“This Is How Every Crisis Starts” w/ Jim Bianco

Added: 2026-06-03

[00:00:00]SpaceX comes in at four or five percent waiting into the index means I got to sell four or five percent of everything else um in some proportion so that I could then redeploy that money back into SpaceX. It will be interesting to see how this plays out because we've never had an IPO of this magnitude and potential inclusion into a stock index, especially in an era of passive. The markets keep making new highs. Canada has slipped into a technical recession and it looks like Iran is pulling out of peace talks. What does all this mean for the market and when will investors feel the impact? Hello and welcome to Milk Road Macro, the podcast that really really hopes there's a chapter in the art of the deal about how to make peace in the Middle East. I'm your host John Gillan. Today is Monday, June 1st and today we are joined by Jim Biano of Bianco Research. Jim is an industry-leading analyst with over 30 years of experience and expert insights on the economy, capital markets, and all things macro. He has been a regular contributor to the Wall Street Journal, CNBC, Fox Business, CNN, Bloomberg, the list goes on. He has over half a million followers on X and today he's going to share a lot of insights and alpha with us about the markets and everything that's going on. So, that sounds good to you, make sure you like and subscribe.

[00:01:11]Share this episode with somebody who's going to enjoy it. Today's episode is brought to you by Cape, the privacy first mobile carrier, and Nexo, earn interest, borrow and trade crypto, and Cali, where your takes finally pay out.

[00:01:24]And I hope we get some good takes out of Jim today. Welcome back to Milk Road Macro. Jim Biano. How are you, sir?

[00:01:29]>> I'm doing great. Looking forward to the conversation.

[00:01:32]>> Me too, Jim. I thought I didn't want to start with this, but I think given the news this morning, we better start with the straight of Hormuz and the situation in Iran. The strait is still closed.

[00:01:40]Iran has pulled out of peace talks. It looks like conflict is escalating there.

[00:01:44]What are you expecting to see the market react reaction to this to be and what are you watching for coming out of this?

[00:01:49]Well, you know, I guess really the question is is what do people expect out of the straight of Hermoose? I know what the market expects. The market expects this to be a temporary situation, no more than 30 to 60 more days. It's thought that since the first day of the war 90 days ago, and it continues to think that you could see that in the way that the oil market has been managed over the last 90 days. We've seen an aggressive draw down on inventories around the world and that has been keeping the lid on prices potentially skyrocketing in terms of oil. You could actually argue that's kind of reckless because if you believe that the straight of Hormuse is going to be closed for an extended period of time, you've got this precious thing called these inventories and you should be managing expectations and you should be managing them for the long term instead of just dumping them all on the market to keep the price down because eventually we're going to hit what's known as operational minimums. We can't run every inventory to zero and then we're going to have to have real demand destruction. So that's what the market has been operating under. Don't worry, this is going to be over with soon. That's why it reacts to every Trump tweet about, oh, we're close to a deal. The deal's been finalized. We're just waiting to sign it and the market gets excited every single time because everybody believes that to be the case.

[00:03:13]Now, I'm skeptical that that's going to be the case. I I think this thing is going to drag on for a lot longer than people think because I don't think the Iranians have the incentive to cut a deal like everybody else thinks. Uh that, you know, we're talking about the potential of them having damaged their oil fields. I remember a month ago when Trump said three more days till their oil fields explode and I'm waiting for their oil fields to explode a month later and they they they haven't exploded. I think that this could definitely drag on a lot more. And I think that that's what you're seeing um in the news now is that the Iranians are not under pressure to deal. That's why they're mad about what's happening in Lebanon with Israel. That's why they're saying that they're pulling out of the talks. There's no urgency on their part to deal. And I think this is going to go longer and eventually we're going to hit those operational minimums. We keep aggressively drawing down inventories.

[00:04:10]And I don't mean we, the United States, I mean the globe. You know, you've seen aggressive draw downs of inventories in Japan, you've seen them in China, you've seen them in the United States, you've seen them in Europe. And when we hit those operational minimums, then we're going to start to see shortages start to appear. Then we're going to need what's referred to as demand destruction.

[00:04:31]That's a fancy way of saying somebody can't go to the gas station and fill up.

[00:04:36]Well, who's that somebody that can't go to? We'll just raise the price high enough to price enough people out that they'll just decide to leave the car in the garage and walk or take public transportation or some other way of of getting around other than driving their car. That could be coming in as little as 30 days unless there is a deal of some type or there is a way to force the straight open. We are at a very crucial point in time right now. AI stocks have ripped. They're going to keep ripping.

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[00:05:25]>> Uh Jim, you know, you mentioned prices.

[00:05:26]Oil has jumped, I think, 8% on the news this morning. It's back up to about $95.

[00:05:31]It could go a lot higher. We'll we'll have to see how this plays out. But it seems like, as you said, the markets have been looking through this. They've been, you know, pricing oil down, markets been going up, and it seems like we still have to deal with a lot of the reckonings of this this crisis and the energy shortage on the horizon. What do you think that looks like as we start to run into these like like you said, these operational minimums and see like the actual economic impact of this start to hit the economy?

[00:05:54]>> Well, let's talk about which economy we're talking about. I'm going to refer to the global economy. I think where you're going to see these operational minimums show up first is in Asia. Um most of the Persian Gulf uh or Arabian Gulf oil comes from goes to Asia. It's very simple because it's only a 21 day it's only a 21 days to get a tanker from the Persian Gulf to somewhere in Asia or it could be closer to about 40 or 45 days to get it to North America or South America. So they're running down their inventories. Japan is really running down. They're living on inventories right now. Just kind of their strategic reserves and just trying to run everything down as quickly as they can.

[00:06:38]So I think when you hit those operational minimums, it's going to show up there. It's going to show up in Western Australia. It's going to show up in the Philippines. It's going to show up in India first. Then if it continues, the next place you'll see that that limit on oil is probably going to be in Europe. uh because they do get some of their oil from Europe. United States, it'll eventually come here if it lasts months. So, the good news is you probably for if we do hit operational limits in the next month or two, you'll never go to a gas station and it'll have a sign that says out of gas, but you won't like the price you will see at the gas station because oil is a global commodity. It's priced globally. If there's a shortage in the globe, our prices go up. we just have it. Everybody else's prices go up and their gas stations say out of gas. That's going to be the big difference between us and the rest of the world.

[00:07:36]>> Jim, you tweeted something yesterday that I wanted to ask you about as it relates to this this energy crisis here.

[00:07:41]You tweeted that every crisis starts with treat treating a structural problem as a temporary liquidity glitch. And I wonder if you could just elaborate on this particular quote, what you're referring to, and how this ties in with what's happening in the markets today.

[00:07:54]Every time we have an issue in the bar in the financial markets, we always talk about whether this is a liquidity problem or a solveny problem. Solveny problem means it's a long-term structural problem. Liquidity problem is it's a temporary inconvenience and we just got to kind of get through this period and then everything goes back to normal. And Wall Street operates under this uh dictim this time is different.

[00:08:17]and that everybody understands that be careful if this time is different because if you believe it, you wind up losing money. And that is usually the case until it is and then you get wiped out. So that's one of these things. This time is different. It's like at a 90% batting average, but the 10% of the time you're wrong, it destroys you. Uh is what you have to be careful of. Uh uh as well. So, um, as far as what what I was referring to is back in 2020, we said, "Oh, the financial crisis or the the the lockdowns are temporary. 15 days to stop the spread. Here, just pump a bunch of money into the economy. We'll get through this and everything will go back to the way it was." It never did. In 2008, we said subprime thing. It's just a bunch of people freaking out. Pump a bunch of money at this thing. It will go away. It structurally changed the mortgage market and we had three years of down markets and a 50% loss. Same thing with 97 with the financial crisis in 97. We said, "Oh, this is just a temporary thing. Bunch of traders losing their mind, pump some money into the system, and then we'll all go back the way we were." No, we didn't. We had 98.

[00:09:25]We had the failure of long-term capital.

[00:09:27]We had the tech bubble peak in 2000, and the markets were kind of dysfunctional for several years. This time around, what we're saying is the straight of Hermoose will open. So that's it. Dump all these inventories on the market right now. Keep the price down. Keep the oil flowing through [snorts] running down inventories because as I said earlier, it will get it will get better and then the flow the o the straight will open and the oil will start flowing. But if it doesn't, we hit these operational minimums. This is the way Wall Street treats every problem. Every problem is it's temporary. just do a short-term fix. It will return to the way it used to be. Now, sometimes it does and maybe even most of the time it does. And you see, I told you it would return to normal. See, I told you return to normal. And like I said, that one in 10 time or that one in eight time it doesn't return to normal. It's devastating. And that's really the question you have to ask. Is the straight of hormus going to return to normal in the next 30 or so days? If it is, then all these inventory rundowns and the way we've been managing this is fine. If it doesn't, the way we've been managing this has been, you know, borderline irresponsible because now we're going to have a shortage of oil and we're not going to have inventories for emergencies and that's going to be the problem we might be facing through the rest of the summer. Now, like I said earlier, I don't I don't understand why the Iranians would deal under, you know, I don't think they're under any pressure to deal. I hope I'm wrong. I hope that there is going to be a deal, but I've also been told six or seven times that the deal's been done and six or seven times the deal has not been done.

[00:11:13]Including last week when we told it was all agreed to. It was all done. It was completely over. And now here we are with price of oil up 8% today on Monday and it's not over.

[00:11:24]>> It seems like the markets are going to have to start pricing in taking this uh a little bit more a longer view of this situation. Um and I hope that that happens. Uh Jim, I I I want to get your thoughts on on the Fed here because one of the biggest impacts of this energy shortage has been this spike in inflation we've seen in the recent data and we've got a new Fed chairman coming in. Kevin Worsh was appointed ostensibly to be dovish. Um, but now it seems like he's going to be put in a situation where inflation is overheating and a lot of the sitting governors on the board of the Fed are are getting more hawkish.

[00:11:53]What are you expecting from this meeting? What are you watching for for Kevin Worsh to do here and how important is this first meeting for of his his chairmanship?

[00:12:00]>> Oh, I think it's going to be very important. I mean, from a little from a technical standpoint, um Kevin Walsh has no speeches scheduled since he since he's been um he took the oath as Fed chairman. So, his first public appearance as Fed chairman will be the June 17th press conference. And that'll probably be a very long press conference because that'll be his first time. And I'm sure there's going to be a lot of questions for him. Now, you're right. He got the job because he was dovish and was arguing that we were going to have these tremendous productivity enhancements because of AI. that was going to hold down inflation and that was going to give the Fed room to cut rates. I I'll argue he's not wrong about, you know, the potential for AI and I'll give him some grace. He said that last year. Well, lots of things have changed since last year. He's not really talked about anything, especially since the war started in February. He hasn't really discussed updating his view. he wasn't really pressed on his view about inflation during his nomination hearing.

[00:13:07]Um so we don't know where he stands right now. We'll find out on the 17th uh where he does. Now, a couple of things I would argue. Um this is also a very different Fed than where it was last year. The Fed has been so worried about what they refer to as independence. Are they going to be under political pressure to do certain things? Um, you know, Senator Warren, um, Elizabeth Warren called him a sock puppet to the president of the United States. Well, I would argue that the Fed has already fixed that problem. And the way I would argue that they fix that problem is, let's remember, there are 12 FOMC voters and you need a majority, seven, in order to get any policy pushed through. We forgot that because for the last 40 years, those other 11 people didn't matter. Uh all that mattered is what the Fed chairman said, what the Fed chairman wanted to do, and everybody else just did what he told them to do. Well, we've seen that change. We have now started to see more independence among all of the voters. The last Fed meeting um that we had at the end of March was an 84 vote.

[00:14:22]Four dissenters. That is the most we've seen in 34 years in terms of dissenters.

[00:14:28]So I would argue you're going to hear Kevin Walsh offer his opinion on June 17th. He's one of 12 voters. There's 11 other voters and each one of them has as equal power as he does. his job is going to be a articulate a position, whether it's hawkish or dovish or neutral, and b get six other people to agree to vote with him, at least six others to agree to vote with him on that. And I would argue right now, if Kevin Walsh won, it's to go out on June 17th and say we should cut rates, there is not six other people that are going to vote with him on that. He will be in the minority. he will be a denter of the opinion to hold rates steady on June 17th. The last time a Fed chairman has been outvoted was 1939. So, it's been quite a while um since we've seen this happen. So, I do think that he's got that to deal with uh as well too. But right now, we'll find out what he thinks uh and um we'll find out whether or not the board will agree and go along with them. But by my reading at the way that they've been talking at the board, they're not of that opinion.

[00:15:40]>> Do you think that the market is going to react very like let's say like is this going to throw cold water on this market rally if he comes out with a hawkish tone and even Trump's dovish Fed chair?

[00:15:50]It takes a hawkish tract here or do you think that if if he goes dovish we're going to see the opposite thing happen and the markets are going to bubble even more of a runaway rally than they're in now? Like what what do you think are the the outcome risks on either side of this equation here? So, a couple of things.

[00:16:06]Um, as we started this broadcast, the Fed fund futures market is pricing an 85% chance that the Fed will hike hike rates this year before the end of the year. 85%. So, the market is expecting a rate hike. So, if he comes out hawkish, I don't think it does anything cuz the market's already there and the market knows he's going to give a speech on the 17th and they're still pricing in a rate hike before the end of the year. Now, if he comes out dovish, uh what kind of reaction will we get out of the market? Again, it comes to what I just said before. He's one All right, fine. One guy wants to cut rates. Who are the other six that are going to vote with him? Uh tell me, give me those names. Who are the other six? That's the way the market's going to look at it.

[00:16:54]And I think that at this point the market's going to say there isn't six other people that going to vote with him. So I don't think it's really going to be u a big mover. So in other words, what I'm arguing is on some respects he might be a situation where he's not going to have a big um reaction in the market unless the market believes that it's going to be something different than it expects and he can actually pull it off.

[00:17:21]>> Okay. Okay. Another question I had about this is how this is going to play into how Worsh manages the Fed's balance sheet because he's been very vocal about and you again as you said it's been a while since we've heard from him, but he's been vocal about wanting to change how the Federal Reserve manages their balance sheet, not holding so much uh so many assets on their balance sheet and shortening the duration of the assets on their balance sheet. Do you expect him to make any comment on that and and what reaction do you think that has or what impact does that have on the market in your view? I I do expect him to talk about that. I do think that, you know, in this case, I am 100% in his camp uh about the the Fed's balance sheet. His argument is that the Fed's balance sheet is too big. I agree. And the Fed has run into some trouble over the last couple of years as they've tried to reduce their balance sheet in that they've been squeezing liquidity out of the funding markets, the overnight repo market. And we've seen a lot of volatility in those rates, jumping around, especially last year before the Fed stopped with the reductions and nominally started doing what they call reserve management purchases, which has been increasing their balance sheet. Again, his argument is the reason that the Fed can't reduce their balance sheet much more is the the private sector funding, private sector liquidity for funding markets, the repo market is too small. And the reason it's too small is after 2008 when we had the financial crisis, we identified the repo market as a source of instability or risk for all financial markets. So we put a bunch of rules on it and we put a bunch of limits on it like the supplementary leverage ratio and some other things so we don't let it grow.

[00:19:08]And so the repo market as the size of the $39 trillion of debt outstanding is the smallest it's been on a relative basis in 25 or maybe 30 years. So his argument has been we need to re we need to restrict the rule get rid of the rules that restrict the repo market. Let it grow. Let it provide the funding for the market. Let it provide the liquidity. Then we as the Fed could pull back our balance sheet and we don't have to do it. I'm 100% in his camp. Now the problem with this is is Bill Barr, one of the Fed governors. Again, remember they're independent governors. They just don't do what the Fed says. He's already come out and said, "I'm against all of this. I don't think any of this is a good idea." And he's and he's offered his his arguments for that. And I hope that Worsh has asked about it. and he retorts to where he thinks that we should be. And furthermore, even if he gets what he wants, it's going to take a long time for it to happen. In 2006, Bernani came in as Fed chairman. And Bernanke's big thing was, I think we should institute inflation targets, an inflation target of of 2%. And most of the Fed members were on board with that.

[00:20:21]It still took the bureaucracy five years, five years to implement a 2% inflation target. In this time, some of the bureaucracies against it. So, I think Worsh could get this through, but it might not be till 2030. So, we're going to be operating under this regime that we are right now. But, I think in the end, he's right that we I we made a mistake. I don't think that the the repo market is the source of liquidity. I think the government through the Fed offering liquidity through the size of their balance sheet is the source of instability in the market. So get rid of the Fed. Let JP Morgan, Bank of New York Melon, BFA, City Bank, and the rest of them, let them meet out all of the funding requirements that the financial markets need. They're in better position to do it than the Fed. But we need to, you know, back off the rules on them so that they're allowed to do it. This is what they refer to as Fed Treasury Accord 2. Uh there was one in 1950s uh Fed Treasury Accord. And what that means is that Worsh is going to say, "Look, we want to reduce the balance sheet, but we need all the banks, the private sector banks to to do this heavy lifting for the funding market. We need the rules to be lifted on them. We, the Fed, can't get rid of those rules. you, the Treasury, with the FDIC and the OC, you guys work with us through an accord to get rid of those rules so we could reduce our balance sheet and they can do more of it. I, like I said, I'm completely in favor of this. I think this is a good long-term fix. Uh, but it's a long-term fix. It's not going to happen this year. It's probably not going to happen next year. Your phone [music] carrier knows more about you than your best friend does. Where you go, who you call, when you sleep, and they're selling all of it. AT&T, Verizon, T-Mobile, they've all been caught leaking data or cashing in on it.

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[00:23:20]>> Okay, so maybe some positive policy changes from Wor, but might take him a while to get those over the finish line there. Uh Jim, I want to keep following this thread about the the energy shock um energy crisis, the inflation shock that comes from it. You know, we talked a lot about how this might play into Fed policy changes, but the market has been looking through this. As we said, it's been nine straight weeks of up only on the S&P 500. A lot of this driven by concentration in this AI trade. At what point do you think this actually catches up with this, you know, monster bull run we've seen in AI stocks and we see these start to turn around or do you think this is a juggernaut and it's not going to slow down even if we don't get the straight of horm open.

[00:23:58]>> So, I do think that, you know, people go, I don't understand why the market's at a new all-time high because they're assuming that the war is the dominant theme in the market. And I don't think it is. I think AI is the dominant theme in the market right now. it has been what's been driving it for the last eight weeks or so. I think it's going to continue to drive it as well. Uh right now, if you look at the AI related stocks, they're 48% of the S&P 500.

[00:24:28]Almost half is, and that's 41. In fact, I I I posted this on X over the weekend.

[00:24:34]It's 41 stocks you can identify of the S&P 500 is 48% of the index. and that that is the most concentrated we've seen the index in a single theme since the railroads of the late 19th century. We have not seen a market this concentrated around one theme in 150 years. Now, when I post that, people scream, "Yes, bubble, bubble, danger, warning, Will Robinson," if you know the the TV reference I'm referring to. Uh and uh you know, and all that other stuff. I would argue it's not. I would argue that AI is the biggest technology and the biggest thing that we've seen since the invention of the railroads 150 years ago because the railroads fundamentally changed this country and AI has the potential to do the same thing as well.

[00:25:26]So the AI trade is the dominant trade.

[00:25:29]It should be um right now everybody's bullish on it. I understand why they're bullish on it. I actually am a little bit too. Maybe not more than a little bit. I think there's an a justification for it. Be happy to explain that. But you're right in lie of that what's happened with oil has taken a backseat.

[00:25:49]But if we hit those operational minimums and that price of oil really starts to shoot up a lot, that might force itself to the oil might force itself to the front seat even though it this has been an AIdriven market right now. Jim, a lot of people have been saying that just like you said, this concentration is unsustainable. These over these valuations are are way overbought, way overvalued. And yet, every time I hear somebody say that, somebody pushes back by saying, "But yeah, look at the forward earnings estimates." Um, that justifies these valuations and they're they're kind of cheap if you look at it that way. Where do you land on this? Do you trust these forward earnings estimates or do you think that there's reason to doubt that they'll be able to deliver on these these earnings that they're reporting? I think there's a way that they can deliver on these earnings and uh and on these estimates and that they may not be out of out of line. I'll give you the analogy of the iPhone um or a smartphone in general for all of you that are uh Android users. Um why do you pay several hundred for a phone maybe over a thousand if you're talking about a late model or new model um iPhone?

[00:26:55]Because you don't make phone calls that much. Are phone calls that important to you that you pay $1,000 for a device to make a phone call? No. You do it because the iPhone or a smartphone in general is a camera and a video recorder and a photo album and it's a communication device. It's a way to send texts uh and it's a way to order, you know, it's order order a coffee and a lot of other things. So, you pay that much money for an iPhone because you don't have to buy a tape recorder and a video camera and an electronic photo album and all of these other products. You don't buy those other products. So, that money got swept up and pushed into this new product called um an iPhone. Okay, keep that in mind. Let's talk about software.

[00:27:39]We're talking on a computer. Everybody's got computers and everybody's computer has SAS on it. Software as a service.

[00:27:47]You pay for Windows. You pay for Office, you pay for Zoom, you pay for StreamYard, you pay for Bloomberg, you pay for Faxet, you pay for compliance software, accounting software. I'm talking about a corporate computer, maybe not a personal computer, but they pay for certain things. Maybe Dropbox or Box or some other thing or Google Drive.

[00:28:07]Um, you know, and when you add it all up, your computer costs your company hundreds if not thousands of dollars a month. And part of your job, part of my job is that all of this software that we have on our computers, that doesn't talk to each other. Doesn't do a very good job of it. So you spend your day formatting this, taking this information and putting it over there, copying this file over here, taking this information, putting it into an email, sending it there, using this information to open up a PowerPoint and do here, you know, using this browser to do some research, then take this information, put it in the Word, um, and then use it here and then put some of this information to Excel to make a table to put there. So that's what you spend your day doing is juggling all this software. Well, the promise of AI is we're going to get rid of all this software and all your big computer's going to be is one context window. Just tell me what you want. Just tell me what you want. I want you to do this, order this coffee for me, go research this, put this table together, send this email to my wife, send this text to my kids, do all that done. It's all done then. And now I can do other things instead of juggling all these programs. I will then get rid of all this software.

[00:29:26]Those hundreds of dollars a month that I spent on that software will get spent to give to AI so AI can do that for me just like I do it with the iPhone so I don't buy a tape recorder or a camera anymore.

[00:29:41]If that's where we're going then and I think that is a realistic chance that we're going to go there. Um then AI is not overdone. Then AI has got huge promise and it could be very liberating for us because right now we all are stuck [snorts] in these soul crushing tasks. I don't want to say our jobs are soul crushing but the soul crushing task. Oh god, I got to answer all these emails. I got to go look this up. I got to figure out why this spreadsheet doesn't work right. I got to go reinstall this program because it keeps giving me keeps crashing on me and I got to spend two and a half hours, you know, someday this week doing all this stuff.

[00:30:17]I don't want to do it. But if I don't do it, it's never going to get done. So it's just the drudgery that I have to do. It could be liberating that it can do all of this for us. If and then I don't need to pay for all that other software. Then yes, AI is is not overdone. AI is its right to be hyped.

[00:30:37]But if the answer is going to be no, I still need to pay for all this other software and I also need AI, then it's a $20 a month product and it's way overspent and we're never going to see the the the payback on AI. The last thought I'll give you on this, Larry Page, one of the founders of Google, talking about AI and the importance of AI to the software stack and everything about a year ago said he would rather see Google go bankrupt than lose the AI race. What he meant was if we sit there and do nothing, search and Google maps and Google Drive and Gmail and everything else that we provide as our SAS software all goes away to somebody else who's going to replace it with a contact window. There'll be no software program for email or software program for spreadsheets. You'll just tell your computer, I need a table of X. Boom, there's your table. Now put it into the put it into a presentation. Now it's in a presentation. Now send it to John. And there it just sent it to John. That's what my job will be in the future. In other words, I'll never need a keyboard again. I'll just tell my computer what to do. I won't be banging away on a keyboard all day long getting programs to talk to each other. That's why he said he'd rather see Google go bankrupt because they have to win this race. And that's why Gemini and stuff, they're in this. So, what I'm trying to argue is I'm not that pessimistic on AI. Now, if you want to argue to me, it's overhyped.

[00:32:17]It will never see that fulfill that promise, then I'd get a little bit more worried. I'm not there. I'm not there. I still think it can um fulfill that promise. I've been a big user of it. I subscribe to all of the services. Um right now, I spend a big part of my day working with AI to do my job and it's been transformational. And that's kind of where my bias comes from, why I'm so positive on it.

[00:32:41]>> Gotcha. Yeah. Well, I just want to get your thoughts on that because it's something a lot of people are wondering about right now. Um, another thing that a lot of people are wondering about is all of these IPOs for AI related stocks that are planned for this year. There's SpaceX, Anthropic, OpenAI. I think SpaceX is going to be the first one, but all told, it's going to be around $4 trillion estimated um for these IPOs.

[00:33:00]I'm curious your thoughts about where the liquidity for this comes from. Do you think this is just going to come out of all risk assets? Is it going to be impacting, you know, the semiconductor trade most directly? How do you think about this and and how are you positioning around this as this wave of IPOs comes towards us here?

[00:33:14]>> Yeah. So, a couple of things. Um, first of all, I want to go back and one make one last point about um AI uh before a job is a series of tasks. You you bundle a bunch of tasks together and it's a job. What I think AI is going to do is it's going to automate tasks. It's not going to automate jobs because everybody's job, even a driver, uh, everybody's job has certain tasks it does. Now, in driver, a big task is actually holding the steering wheel and driving the car. But if AI is going to do that, then maybe a person in the vehicle can take on other tasks, do other more important things than just make sure the car doesn't crash while it's going to a destination, you know.

[00:33:56]So, we'll have to start thinking about that. And that's why I'm not so afraid about uh AI. I know the kids have been booing at commencements about it and stuff like that and I understand why because they've been, you know, they're they're they're told that they're screwed. They're not going to get any jobs because of AI. No, it's going to get rid of tasks is what it's going to do. So, I'm not so pessimistic about the job market or about the downside of AI uh for right now. Now, as far as the IPOs go, you're right. The 12th of June is when we expect the SpaceX IPO. About $1.8 8 trillion is what roughly speaking is where its valuation is going to come and then we'll get the anthropic one which about 960 billion uh and then we'll see where um open AAI's valuation is you know it should be somewhere similar to anthropic so a couple of things you're right these are going to be the biggest these are going to be the biggest IPOs that we've ever seen history has shown that usually around record IPOs you get a stock market peak not the day of or the week of but within a few months or something like that you get a you get a stock market peak. Um, so but bear in mind if if SpaceX comes at a $1.8 trillion valuation, that doesn't mean that it has to have $1.8 trillion. If they only issue $75 billion worth of the company, 5% of the float, then in a float adjusted way, that's all you're going to have to come up with is $75 billion. Now, that's a lot of money, but it's not one it's not 1.8 8 trillion or somewhere in that range or so. That that's all that you'll really have to come up with in terms of the money. Now, what is happening that's interesting is the NASDAQ and S&P Dow Jones have issued rulings where they've said the NASDAQ has said that the IPOs can be an IPO can be um in considered for inclusion into the NASDAQ 100. the triple Q's 15 days after its IPO date. So before the end of June, we could very well see SpaceX in the Triple Q index. And S&P Dow Jones said that for the S&P 500 fund, 6 months. It used to be a year and then there was profitability requirements.

[00:36:10]Well, now they said it's 6 months. And the profitability requirements are more of a guideline. They're not a hard rule, but it's still up to the committee. So, it's very possible we could see SpaceX or Anthropic or something like that by the end of the year into the into the S&P 500 index. Now, why is that important? Because that unleashes a ton of index bond. Well, now that you're in the triple Q's or you're in the S&P 500 that they're going to take up a certain waiting on that. What that'll wind up doing is it'll put pressure on the other stocks in the index because if it comes in uh SpaceX comes in at four or five% waiting into the index means I got to sell four or five% of everything else um in some proportion so that I could then redeploy that money back into SpaceX. It will be interesting to see how this plays out because we've never had an IPO of this magnitude and potential inclusion into a stock index, especially in an era of passive like we've had before. I would actually argue to you part of the issue that's going on here is go back to the financial crisis in 2008. We passed that DoddFrank bill I talked about before and one of the other things it did was it put a big disincentive on companies going public and so therefore we've got gigantic you know private companies SpaceX Anthropic Open AI just to name a few and the public is feeling kind of left out. Why didn't these companies come public five or seven years ago? And I would have had the opportunity to buy into these companies uh in a in a on the New York Stock Exchange or the NASDAQ and saw it go up 10 or 20x or 30x in my portfolio or in my brokerage account. Right now, they're pro they're private companies.

[00:38:01]And unless you are investing with a VC or you're or you're a well-healed investor to have access to this, you've been shut out of these markets. So, we put a bunch of rules in after the financial crisis in 2008 to say, "We don't want companies going public as much because it's problematic because people could lose money." And it turned out to be the opposite. All these great companies that have just been spectacular home runs for their investors, regular people are not allowed to buy into it because they're not allowed to because they've made it too restrictive for them to get uh listed on an exchange. You're listening to the Milk Road Show, which means you've got takes, strong ones, I bet.

[00:38:38]But where do those takes actually go? Do you tweet them into the void, argue them in the group chat, or do you try to express them by buying a stock? The thing is, stocks move on like 50 other things at once. [music] And that's where Koshi comes in. It's a CFTC regulated prediction market where you bet directly on outcomes like Bitcoin hitting [music] 100K, Fed rate cuts, GameStop buying eBay with a clean yes or no. We did a full deep dive on why prediction markets might be crypto's third product market fit moment. Check the show notes for the full report and claim [music] $10 free when you trade $10 on Kouchi.

[00:39:08]>> Yeah, so there's been a lot of unintended consequences from those policy changes. Uh Jim, you we're getting close to time here. I want to end I have a lot more questions for you than we ever get to, but I want to get some thoughts for you on the outlook for the end of the year and how you're thinking about allocating your portfolio. Like you said, there's a lot of um macroeconomic risks still at play, geopolitical risk still at play. There's a lot of unknowns with the future of this AI trade and these IPOs. What are you focused on in your your portfolio?

[00:39:33]How are you thinking about navigating the second half of 2026? I still think the AI trade's got room to go and I think that that's a place that you want to play um you know uh with the AI trade. Now it's a very risky trade. I mean you know so let's not you know let's not sugarcoat this thing. It's it's got high risk and it's got high reward. Um so I I still think that there's some play right there. I think we're going to hit some turbulence if we hit those operational minimums on oil and there's going to be a collision there between that and potentially the indigestion of the um SpaceX IPO. So, I wouldn't be surprised if we do see after eight or nine weeks in a row in the market, we're going to see some indigestion. But um ultimately I want to then turn to economics and I want to say that while we talked about inflation being elevated because of it of oil prices or gasoline prices to be particular, the economic data has been really good in the United States. Um we just got the Institute of Supply Management's uh purchasing managers report this morning was excellent. Uh it says that the manufacturing business is doing very well. The labor market, if you adjust for the lower population growth because of no immigration, is actually in pretty decent shape. Retail sales are actually doing very well as well. Now, you could scream at me, it's K-shaped. It's a bunch of the top 10 or top 20% of income that are powering the whole economy along. And I'll agree with you, it is. And that is unfortunate that we have such a K-shaped economy because 80 or 85 to 90% of stocks are held by 10 the top 10% of income right now. You have to have money to buy stocks and they're making money in their stocks and they also own their own homes and the home prices are going up. So they've got this wealth effect that they've been spending. So that's going to keep the economy doing very well. Um, if you say the answer is, but the bottom half of the country is screaming that we have an affordability problem. They're very unhappy about what's going on and they're scared that AI is going to replace them, I don't disagree with you on that assessment. But if you think cutting rates is going to make it better, it'll make it worse. It'll just it'll just push up inflation more. So, you have to kind of manage interest rates to the economy. And yes, the rich are powering this economy higher. It is becoming more K-shaped. That's the way I see it. But I think that that will keep it that'll keep the earnings coming from everything, you know, away from AI. That will keep the economy in okay shape unless things in the straight of Hormus get completely out of control. And that's still a possibility. Completely out of control is we see $200 oil is what that means. I mean, I it's not a base case, but it's it's a possibility.

[00:42:26]So, risk on. Yes. And I still think I would want to, you know, continue to look for the market to do better as we um as we start to move forward from here. Final thing I'll say is I think that also means higher interest rates and that interest rates are going to start to move up uh as well too. Uh they have been we were under 4% in the 10-year note before the war started.

[00:42:50]We're at 450 right now. I think it can move towards 5% or so by uh the end of the [clears throat] year. I I really appreciate you coming on the show, sharing so much wonderful insight with our audience today. I I love having you on Milk Road Macro. I know our audience loves it, too. Um, where can we send our audience to find more of you and your work online?

[00:43:07]>> So, a couple of things. Um, you could you could I have two businesses. The first business is the research business. That's Biancor Research at Biano Research on Twitter or XBonor Research on YouTube. We have a YouTube channel. biancorresearch.com is the website where we provide research for institutional investors um and the like or you could look me up on LinkedIn at Jim Biano my name. The second business we have is we manage an index a fixed income total return index called the Biano fixed income total return uh index. What a great unique name. You can find out more about that at Biano Advisors. Uh, and um, our partners at Wisdom Tree have an ETF that tracks our index under Wisdom Tree Biano Nancy.

[00:43:56]WTVN, Wisdom Tree, Biano Nancy. It's a fixed income total return um, index that's been around for about two and a half years. So, those are the two ways you can find out more about what we do.

[00:44:06]>> Jim, thanks so much for being on Milk Road Macro. I'm really looking forward to getting you back on to catch up as we see what happens with the rest of this year. But, uh, thanks for being here, Jim.

[00:44:14]>> Thank you.

[00:44:15]>> And thank you all for joining us. Guys, I hope you all learned something today.

[00:44:17]So, until next time, as I always say, stay safe, stay educated, stay bullish, and we will see you all on the next episode of Milk Road Macro. Thanks for being here, everyone. Bye. Want Insights on what's really moving markets and how we're trading each event? Subscribe to our channel, then join the Milk Road Macro [music] and Macro Pro newsletters.

[00:44:33]This show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.