Getting Ready For A Protracted Bear Market | Last Bear Standing
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this f***ing door.

We've got a very special conversation today. I am speaking to an analyst known only as the Last Bear Standing. The Last Bear has a piece out today called the Matador, where the Last Bear expresses a extremely strong and bold call.

Last Bear, it's great to have you on Monetary Matters. I'll welcome you and I'll just first quote from your piece. Quote, the market's current decline is not a correction, a bump in the road, or a dip to be bought. We have entered a protracted bear market that will result in subpar equity returns from current levels. That is a bold thesis. You must have a lot of conviction in order to make that case publicly, Last Bear. Welcome to Monetary Matters. Explain your thesis for me and our audience here today.

Thanks. First of all, thanks for having me. I think that there's always uncertainty in markets and you have to look at the probability weighted approach of what's going to happen going forward.

But when I look out today, I think that there's a number of things that are converging at the same time that really make the case for subpar equity returns going forward. I think that you have a long cycle that is coming to a point of resolution here that probably goes back to 2020 in terms of the response to COVID, the bounce back that came out of that, the capital spending that came out of that, the

capital cycle, so to speak, that came out of that. And we've seen a rollover in terms of a lot of macroeconomic data that's happened for the course of two to three years. And I think that people have gotten complacent to the degradation in data for a long time and because it hasn't necessarily affected equity returns.

But we have that as an underlying sort of trend in the economy. And then at the same time, we're adding on two new elements to this situation. The second element is the policy risk. Obviously, everyone's aware of tariffs and the potential impact that that has going forward. I think that there's still a lot of uncertainty about exactly how that flows through the economy, where it shows up, how long it takes to show up and what are the ultimate ripple effects. But we know that it's not a positive growth outlook.

At the same time, you have government spending going from being a tailwind to a headwind, reducing government spending on things like contractors and employment. And then finally, you have sort of market dynamics themselves, which I think are really important, which is that you saw all the same sort of hallmarks that we saw back in, let's say, 2021 reappear in the equity markets, particularly last year.

Obviously, we had a bull run that sort of started in late 2022, early 2023. But that really accelerated in the past year in the terms of leverage and the way that leverage is expressed in the market today, which is options trading, high level of call options coming in, increasingly levered ETFs and sort of

speculation in the way that's kind of hard to deny. And so when it went from being much more fundamentally driven earlier in the cycle to being much more, in my perspective, speculative, you have to start to worry about multiple contraction and sort of a reset of expectations. And so when you have those three forces coming together at once, I think it makes for a pretty compelling case that looking forward, we're going to have subpar equity returns at the end

at a minimum. And we've had a strong drawdown and a pretty strong bounce back. It's unclear whether that bounce back is still going up or going down, but my view here is taking a longer term perspective over the next year or so. - So those three pillars of this bear market that you envision, the capital cycle, the trade war, the market mirage,

Is it the case, Last Bear, that it is the trade war that is the true catalyst for this? Because I think you've had those pillars, those two pillars, the market mirage, the leverage building in the system, and then also the capital cycle of a tremendous amount of new money being raised, particularly in private markets. But I think that it's the trade war that has really caused the market to roll over. Do you think that it is really the trade war and just how big of a

But how big of a pillar is this? I think you're right. It's absolutely the catalyst. And I think it absolutely changes the dynamic, not just for its direct effect, but for its indirect effect in terms of uncertainty, in terms of consumer preferences or consumer concerns around the economy. And I think that that's that's you're right, that on the other two categories, those are things that we've talked about for a while. I would say, though, that that from the market perspective,

I would say that the amount of speculation or sort of the extreme level of that really is actually a more recent phenomenon. I think that you really saw it take off

Like I said last year, but particularly late last year, we sort of saw a blow off type top type dynamics, particularly post-election, where you saw really explosive stuff in quantum computing and a lot of space names that are pretty speculative in companies that are pre-revenue, small nuclear reactors, that sort of thing. Things that are visionary, let's say, but have a strong, hard path towards commercialization.

And so I think that it is a combination of all three. And you're right that tariffs are sort of the key catalyst that sort of puts it over the edge. But I think that all three are important. And you write that.

You're more convinced than ever that we've entered the complacency phase of the cycle. What does that mean? You see the pattern over and over, the classic sort of market cycle pattern. The complacency period is actually the point after the top when things, you have a fall off and then you have a rebound and people say, okay, you know, things are okay. Maybe it's not as bad. We overreacted. It was a knee jerk reaction. We're back on the trend upwards, right?

And so I think that that's actually exactly where we are now, where you look at, you know, obviously the market fell pretty dramatically after the sort of liberation day tariffs, but it's rebounded almost entirely in the past three weeks. We've taken away whatever pain that was in the market that's already been sort of retraced. And you are back in the point where people feel

you know, are feeling like, okay, we went through a little bit of a knee-jerk reaction, but it's back to the highs. But I think that doesn't take into account the fact that, you know, the announcement of policy that happened maybe a month ago hasn't had any tangible impacts yet, just because of the fact that it takes a long time for that to sort of work its way through the system. Maybe it has some, but really that's coming in the future. We're in sort of an interesting period where

At first, you freak out because of the announcement. And until you start to see tangible, practical implications of that, there's this period where you can continue to downplay it and get back hopeful and sort of reach the complacency phase. But if you look at what's been the strongest gainers in the past month or since April 7th, let's say, it's things that are...

things like Bitcoin, Palantir, even Trump coin, I think was up 100%. So a lot of things that have really gotten knocked off, but have bounced back really strongly, I think show that the strongest rallies are in bear markets. And so when you see the S&P up 15% in three days off the intraday lows on April 7th, I think that's an indication of where we are.

And you're absolutely right that huge one-day rallies, the market, for example, going up 10% as it did on, I know it was a Wednesday, let's call it April 7th or something, that that is a sign of a bear market rally. So when I saw the 10% move, I was not worried. I've had a bear thesis as well. But the recent move, Monday, it's up. Tuesday, it's up. Wednesday, it's up. Thursday, it's up. I see folks online talking about a so-called

Zweig market breath thrust. I have no idea what that means, but basically it's pretty similar to what I think I observed is that the market is going up and it's very strong. It also has to do with breadth. I guess the large number of stocks are actually going up and there's no stocks that are going down. But is this quite vigorous recovery? Is that challenging your bear thesis? Are you getting a little bit nervous and

revisiting your prior convictions. I think it would be a poor investment perspective to be, you know, nailed down to a specific thesis, no matter what happens. You have to have, you have to be flexible to the dynamics. If there's changing data, if, you know, if your priors get contradicted, then it makes sense. You need to pivot and you need to pivot fast. So I think that that's,

That's part of being a good investor and being able to be flexible. But at the same time, I think it's also important to have some sort of underlying basis that's not based on price action. And that's based off of here's what you can look at price action in the market and say, yes, the market's been up. It's up 0.5% today. So does that mean that everything's fine? I think you could then also look at

the real data points about what's happening in the economy and say, hey, things are not fine and most of this impact is going to come. So I think you need to be flexible and you can't be too stubborn in a case. But at the same time, you need to have some mooring in terms of what's my perspective? Where are we? Here's how I see things. This is a thesis that I believe is the case. And here's how I'm going to play it out. And here are the things that would change my mind.

So let's start with the central pillar of the bear market you see, the trade war. Just how much is that going to impact the economy and also markets? As we record, we're in the thick of earnings guidance. A lot of companies that have services like Microsoft, services are not tariffed as we record, goods are. So services have reported extremely strong numbers. And I think

most of the S&P is services. Most of the U.S. economy is services, but goods still are a healthy percentage of the economy. And if we actually have a 145% tariff on China, even though that will probably go down, that is probably going to have an effect. What are you going to envision? Share us, walk us through your process. So when I think about tariffs, obviously there's a

brought and even this whole thesis, I think that I should be clear that I'm really talking about the market. I'm not necessarily saying that we're going to have an enormous, horrendous recession. It's possible that that happens. But really what I'm talking about is asset pricing and how the market digests what's happening. And when you think about tariffs, the thing that continues to come to mind or

is just clear to me as I think through it is margin compression. If you call tariffs a corporate tax instead of tariffs, I feel like tariffs, when we say that word, it's very much associated with the political aspect of it. But if you just take out that word and say, here, we're going to tax corporations on imports a substantial amount, then it becomes a little bit clearer that this is going to have a negative impact on margins.

whether or not there's able to offset that by supplier concessions, whether or not they're able to push that onto customers. I think that they will have some success in both realms, but at the same time, it's just, I doubt that you're going to be able to push 145% tariffs entirely one way or the other without, you know, sacrificing volume. So if you listen to what a lot of companies are saying, basically what they're saying is that we're pushing the price. They're saying, you know, that's lever that we have. And again,

you know, maybe to some extent that that price is going to be able to be received by the customer. But in other cases, it's going to drop volumes. And so it's going to be a tough decision for retailers or for wholesalers to make about how do they want to plan their business? Do they want to not take this risk of taking on inventory at a higher price and be worried about whether they can sell it and whether it's going to impact their margins?

and potentially sacrifice volume if they don't have things in stock? Or are they going to go for it and say, here, we're just we're trusting that we're able to push price and then find out later whether or not that's possible. I think the big difference between 2022 ish inflation and today is that at that point in time, if you listen to what companies were saying,

They were talking about the ease of pushing price. People, they're like, we don't get any pushback. You know, consumer, consumer staples like a PepsiCo kind of company is just, yeah, we'll raise price 5%, you know, have serious markups relative to at least what the historical was and not get any pushback. But I think now we're in a situation where customers are clearly much more price sensitive than they were two years ago or three years ago. And so the question of how

how much this is going to impact volume and how much is it going to be able to push out is serious. It's not just consumer goods, it's also industrial production and heavy machinery and sort of these bigger supply chain type stuff where it's, you know, you might be able to move shirt production or, you know, textile production around

the world much more easily. But if you're talking about bespoke components for a manufacturing process, I think it's tougher to sort of jump off that quickly. And so I think that this is it's going to start to roll through the actual US supply chain starting probably in the next couple of weeks, but it will continue going forward. And I think

It's also important to remember that we focus on the 145% on China and are sort of happy with this 10% everywhere else as being relatively modest. But that, you know, we shouldn't ignore the 10% broad universal tariffs, the auto tariffs that have come in, and the fact that we still are a third of the way through this pause period on reciprocal tariffs.

And you have Lutnick talking yesterday about that. It's definitely going higher than 10% for the rest of the world. And so I think that this process has not ended. It seems Trump and Xi are in a standoff here where now it looks like Trump is the one who's trying to soften things up. And China maybe is saying, hey, you played this hand and actually we're going to call you on this and see how this plays out. So I think that the trade war is clashing

closer to the beginning than the end. You've got this great graphic showing exactly how a trade war leads to a bear market. There's U.S. tariffs, there's a retaliatory response, a capital flight. Just walk us through exactly that process. So I think that there's a number of different dynamics.

First, actually, you know, we talk a lot about imports. It's worth talking about exports as well, right? So there's already been a decline in exports. I think that you already one of the big things is agricultural products to China. And there's already canceled orders on that side of the pendulum, too. So it's not just that there's a tax on imports, but the retaliatory tariffs of China obviously being the big one. But we're we also kind of assume that all the other countries around the world are just going to continue to indefinitely accept exports.

lighted one-way tariffs in terms of retaliatory tariffs. And so you have exports potentially taking a hit, already taking a hit. You have import volumes obviously taking a hit and folks like retailers and wholesalers and manufacturing supply component type companies already trying to deal with that element. You have the capital flight point, which is...

Obviously, the US has been the place for many, many years for foreigners to invest both in treasuries and in equities. And to the extent that the US is not viewed as a reliable trading partner or whether there's even the fact that if you are to put less dollars out there in terms of your exports, in terms of dollars out to the rest of the world, there's also just less dollars that are going to come back potentially in terms of asset purchases.

And so you have the margin compression, you have a sort of psychological response to it, you have volumes down, you have capital flight. And so all this doesn't really bode well for sort of corporate earnings. And you're right that services, I think, will be less affected for sure. And obviously, that's a significant part of the market. But I just view the fact that

We're looking at potentially declining earnings. We certainly see declining earnings estimates already happening. I think that those will continue to increase over time as this continues to play out. When combined with the other elements, I think it really makes for a tough case for equities. Are you a sophisticated investor concerned about today's markets?

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Tell us exactly what type of companies do you think are going to be impacted? I already mentioned Microsoft, you know, they're surprise, surprise, the tariffs are not going to impact that much the 30% revenue growth in the in the Microsoft cloud business. Okay, that's fine. But what about the other companies that maybe are not a huge percentage of the S&P, but actually are very key to the economy? And that's actually another question. If, you know, 40% of the economy is a

handful of very large cap stocks who dominate the indices and are mostly services driven, I guess with the exception of Apple, I guess. How do you get a bear market with, okay, you're about to name five different companies who it's going to suck for those companies, this tariff thing. But if those companies are barely in the S&P or a few basis points here, a few basis points there in the Russell, how does that lead to a protracted bear market?

To answer the first question, just sort of what companies are going to be impacted. I think the first order impact is pretty obviously

logistics type companies and people in the trucking supply chain, let's say. And the interesting thing about the trucking market is obviously it's one that's been a tough market for multiple years because of the fact that there was a huge amount of supply added in post-COVID to sort of take that bullwhip effect that still hasn't really come out of the market. So you have lots of

you know, declining volumes and you have a lot of supply in the market that still hasn't come out. So that impacts traditional companies like Old Dominion and XPO and J.B. Hunt, but also

So supply chain type companies like like Picard and even even companies IoT, Samsara. So that's a company that that is sort of viewed as a highly valued growth stock. They basically put equipment into trucks that allow them to be sort of tracked and have AI and sort of datafied trucking fleets, let's say, which is sort of the bull case and why it has quite a quite a big multiple on it.

whether a company like that, which has a high valuation, would be able to withstand sort of a

real slowdown in terms of trucking purchases and trucking fleet. So you have logistics type companies, but you also have retailers. There are a lot of retailers that are clearly affected. Let's say dollar stores, you know, Five Below and Dollar Tree and Dollar General and, you know, lower sort of discount retailers, so to speak, that do source a ton of product from China, a majority of their product from China.

These are companies that probably will have serious impacts, but they've also performed quite poorly in the market. And so they're already trading at relatively low valuations. And so from a short perspective, it's a little tougher there. But then you have companies like Costco and Walmart, which have really exploded over the past year from a multiple perspective. And they continue to do well as sort of a defensive play.

But those are two of the biggest importers that we have. And Walmart operates on very thin bottom line margins. And those margins do fluctuate pretty substantially. We saw that in 2022. If we're in a situation where there's less ability to push price against sort of a

cost push inflation, then even a small amount of margin compression on those companies could change, I think, the growth story there. And those are two large cap companies. In the case of Walmart, I think it's trading at the last time it was trading at this level on a forward basis, which I think is 35 times according to Bloomberg best estimates.

The last time I was trading at that level was back in 1999. And at that point, Walmart was still gobbling up share of the retail market and growing at 10 to 15% consistently year over year. There is, I think, a lot of excess in the market and outside of places like tech that could be affected by this. Even places like, you know, it's less direct, but it's

It turns out that April had the lowest equity market issuances going back at least 10 years, according to Bloomberg data, both in terms of deal count and volume. And obviously, M&A activity also is down. If you have volatility in the market and you're impacting dealmaking activity, that's going to have a world through impact to Wall Street brokers, particularly the ones that rely on advisory fees.

companies like Piper Sandler and PJT Partners that have done really well in the past year or so in terms of stock price and multiple expansion, who could be seeing another sort of downturn in terms of Wall Street activity. And so I think there's a lot of companies, I know we like to focus exclusively on a handful that really do make up a big part of the market, but it would be silly to sort of overlook the 493 other companies. And I think that the implications are pretty broad. Do you have a sense of these retailers'

what percent are they importers? What percent are they importers from China? Because as we record this, it is remarkably bifurcated. A 145% tariff on most goods from China and quote unquote only a 10% tariff on the rest of the world. In roughly 60 days, those are scheduled to go up higher to the reciprocal tariff levels, but there may be deals. Who knows? We don't know. And Walmart, I think

My sense is it has a reputation for selling a lot of stuff from China, but how quickly can they sell stuff from Japan or other places? And also, just flesh out this bear thesis on, are you specifically bearish on the companies that have a ton of exposure to China?

And for example, Apple, which definitely is a huge percentage of the S&P. So I actually looked at this in a separate piece a couple of weeks ago where I went through basically all the different retailers. They're going through their 10Ks and trying to figure out who talks about, you know, who has the biggest exposure to China. And the answer to that really was actually the discount stores, I would say, is as number one, you know, the dollar store is five below. It's probably maybe one of the biggest because Dollar Tree and Dollar General have more consumables exposure, which is basically, you know, food and grocery type stuff, which may not come

Five Below is really much more general merchandise and China is their biggest supplier. You also have companies, Best Buy. Best Buy has relief because of some of the exemptions that have come through. But Best Buy sources a majority of their product from China or at least China's their biggest single supplier. And actually a lot of their private label stuff comes from China.

it too. So that makes it more complicated to sort of find alternative supply. You also have companies in other industries like ASO, which is a sporting goods store that they talk about how they get a majority of their supply from China. Some of the other retailers like higher end furniture retailers, let's say Restoration Hardware, they obviously do source from China, but it's more varied. Some of the retail stuff like clothing retail is definitely more varied with the product in Vietnam and Bangladesh and Indonesia. And so

It still is obviously impactful to your point. There's 10% on all of those countries, which if you're working on thin margins, that can be significant. But I do think that there will be sort of a bifurcation between companies that have China exposure and ones that are more diversified. And to your point, Walmart is absolutely more diversified than, let's say, Five Below.

They have a much more complicated supply chain. They source from a much more diversified universe. But at the same time, if you're working on 2% net income margins, 3% net income margins, it still is impactful. And if you're talking about a company that's pricing in growth at the highest rate that they have in 25 years, and yet you're talking about even...

the company guidance is sort of mid single digits. It sets up complacency again, I think is the perfect word here for people who have, you know, looking at those as defensive stocks and not sort of viewing the valuation change that's happened over the past year.

And a point to say is you said dollar general, it's beaten down. So I looked at trailing earnings is 17. So some compound investors say, oh, it's a history of a great compounder and it's trading at historically cheap multiple. The earnings change as well. So, for example, people would say, you know, in 2023, NVIDIA is trading at 100 times earnings. If you looked at just how quickly they were growing their earnings and what was likely

to be, you know, it was a historically trading actually, you know, quite cheap. And so as earnings are going up, the PE multiple is lower than it looks. It looks artificially high. And then when earnings are going down, which it may be the case for these, you know, China dependent retailers, the PE multiple of 17, actually it could be a much, a much higher multiple than that.

Yeah, exactly. That's a perfect point. And I think Dollar General is a really interesting case. In one way, you could argue that of the dollar stores, they have the lowest exposure. That doesn't mean zero, that China still is their biggest supplier for general merchandise. And general merchandise is actually a higher margin business up there. So from a profitability perspective, it's still a really big deal. But it's interesting that Dollar General has basically traded up this entire year. It's strongly outperformed S&P 500.

I mean, it's up, I don't know, 20% or so year to date. It's had a rough two years prior to that, but it's playing like a defensive play at the same time that it has some of the largest exposure to China and also hasn't fixed the issues why it's gone down for two years. Things like...

like shrinkage and just margin compression and overexpansion and, you know, being in an area where their specific consumer set that, you know, visits those stores has done quite poorly. So I think that there is still going to be a road to sort of

a realization of where are these tariffs impactful, where are they less impactful, which companies are really in the firing line. And I do think Dollar General is an interesting case because you're right, I'd say on a trailing basis, I'm just seeing 18 times and you see it ramping up even it's up significantly since the tariff announcements. And so eventually, does that make sense or is there another leg down?

bear market you see most imminently is in those transports. So for example, you said XPL Logistics, Old Dominion Freight Line, Samra Packer, which makes the trucks. Tell us about other policy exposed stocks like Fastenal, Tyler Technologies, as well as maybe these companies' reputation for being not just margin of safety companies, safety plays, but high quality, high return businesses.

Yeah, so Fastenal is an interesting case. So they just for background, it's a company that basically makes fasteners for, you know, like nuts and bolts for the construction industry broadly. And they have, you know, they're one of the biggest in the country. They do source a significant amount of their supply from China and therefore are impacted by the various tariffs on China. But it's an interesting case because

It's trading right now at sort of the high end of its of, you know, wherever sort of 40 times on a forward basis. And yet the company's revenue has been flat for the past year. Its earnings have been flat for the past year. And now you have this new element of tariffs tariffs coming in where they're either going to have to.

absorb some of that. They've already talked about price increases and potentially future price increases. And you can make the case that this is a small dollar in a large construction budget, and no one's really going to notice the changes or they're not going to change suppliers. And maybe that's the case. But when you're talking about a company that's trading at 40 times forward, which is significantly higher than sort of their long-term or mid-term average, and

doesn't have any sort of growth over the past 12 months and looking forward if it's if it's levered towards the construction manufacturing type sectors you know to the extent that that market rolls over because of the broader economic circumstances it's also a cyclically you know

construction oriented, exposed company. And so I think that that's an interesting example of a company that has some downside. On Tyler Technology, I think it's interesting. It's a company that does software for basically state and local governments. And so there's an argument that maybe it's not as impacted by the Doge cuts, which are more on the federal level. But at the same time,

We see that some of their pipeline has gotten much weaker. I think that there will be scrutiny on state and local budgets going forward. And so that's a company that sort of is impacted by more of Trump's broader perspectives on government spending rather than the tariffs specifically. So those are two good examples. Another one is Watsco, which

is a wholesaler of HVAC units, which a lot of those do have a significant amount of China exposure. It's another company that's trading at the top end of sort of its long-term sort of band in terms of valuation perspective without showing really much growth at all in the near term, and yet is experiencing the impacts of tariffs through its supply chain. And so I think that there's a number of companies that...

And obviously that's just a handful, but there's a lot of companies that are going to be affected by that. And a lot of them are companies that are sort of off the beaten path of the names that get talked about the most in sort of general finance research.

Tell me about what you've seen so far in terms of the decline in trade, in terms of actual macro data. I'm not asking you about sentiment surveys, which it could just be people read the news and the news is negative. So suddenly sentiment goes down. But actually, in terms of the volume of trade, in terms of shipping from China, you've got some great charts in this piece. Where are we exactly on that? How significant is the decline in volumes? This is a great point because I think it's worth expounding on a little bit.

I think it's a little bit of both of what you're saying. So on one way, the shipments from China absolutely have plummeted. There's really no debate about that post-April 9th. And that's starting to wash up on shore, let's say, you know, in the week, the coming week or two, let's say. Looking forward, though, I think we should be a little bit cautious as a ground getting too extreme in terms of, you know, the

There is a perspective that like all global trade has come to a halt, which obviously is not the case. And if you look at things like the Port of Los Angeles, one of the big data points that people are pointing to is a 35% decline in expected container volume for I think the first week of May. But then if you look at the second week of May, it's actually only 5% or 10% or something like that.

There's rumors or reports out of China recently about Walmart and others potentially restarting shipments. I think that there are supply stuff that is going to happen even regardless of tariffs. To some extent, there's going to be some people who choose to simply import through that. There's obviously a lot of exemptions from tariffs or partial exemptions, let's say, that are going to continue to come across. So I think we need to be careful about expecting that this is going from

100% to zero or 50% and flat lining from there. I think what you're going to see is something that's more protracted and maybe not as perfectly fall off a cliff and stay there. I think that it's going to be something that's going to play out over time.

In terms of the market perspective, I think we need to understand also that as that data comes in, it's going to provide fodder on both sides. There's going to be the bearish sentiment when we see a big negative number on the Port of Los Angeles, that's going to go out to everybody. And then when it rebounds next week, we're going to say that everything's back and everything's great. And so I think it's important to keep in mind the longer term perspective.

of, hey, this is it doesn't need to be a total collapse and flatline for this to be a significant impact on the economy. And looking forward, we don't have resolution on things like the reciprocal tariffs. So our companies actually front running tariffs in places like Vietnam right now, that's going to offset some of this. And what happens when we get to July and we're at that 90 day point, whether that gets extended, what happens there? So I do think that

Absolutely. To be clear, there's a decline, significant decline in exports out of China. And I don't expect that that's going to rebound back to what it was anytime soon. But I do think that it's going to be a longer process of sort of realization of how this actually plays out in terms of import volumes.

And how are you assessing the odds that the Trump administration is able to secure concessions and do a trade deal? And even if the concessions they achieve are not super material, the Trump administration will say, we've got a deal. We managed to, through the success of the Trump administration, to have this wonderful deal and we have saved America. And therefore, the actual tariff levels are...

They will then lower tariffs as a reward to the other countries for doing a deal. And we end up with a world where the tariffs are, quote unquote, only 10% on the rest of the world.

for the rest of the Trump administration and on China, they are quote unquote only at 20%, which I think the market would probably like. How are you assessing that risk to your bear thesis? First, I would say on the negotiations, I think it's clear that there was sort of an overplaying of the hand a little bit from the US administration's perspective where, or at least maybe a rush into things where there wasn't, there didn't seem to be a good strategy about even what they were looking to get out of it. So if you're going to go, you know, they say,

What's the ask for country X, Y, or Z? And how do you actually come to those deals? I think it's going to take a lot longer than people are hoping for, for there to really actually come out with bilateral agreements for big trading partners. I think that the other thing to the question about 10%, we should recognize that there haven't been reciprocal tariffs. There has been a pause, right? So for other countries and whether or not, how long does that last and whether or not that at

At some point, do they decide, hey, this isn't working here or where this is unbalanced, we need to at least, you know, come back, come to where you are, come to a level of balance in order to sort of continue talking. But I think broadly speaking, it would be silly to not recognize that the administration and Trump in particular has talked about tariffs for decades. I believe 100% that Trump...

believes that this is the correct path for the strategy of the country, not for the stock market's success, but for what the country needs to do from a strategic perspective, from reshifting of its internal alignment and economics from a national security perspective, from a trade imbalance and debtor perspective, from a

a fiscal wherewithal perspective. I think that he thinks that this is the right strategy. And so I think that we shouldn't assume that this has all been a ploy to sort of get to free trade. That's not the outcome here.

outcome here. And what about the large volumes of pledged money to invest in the US that, you know, I think yesterday, President Trump had all the CEOs who have pledged to invest in the US, and for example, TSMC investing 100 billion. And I think that is now in the several trillions. Do you think that will have a positive economic impact that could offset some of these things? Yeah, absolutely. I think that it certainly can. But what I would caution on there is,

the timeline and the difference between headline numbers or what someone has promised to do versus over what time and whether that actually happens. And if there's, it's one thing to sort of make a big announcement, but I think that that

that these processes have a way of playing out in potentially a different way. And I think the administration is highly incentivized to sort of broadcast the wins, but you also have to consider which companies are going to move production. Maybe companies are moving production to Canada or Mexico where tariffs are lower, or maybe they're just, you know, if Apple has decided, hey, we're going to invest X or TSMC's

decided that they're going to commit to X amount of investment. What about CapEx plans across the board broadly that might come down because of the negative environment, right? If you look at CapEx expectations surveys for companies, those have come off quite substantially in the past couple months. So there's a put and take between, hey, here's some nice big announcements, and maybe those play out over the coming three to four years. And

Also, what are companies actually going to do right now today to change how they're spending money and how that impacts the economy?

Now let's turn to the first pillar, the capital cycle. How is that informing your bear thesis? I think that we've seen a huge impulse both from the fiscal side and the private sector. So coming out of COVID, you really had just a surge of activity. You saw, obviously, a surge in home building. You saw a surge in capital investment and sort of heavy equipment and machinery. You have, obviously, AI has been hit.

enormous benefit to the actual sort of investment that's happening right now. But all these things, I think, are cyclical in nature, regardless of, I think, the promise on any of those things. We should recognize that that level of investment might be hard to sustain going forward. And so when you're thinking about the capital cycle, I think that there's interesting companies that are sort of

like heavy machinery companies, like I said, like John Deere is an interesting example where their results have totally plummeted over the past year and their outlook for the, the,

The machinery market is quite dour. If you were to read their sort of recent earnings commentary, it's, there's not, usually a management team comes out and says, you know, try to put a fantastic spin on everything. I think they, it's, it's tough to find too much that's, that's really positive there. And yet you have the stock trading at near its all time high. And so I think,

You could make the case that investors are looking at this as a cyclical company, and it's looking at, hey, here's the down market, and we're looking through that. We're looking at sort of a mid-cycle multiple here. But I think that that really understates the level of pull forward of demand that happened over the past couple of years. And when combined with what's happening with farms and exports to China, farming, the

The farming industry, probably not as strong as it was a month ago. You have a ton of secondhand sales of equipment that was just purchased within the last one to two years coming back on market, which is obviously not a good sign for both what's happening with those customers who had something and are now selling it within a year, their financial wherewithal or what's happening with their business. And it's obviously also not good for new sales of equipment.

So I think that there's in the industrial sector in particular, I think you have a lot of names. I know we talked about it earlier, but Pacara on the trucking side is another company that is really seeing a strong decline in sort of sales volume as the cycle rolls over that at the same time doesn't seem to be reflected in its market pricing. So I think that there are heavy industrial companies that still have a lot of downside. And I think that we'll see that play out in the coming year.

What about, you mentioned the pull forward of demand you saw in COVID. I wonder, Last Bear, if we have seen a little bit of a pull forward in spending, and I'll call it people kind of front run the tariffs. So in March and April, the data that we may see will indicate an actually an elevation in spending. And it may give an optimistic sheen, but actually, it's really just people buying it in advance. And once they realize the tariffs are up.

in place, they stopped doing that. And for example, I noticed that Visa, which recently reported its quarter, said that from April 1st to April 21st, actually spending on all cards, credit and debit were up 8% year over year. And part of that may be to do with

when Easter was Easter was on April 20th, as opposed to on May, May 29th last year. But what about that, that, you know, you actually could see an elevation in spending for March and April and maybe may, but probably not may. That's, that's a great point. And I tweeted about that a couple of times written a,

about it as well. So like the idea of a head fake on consumption, tariff front running. Obviously you saw it on the producer side or sort of the importer side earlier this year. I don't think it was really on consumer radar, but I think to some degree we know that it's happened.

The question is sort of how much has it happened in early April? There were reports about Apple selling inventory, having a huge weekend as people sort of run and try to get iPhones. That was obviously before the exemptions that had come in. But I will say myself, I actually I had to get an iPhone anyways. It was time I needed one, but I decided to go out and get it just in case.

Who knows what was going to happen? And so, you know, you might make a decision like that. I think that there's examples is I know we talked about Costco earlier, but people talking about sort of after Liberation Day, people running out to Costco and having a big, huge lines at Costco. And if you look at some of the real time data, I think you could argue that maybe that

that did happen in terms of sort of the volume that they saw in early April, how much that actually has, you know, is playing out, I think is really tough to differentiate between just normal growth. I also think that because the practical implications are just starting to be felt on the consumer side, I would say like,

now, basically. It's possible that consumer behavior hasn't necessarily changed too much, but it could going forward to the extent that you actually did start to see things like empty shelves at retailers. Does that start to cause people to change their perspective? And will that increase spending in the near term? How does that impact margins? I think those are all the questions that I think are going to be really important to follow.

We're going from a theoretical framework about how this might impact to sort of the practical. And I think that we're going through that transition now. And so it's really important to just be open and be really curious about how this is going to play out and be able to sort of update priors as things change.

What about the artificial intelligence CapEx capital cycle? Tell us about that. That has been building on the boom side for over two years now, as well as what you could see if it may roll over. Microsoft and Meta both were out. Obviously, Microsoft did quite well. And obviously, they put out good earnings. If you read the transcript, what you hear, I would say half or more of the call is focused on this topic of, okay, what's CapEx going forward? What's happening? What is this huge...

Are you going up next year? Are you pulling back? We know that your people are talking about canceling data centers. What's happening here? But what the CEO says sort of consistently numerous times, he keeps going back to the idea of Moore's law and the idea of efficiency in terms of how these programs actually operate in terms of their training protocols, in terms of being more efficient, in terms of inference.

And Microsoft, more than probably anyone, has a pretty good view as to what inference demand is on the AI. And their financial outperformance in the first quarter was not within the cloud, was not driven by AI. It was driven by their core business.

So what they keep saying is- Core business of computers or cloud? Cloud, cloud. Cloud. But then on AI, because part of there's AI cloud, right? Yeah, no, but so within cloud, they said that the outperformance was not driven by AI. It was driven by sort of the traditional cloud. Okay, I understand.

So you didn't have the outperformance necessarily there. And they keep talking about the efficiencies, which again, is what we put in the piece here is talking about architectural improvements, the drive for actually making money in AI, as opposed to just investing money into large training runs and that sort of thing.

the way that you do that is by getting more efficient, figuring out better ways to do inference, figuring out better ways to do training that takes a lot less compute. And at the same time, you have compute getting much, much better faster too. I think it's obviously one of the most debated topics probably in markets is where we are in the AI CapEx cycle and when is there oversupply? Is that going to happen, whether that's this year or next year or what? But I think that

where it's hard to sustain the levels of growth. And even Microsoft said that CapEx is probably going to grow next year, but not at the same pace as 2024. And so if you're a company that's driven by incremental changes, the rate of growth really matters. And so I think that

we're certainly not, you know, calling for, I'm not suggesting that CapEx is going to fall off a cliff for AI, that it's going to go to zero or anything like that, but just that the rate of change might start to inflect. And I think that we already have seen that to some degree, but I would look at the commentary from Microsoft about efficiency and sort of take the cues from that. Now let's visit the third pillar, which you call the market mirage. What is the market mirage?

So I think this goes back to what we were talking about earlier, which is just sort of the market psychology. And it's hard to put a fine point on that, but everyone knows it. It's very obvious when you see it, right? It's where are we in the boom-bust cycle of psychology, right? And so I think,

from a lot of really tangible perspectives, you've seen a dramatic increase in leverage, both margin leverage, leveraged ETFs, call option volumes that have all benefited the market over the past year, particularly growing throughout 2024.

and leading into the end of 2024 and early 2025. And so I think that you saw a blow off top, so to speak, in a lot of, you know, let's say the meme stocks and speculative names that sort of, you know, really accelerated in post-election and sort of peaked in December, January, February. And I think that it's one thing to say, hey, this is just sort of an area that

went up and down, but it's not really that significant to the overall market. You know, we're not going to take signal from that for everything else. But I view it more holistically where it's a building process. I think it was two years of building where you get, you know, it starts from cautious optimism and then it becomes mainstream optimism. And then at some point it becomes, you know, excessive and speculative. And then there's a reset on that.

And so we've already seen that to some degree, but I think that when combined with other elements, we're going to see that, you know, increase. And so the implications there, I think, you know, for companies, like I said earlier, I mentioned some of the boutique advisories is an example where to the extent that deal making activity slows down, which we've already seen, those companies could be exposed. Robinhood, I think, reported pretty good earnings yesterday, which is not a surprise given where they, you know,

given what was happening in the first quarter in the market but you know there it's a company that's so levered towards cryptocurrency and options trading which is where they make almost all their money and those are highly volatile and really grew substantially in the last year and what we saw in 2022 is that those volumes you know it's it's not like they just they were growing and then they flatlined they actually go down a lot in a down market and even aum goes down a lot

And so those are kind of companies that could be affected by sort of, I would say, the downturn psychologically within the market. So you've got a lot of short ideas. Do you have any long ideas? Yeah, no, I do. So what I would say is that I've written a ton of different things over the past year.

the past year about the sort of fundamental thesis is that I liked. I would say right now, because my perspective has been focusing on trying to find

recognizing that correlations increase in bear markets and trying to find where I can add value in terms of the discussion. I think that focusing on what the big change is, which in my perspective is really the change in market, the downturn in market, how tariffs will roll through and impact things. It's easier for me to think about and focus on the short side, I guess, at this point, given the overall bear case. And so I think

Certainly, there's long opportunities, but I think I add more value on the short side at this point. That's fair. What about shipping? I learned from your piece, again, we'll link that, it's called The Matador, that actually a lot of stuff that you think wouldn't go by ship actually goes by plane. I know in 2022, and really in 2021, shipping freight rates just exploded. They went up 10 to 15 times because of the supply chain disruption.

Are you seeing any opportunities on the short side for shipping companies? And do you think that those shipping companies could have some encounter some weakness, which are, you know, they're famous for their cyclicality? Yeah, yeah, absolutely. So shipping, I think, is an interesting industry for sure. Very cyclical. There's been a ton of new additions in terms of container ships, similar to the trucking situation. I think that the setup is really similar there where freight rates are certainly at risk.

You've already seen sort of capacity come out of the market. So for the large shippers, I think that there is absolutely risk of a global slowdown broadly impacting shipping volumes and then obviously more specific trade routes to the US being impacted. But to your point about the air freight, so the de minimis exemption, which is going away tomorrow, I guess. Yeah.

a lot of that stuff is actually air freight and there's specific air forwarders that do a ton of that. Some of those actually are private or are Chinese owned, but the de minimis exemption I think will impact this air freight market as well. So that's like the Sheen and Timu kind of concept, which in one way those are maybe not, they don't make up the bulk of total trade with China. Obviously it's a relatively small portion, but I think it's a pretty visible portion.

Definitely. And yeah, so those the de minimis exemptions of below a certain amount of money, you don't have to pay tariffs. Those were phased out in the Liberation Day orders, April 2nd. It could maybe have been a follow up April 3rd, but I think it was April 2nd. And then but it's not scheduled to go into May 2nd, which is tomorrow. We're recording on Thursday, May 1st. And that yeah, that is.

And then there's a second phase, I think, sometime later in May or maybe in June. And I heard President Trump in a publicly available cabinet meeting say that he

is loving the de minimis tariff increases or getting rid of the exemption. So it doesn't look like at this current juncture like that is, but maybe there could be a severe market correction or people complain and the Trump administration changes his mind. So we'll see. But yeah, I mean, how are you thinking about trading last bear this market? Because we have a catalyst of May 2nd, the de minimis, and then...

Later on, there's a second de minimis thing. And then in early July, that's when the 90 day deals, that's when the 90 day exemption or reciprocal tariffs end. So, I mean, do you, when are you going to be viewing opportunity aggressively short this market? Because, you know, so far over the past two weeks, the market has pretty much gone up every single day. Yeah.

Yeah, and that's, I would say that, you know, if you read, I think that you have to be really careful, especially in sort of, if this is a bear market, then you have to be really careful about being thoughtful, especially depending on how you do it. If you're talking about putting puts on, you know, buying puts on companies, let's say, which obviously is how a lot of people would express some of these short ideas, you really need to be careful about buying.

about how you're approaching that from a timing perspective. It's better to put on those sort of things as volatility has come down substantially at the end of sort of a rally than once things start to fall apart. At that point, if the VIX spikes from 25 to 40 and then you decide to put on a

a S&P short or a specific company short, you could very well lose a lot of money pretty quickly just on IV or on a bear market rally. If you're going to take a contrarian perspective, I think you really need to follow through with how that's implemented. And so when you're talking earlier about,

Hey, when the market's gone up five days in a row, six days in a row, if you're confident in expressing a perspective here, that's the opportunity that you really want to look for to put on those, to put on those ideas. And so actually back in February, I put out a piece called four shorts where I mentioned some of the more speculative names that I thought, you know, really had a bunch of immediate downside. In other words, Hey, now's the time on these.

And that worked out pretty well, but a lot of those names have come back a little bit. And sort of being able to not wait for the panic to happen, but to have a view and express it proactively, I think is critical. So again,

it gives you a second, if you missed the liberation day chaos, let's say, or back at the same exact levels that we were basically at the time. So you get sort of a second bite at the apple if that's how you want to express those views. So I would just caution people on that point to just don't wait for the crash to happen. You have to really, if you're

If you want to express this view and you have confidence and you want to make money on it, you need to do it in a way that's looking forward and sort of timing the volatility, taking advantage of bear market rallies to sort of enter at a good point and not waiting for things to play out and then having it rip back in your face.

And are you shorting the market via puts? Are they puts on individual companies or are you just puts on the S&P? You can do it both. There's a number of different ways to short. I would say, obviously, there's outright shorting. You can buy puts. You can buy bonds.

volatility, if that's your thing. I would say for specific names, particularly ones that trade at a, you know, it's sort of an IV perspective from my view. So when I see an attractive IV opportunity in terms of implied volatility on a company that I

view has a lot of downside then that's what i like to sort of go after it combined it tends to be that that iv comes down a lot in these sort of rallies and so that sort of combines with the idea about sort of timing overall but looking at specific companies as well is important if you're if you're going to

You're going to express shorts in that manner. And then, you know, volatility as well, looking at both as a sort of a guide for timing, but also, you know, potentially having some playing it directly. I would say that it's it's you should recognize the risks of volatility. If you're going to trade in those products, they are, as the name would suggest, very volatile and it's very easy to get burned trying to go long vol.

But at the same time, for people who sort of are willing, understand and are willing to take those sort of risks, it's another avenue. And which do you prefer?

It depends on the time. I think so on liberation day, I was, I thought that ball was just really, really underpriced. And so that I, rather than sort of an S and P put or specific market puts, I really leaned in on the ball side and was fortunately that was, that worked out okay for me. I think right now, as, as we get in closer, I like to, I like to keep a mix. And I would also say, don't,

Certainly don't go out there and go and put all your money into a put on a specific company. Make sure that you have portfolio construction, which means having, even if you don't like any stocks on the long side, you can still have exposure. You can still reduce your overall exposure by having high quality bonds or just even money markets pay for bonds.

plus percent right now, the risk free rates there, you know, just degrossing, deleveraging, reducing exposure, honestly, is, you know, as is as significant as sort of trying to make a ton of money on the short side. I think now that we start to see more tangible effects, particularly of the tariffs on some of the companies that we named, that we talked to talk through earlier this, you know, in the session, and seeing IV come down in the way that it has, I think it opens up an opportunity on the put side for specific names.

And last bear, if a month, three months, a year from now, it turns out that your bear thesis was wrong. What reason do you think it will have been? Can you imagine the scenario where you're wrong? Yes, absolutely. I mean, so I'd say that the potential blind spots are one, a headline, that headline shock, sticker shock has increased.

created an overly negative perspective in survey data and that sort of thing. That's been sort of one of the bigger elements that people have looked to for sort of creating a bear case. It's possible that you see people sort of moderate off of the shock of this and say, oh, actually things are not that bad. And you kind of have a regression in terms of

of those sort of softer data. I think that you could also potentially see, obviously to the extent that there's a change in policy, a significant change in policy, maybe they decide, okay, hey, China is gonna come down substantially and we're not gonna do reciprocal tariffs. Then to the extent that it's 10% across imported tariffs,

you know, maybe it's possible that that is something that the economy can digest without really falling apart and anything like that. So I would say that changes in policy is a big element. And then also just to what we were saying earlier about which companies are affected. I do think that there will continue to be differentiation between who's impacted by this and who's, you know, who's good.

And to the extent that you do have a large component of the S&P that isn't necessarily impacted as directly, maybe it's a rotation out of losers into winners. And then I guess the other element would be to the extent that you have accommodative monetary policy.

which we haven't talked about today, but obviously that's a big topic as to how the Fed responds to increasing price pressures and whether they decide to cut rates as Trump wants and as some people think would be appropriate. Or are they going to stand firm and say, hey, we're not going to basically condone this fiscal policy that we think has

inflationary type pressure to it and hold rates higher. But if you had a massive rate cut that puts life back into the housing market, obviously puts life back into equity markets, that would be a big change too. So I think those are some elements that you just need to be careful of. And I think I would also just encourage people to just

be continuous about their curiosity in the subject and their open-mindedness. And it's one thing to put out a big, bare thesis like this, and I obviously was at the point where I felt that that was appropriate and confident enough to do that. But if you are stuck in any particular view in the face of overwhelming data that suggests otherwise, then you're not going to succeed. So just

being flexible, being able to adapt to data, even especially if it changes over time or if it conflicts with sort of your thesis and priors is just important, no matter whether it's a bear market or

bull market, just having open-mindedness and curiosity as this plays out, because we're really, we're moving into really uncharted territory, I think, especially with the trade stuff. And we don't know, we don't know how it's going to play out. These are all the things that I've, that seems likely to happen and how I'm positioning for it. But of course that could change.

You have a quote from the hedge fund market wizards interview with a trader about when the great financial crisis actually started, when the bear market started. Just apply that framework to talk about the timing of bear markets, how sometimes it doesn't happen when you think it's going to happen, as well as to now.

Yeah. So I think that the key point there is, you know, these things can take a long time to play out. And arguably, they have taken a long time to play out already. If you think about the employment market, for example, the fact that

the internals, so to speak, of the employment market have gotten worse for almost two, three years, right? If you look at things like job openings and sort of new job postings, sort of the velocity internally within the labor market has gotten weaker and weaker and weaker. And we can say that

OK, that's something that we ignore. You know, we have been ignoring that in the market because it hasn't been it hasn't shown up in terms of consumption and earnings. And so we say, OK, that's fine. The labor market is getting weaker and we become complacent to that fact. But at some point,

it reaches an inflection point where it's no longer something that can be ignored. And you start to see the tangible effects of that. And from a market perspective, we went from all-time highs, let's say in February. Obviously, we had a significant drawdown that went through early April with post-liberation day. And now we've retraced maybe half of

half of the losses probably down about 10% or so in the market. If you look at where we were, I think the number that I had in the piece was in March of 2008, you're probably 10% off the high. This is after, and again, I'm drawing a comparison. I'm not saying this is the exact same scenario at all, but

the fact that you know the subprime issue was a huge massive blowing up issue at that point and yet you still kind of had a slow realization or slow Market you know acceptance of that and so I think we're we're almost certainly going to have bear Market rallies and then you know further fall downs and then crashes crap you know mini crashes and everything else and I think that

I think that you have to just be to take the perspective that things take longer to play out than what we expect, especially in terms of, you know, the folks who are in markets daily and trading or, you know, talking about finance. I think everything turns very short term where, you know, the sentiment can swing this way or that way within 24 hours. And I would just say having a longer term perspective about where we are in this market cycle, I think will be very valuable over the coming months.

And so if it's very hard to predict short term, is that inclining you to view longer dated puts as more attractive? Because, you know, if you bought puts, you know, weekly puts, it has not been good for you over the past two to three weeks. Yeah. So what I would say is, yeah, when you're talking about something like weekly or daily, I mean, that's just a, that's not a, that's not a macro play, right?

You can't play macro on a weekly basis, I don't think. And so what you're doing in that case is really saying, here, I'm looking at the technicals or how my perspective is on how this really recent market action happened and how I think it's going to play out tomorrow and the next day and the next day. If you're talking about a bear market thesis like I'm talking about, we're talking about

bear markets last between, you know, it could be nine months, eight, 10 months, a year, year and a half, two years, you know, maybe at the long side. I think that's probably like the, the, the timeframe is probably between nine months and two years, maybe a realistic perspective. And so I think for some of this stuff, when we're talking about for, for, you know, trucking companies or companies that are going to be impacted starting now in tariffs, that may not come out in terms of earnings guidance or, you know, earnings reports until the middle of

you know july and that's also the same time that we have tariffs coming back in the mix so it's even possible that you have a situation where the next month or so people decide that tariffs don't matter the you know the first quarter results actually were not that bad because these were pre-tariff and then you kind of get to the point where things you know where it's actually july that you see the next real drop down so i would say

Take the perspective that this is not something that's going to resolve by the end of May or July. I think this is something that is going to bleed out certainly into the fall and into the winter. And if you're going to take specific company, if you're going to bet on companies on an underlying basis, you need to give time for that to actually play out and become sort of actionable. Months out, at least in terms of that perspective. And then just...

I think people, I think that's a really important point because I think that there's a tendency to sort of think, hey, I have an idea and it's going to happen this week. And I think that that can lead people down the wrong path if they're taking this sort of perspective.

Last Bear, thank you so much for coming on Monetary Matters. Where can people find you on Twitter, on Substack? Yes, you can find me on Twitter at TheLastBearStanding. If you search it, it'll pop up. There's no I in the ING for the handle. And on Substack, I write on Substack, www.LastBearStanding.com, and you can find everything that I'm writing there.

Last Bear, thank you for coming on, sharing your thesis. Thank you, everyone, for listening. Remember to like and subscribe to our YouTube channel. Also, check us out on Apple Podcast and Spotify. Please leave a review and a rating. It really helps the show. Until next time. Thanks for watching. Remember to click the link in the description to learn more about the Tucurium Agricultural Fund Benchmark Index. Until next time. Thank you. Just close this f***ing door.