Years After the Nixon Shock — Is the Next One Coming?

Stocks were playing an energetic guitar solo yesterday, bending notes into the stratosphere, when — twang — a string snapped.

The monthly producer price index, which tracks inflation as businesses experience it, came in hotter than a summer sidewalk in Phoenix.

That surprise took the wind out of the market’s sails and left the major indexes limping to the close. The Nasdaq still notched a new record high, barely. More on the Nasdaq’s historic nosebleed territory in a moment.

Tapestry, the parent company of Kate Spade and Coach, also had a bad day in the style department. The company said tariffs will cost it $160 million this fiscal year — not exactly runway-ready news for shareholders.

PPI Surprise, Fed Watch

Wholesale inflation jumped 0.9% in July, well above the 0.2% forecast.

“Some of this is portfolio management costs,” Stephen Brown at Capital Economics said, “which won’t concern the FOMC.” Traders didn’t quite buy that — the odds of a September Fed rate cut slipped from 100% to 95% in minutes.

At Jackson Hole next week, during the annual confab of the world’s central bankers, host Jerome Powell will give his annual “state of the economy” sermon. The U.S. president will not be in attendance. But you can rest assured his acolytes will be.

Between now and then, expect the market to treat every whisper about rates like gospel.

One bond trader joked to me this morning: “If Powell so much as sneezes, the yield curve will invert twice before lunch.” Another veteran currency trader, already packing for Wyoming, said: “Jackson Hole is basically Fed Coachella — only with more bad coffee and bigger consequences.”

Tech vs. GDP: A Bubble You Can See from Space

The NASDAQ’s market cap relative to U.S. GDP has hit 105% — the highest in history, nearly double the 2022 bear market low, and a full 40 percentage points above the Dot-Com peak in 2000.

In plain English: the stock market’s biggest stars are shining much brighter than the economy underneath them.

Turn Your Images On

Large-cap tech’s AI binge is part of the story. Microsoft alone plans $86 billion in AI spending next year — a figure that’s bigger than the GDP of Slovakia. Smaller rivals can’t keep up, and some, like Wix.com and Chegg, are finding themselves on AI’s endangered-species list.

Turn Your Images On

An analyst at Wedbush told Bloomberg, “It’s the first time in decades we’ve seen capital deployment so concentrated in a handful of companies.”

Translation: the big are getting bigger, and the gap is turning into an abyss.

White House Eyes Intel Stake

Bloomberg reports that the Trump administration is mulling a stake in Intel to help fund its long-delayed Ohio plant. The rumored deal would follow the government’s “golden share” arrangement with Nippon Steel and the revenue-sharing pact on Nvidia’s H20 chip sales to China.

But sources say it would only happen if Lip-Bu Tan stays on as CEO — proving once again that in Washington, it’s often about the personalities as much as the policy.

Of course, because state ownership of private enterprise always ends so well…

₿ Bitcoin’s Brief Glory and some quick hits

Bitcoin popped to an all-time high of $124,436 late Wednesday, then slumped more than 4% by the market close Thursday.

Traders blamed the hot PPI number and a comment from Treasury’s Scott Bessent that the U.S. won’t be adding to its $15–$20 billion bitcoin reserve. “The optimism was like helium in a balloon,” one crypto desk manager said, “and PPI just let the air out.”

The average 30-year fixed mortgage rate slid to 6.58% — the lowest since October 2024. Thanks to lower bond yields, this is a small reprieve, but Mortgage Bankers Association economist Michael Fratantoni warns: “Enjoy these little windows, but don’t expect them to stay open.”

President Trump and Russia’s Vladimir Putin meet in Anchorage today for high-stakes talks. Trump has threatened “very severe consequences” if Putin doesn’t agree to a ceasefire.

Locals are still buzzing about the spectacle — one coffee shop owner told the Anchorage Daily News, “We’ve never seen so many black SUVs in one place, not even during tourist season.”

Alas, more than a few speculators on social media see this summit as a sideshow with no teeth designed to distract the media from the scandal surrounding the Epstein files.

Buffett’s Buys

In a not-so-surprise move, Greg Abel, Buffett’s hand-picked successor to run Berkshire Hathaway, announced the erstwhile conglomerate, which has a hand in everything from car insurance to railroads, had gobbled up over 5 million shares of UnitedHealth last quarter, along with stakes in D.R. Horton, Lennar, and Nucor.

The firm also trimmed Apple and Bank of America.

In a move that followers of the Grey Swan model portfolio will find intriguing, UnitedHealth stock jumped 8% after the news — proving that when Buffett taps his buying stick, even from retirement, the market still listens.

Woodstock, Yes… But Remember Nixon

Fifty-six years ago today, the hippie love fest Woodstock Music and Arts Festival opened near an impromptu location at Max Yasger’s farm in upstate New York.

Turn Your Images On

But the anniversary that matters to your wallet is August 15, 1971 — the day Nixon slammed shut the gold window, ending dollar convertibility into gold. Foreign nations, tired of holding paper dollars from a country running hot wars and cold social programs, had started asking for the real stuff.

Nixon’s response: “No gold for you.”

From that day forward, the dollar has been backed only by the “full faith and credit” of the U.S. government. And for 54 years, that faith has rested on politicians’ ability to avoid spending the nation into oblivion. Spoiler alert: they haven’t.

Today, we have $37 trillion in debt, a handful of tech giants devouring the world’s capital in the name of AI, and markets priced for perfection. Inflation isn’t dead — it’s just sleeping with one eye open — and yet the political drumbeat is for more rate cuts, more spending, and more leverage.

As in 1971, the risks are clear. But unlike in 1971, we don’t have a tether to gold — or anything else. The guitar solo is still going, but every note takes us closer to the next snap.

Insider Whispers: Jackson Hole Watch

Traders heading to Jackson Hole next week say Powell’s speech will be read less for what it says and more for what it omits.

“If he dodges inflation risks entirely,” one hedge funder whispers, “that’s the green light for cuts.”
Another says the real suspense is whether Powell tips his hand on the Fed chair succession list — Bessent’s “big list” of 10–11 candidates is already making the rounds in Wyoming hotel lobbies.

The wild card? A sudden geopolitical flare-up, which could force Powell to pivot mid-sentence from rate policy to risk management. Or, more likely, Donald Trump with his proverbial thumb on the scale.

~ Addison

P.S.: Your thoughts? Please send them here: addison@greyswanfraternity.com

How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.

(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites: Bookshop.org, Books-A-Million or Target.)

Stocks were playing an energetic guitar solo yesterday, bending notes into the stratosphere, when — twang — a string snapped.

The monthly producer price index, which tracks inflation as businesses experience it, came in hotter than a summer sidewalk in Phoenix.

PPI Surprise, Fed Watch

Wholesale inflation jumped 0.9% in July, well above the 0.2% forecast.

Between now and then, expect the market to treat every whisper about rates like gospel.

Tech vs. GDP: A Bubble You Can See from Space

The NASDAQ’s market cap relative to U.S. GDP has hit 105% — the highest in history, nearly double the 2022 bear market low, and a full 40 percentage points above the Dot-Com peak in 2000.

In plain English: the stock market’s biggest stars are shining much brighter than the economy underneath them.

Turn Your Images On

An analyst at Wedbush told Bloomberg, “It’s the first time in decades we’ve seen capital deployment so concentrated in a handful of companies.”

Translation: the big are getting bigger, and the gap is turning into an abyss.

White House Eyes Intel Stake

But sources say it would only happen if Lip-Bu Tan stays on as CEO — proving once again that in Washington, it’s often about the personalities as much as the policy.

Of course, because state ownership of private enterprise always ends so well…

₿ Bitcoin’s Brief Glory and some quick hits

Bitcoin popped to an all-time high of $124,436 late Wednesday, then slumped more than 4% by the market close Thursday.

President Trump and Russia’s Vladimir Putin meet in Anchorage today for high-stakes talks. Trump has threatened “very severe consequences” if Putin doesn’t agree to a ceasefire.

Locals are still buzzing about the spectacle — one coffee shop owner told the Anchorage Daily News, “We’ve never seen so many black SUVs in one place, not even during tourist season.”

Alas, more than a few speculators on social media see this summit as a sideshow with no teeth designed to distract the media from the scandal surrounding the Epstein files.

Buffett’s Buys

The firm also trimmed Apple and Bank of America.

Woodstock, Yes… But Remember Nixon

Fifty-six years ago today, the hippie love fest Woodstock Music and Arts Festival opened near an impromptu location at Max Yasger’s farm in upstate New York.

Turn Your Images On

Nixon’s response: “No gold for you.”

As in 1971, the risks are clear. But unlike in 1971, we don’t have a tether to gold — or anything else. The guitar solo is still going, but every note takes us closer to the next snap.

Insider Whispers: Jackson Hole Watch

Traders heading to Jackson Hole next week say Powell’s speech will be read less for what it says and more for what it omits.

~ Addison

P.S.: Your thoughts? Please send them here: addison@greyswanfraternity.com

Europe’s GDP has flatlined over the past 15 years, against a doubling in GDP for the U.S. and even bigger GDP gains in China.

While the U.S. leads the world in AI spending, and China leads in technology like drones, what does Europe lead the world in? Regulation.

They spend more time penalizing U.S. tech firms for regulatory violations than encouraging their own tech ecosystem.

Liquidity is flowing again, but conviction isn’t. U.S. M2 money supply has been expanding for months, even before the recent interest rate cut.

Currently, it’s up 4.8% year over year. That’s the fastest pace since 2022. That’s just enough to drive stocks higher in the short-term. Even algorithms and systematic funds will respond mechanically and buy stocks when they see liquidity rise. It’s the most fundamental indicator.

The volatility index (VIX)’s rise to 16.6, up over 2% this week, shows that big money is hedging, even as the market indices rise. After all, with signs of a slowing economy – and a government shut down – it’s hardly business as usual.

By then the receipts on my desk had arranged themselves into a sort of chorus. I heard, faintly, another refrain—one from Kentucky. In the first days of the shutdown, Senator Rand Paul stood alone among Republicans and voted against his party’s stopgap, telling interviewers that the numbers “don’t add up” and that he would not sign on to another year that piles $2 trillion onto the debt.

That, I realized, is what the tariff story shares with the broader budget theater: the habit of calling a tax something else, of shifting burdens into the fog and then celebrating the silhouette as victory. Even the vote tally made the point: he was the only Republican “no,” a lonely arithmetic lesson in a crowded room.

Senator Rand Paul, (R. KY), who was the sole Republican to vote against a continuing resolution, seems to care about the actual finances of the government. “I would never vote for a bill that added $2 trillion in national debt,” Paul said in various interviews over the weekend.

The $2 trillion he’s referring to is the lesser of two proposals made by the national parties… and would accrue during this next fiscal year.

Oy.

We liked what Liz Wolfe at Reason wrote on Friday, so we’ll repeat it here: “One of the dirty little secrets of every shutdown is that everything remains mostly fine. Private markets could easily replace many federal functions.”

It’s a strange kind of confidence — one where Wall Street soars while Washington goes dark.

Europe’s GDP has flatlined over the past 15 years, against a doubling in GDP for the U.S. and even bigger GDP gains in China.

While the U.S. leads the world in AI spending, and China leads in technology like drones, what does Europe lead the world in? Regulation.

They spend more time penalizing U.S. tech firms for regulatory violations than encouraging their own tech ecosystem.

Liquidity is flowing again, but conviction isn’t. U.S. M2 money supply has been expanding for months, even before the recent interest rate cut.

The $2 trillion he’s referring to is the lesser of two proposals made by the national parties… and would accrue during this next fiscal year.

Oy.

It’s a strange kind of confidence — one where Wall Street soars while Washington goes dark.