We talked about Trump's Fed pick in my note yesterday.
As we discussed, Kevin Warsh explicitly said back in July that the Fed needed regime change.
Based on his commentary over the past six months and some clues given along the way, we should be in for lower rates, to follow what he thinks is the early stages of a structural decline in prices.
But the "regime change" he speaks of isn't just related to the people, and processes, but to true structural reform — to break the entanglement of the Fed with government financing.
And with that, the days of the Fed backstopping bad fiscal policy and bad corporate behavior, via quantitative easing, should be over.
As we discussed yesterday, the 1951 Treasury-Fed Accord established the Fed as an independent central bank. A new "accord" would put the responsibilties of managing crises back on the Treasury (Scott Bessent).
That would shore up confidence in the system and in the dollar — and establish a sustainable foundation for the productivity boom and industrial revolution.
With this backstory revisited, let's talk about today's market action.
Tech stocks were hit today. And Wall Street and the financial media did what they do. Instead of skating to where the puck is going, they walk around the puck and pontificate about why it's there.
Let's talk about this chart …
As you may recall we talked about this Bitcoin chart in November.
This big trendline represents the explosive bull trend that took Bitcoin almost 5x higher in just two years. And it was started with the Fed's signaling that the rate hiking cycle was over (which implied an easing cycle was coming).
Then, after a 36% peak-to-trough decline over about a seven week period, Bitcoin opened the month of December sitting on this big trendline.
The bottom was marked as the Fed officially ended quantitative tightening (QT) in early December, while the FOMC Vice Chair (John Williams) was already out signaling a return to balance sheet expansion! That happened only 11 days later : more liquidity, more currency debasement, higher Bitcoin.
Here we are two months later, Warsh is on deck, and it appears that the perpetual QE business will be permanently ended by the Warsh-led Fed.
Fiscal dominance (funded by the Fed) will give way to market discipline.
That's kryptonite for the anti-dollar Bitcoin.
And as you can see in the chart above, this big trendline has given way.
What gets hit when Bitcoin breaks down?
Stocks. Particularly tech stocks.
Remember we looked at this next chart a few times in November, during the Bitcoin swoon.
Bitcoin and stocks have traded in a tight relationship in this cycle. And now you can see the wide divergence.
So, why does a fast drawdown in Bitcoin matter for stocks?
Because Bitcoin is no longer just retail speculation. Some corporate and financial firms hold it on balance sheet, and it's increasingly pledged against credit lines, structured products and derivatives.
When price falls quickly, lenders call for more collateral. The easiest way to raise cash is to sell what's liquid — sell stocks.
If this is a real regime shift toward market discipline, we should expect to see market excesses shaken out, which could create opportunities to buy key companies in the tech revolution on sale.
