcome is “highly unpredictable” because there is no historical precedent.

8. The Fed will cut at most once, and stablecoins will not bring new bull-market capital

Markets expect 2 to 3 rate cuts this year; he expects “at most one.” Companies may pass through about 50% of tariff costs within a month, with more passed through over time. Summer inflation could reaccelerate, while there is still no clear sign of unemployment rising to 4.6%-4.7%, so Powell will not move easily.
The current trade resembles June-July of the previous year: markets are betting that the Fed will “cut into okay growth,” driving cyclical stocks to outperform defensive stocks. Last time, actual cuts came in below expectations and cyclicals subsequently pulled back, leading him to conclude that both the macro backdrop and valuations are again too optimistic.
The stablecoin bill requires stablecoin funds to purchase short-term bills, which cannot materially change the Treasury market as a whole. More important is the release of roughly $2T in eSLR capacity. Against a $22T coupon market and roughly $10T of freely tradable supply, even a modest release of bank capital should be enough to absorb issuance.
Stablecoins are essentially a money market. Under Circle’s model, reserves buy U.S. Treasuries and generate interest that is not distributed to stablecoin holders but retained by the issuer. He is uncertain what USDT’s funds specifically buy or whether they can ultimately be redeemed. Stablecoins can improve payments and extend the dollar’s influence in countries with foreign-exchange controls, but his short-term macro conclusion is that the “impact is zero.”
He also does not believe the bill will trigger major inflows into altcoins, RWA, or on-chain U.S. equities, because the KYC channels used to obtain stablecoins have not changed and crypto capital is “simply too small.” Funding for smaller coins is mostly negative, unlike in 2021, suggesting that the bear-market structure has not ended.
His explanation for Bitcoin’s rise is more than $10B in ETF spot buying combined with CME futures shorts to create a cash-futures basis trade, rather than a broad return of risk appetite. For smaller coins to restart, more Asian speculators from China, South Korea, and elsewhere would need to bring capital into the market. He specifically mentioned Chinese consumers taking out loans to convert into U, saying, “I’m not seeing that trend right now.”

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