Last month, we said to watch our for an abrupt withdrawal from Iran. We just got it.

Stagflation risks are fading.

The government stepped in to police AI access - which makes AI de facto “too big to fail.”

And crypto is oversold.

[TLDR] We’re at a turning point. The market is underpricing the odds of a goldilocks regime, and a return of the debasement trade.

The setup is more 1990s “run it hot” than 1970s stagflation.

For the month of May.

Crypto:

• BTC (-3%)

• ETH (-11%)

• SOL (-1%)

Equities:

• S&P 500 +4%

• NASDAQ +11%

Gold:

• Gold (-2%)

• May inflation came in hot, with CPI at 4.2% and PPI at 6.5%: Effects from $100+ oil resulting from the closure of the Strait of Hormuz came through.

• The Trump administration has withdrawn from Iran: The policy pivot we called for last month has arrived, right on cue. As inflation got hot, and rates + the USD breached key levels, a peace deal was agreed upon. Just like in 2025, the bond market forced the administration’s hand.

• The deal was a concession: As expected, by any objective reading, the deal amounted to the US conceding to Iran on remaining issues, and Trump indeed claimed victory publicly. As we wrote last month:

• This may be a turning point in Trump’s approval rating: Trump’s pivot was made in the face of pressure from lows in approval rating, with this year’s midterms looming on the horizon. We may very well see improvements in Trump’s approval rating from here.

[TLDR] Just like 2025, the bond market forced the administration’s hand in key policy decisions. Trump’s approval rating now has a higher likelihood of improving from here to the midterms.

• Core inflation remained in check: The one bright spot in the May inflation print was core CPI at 2.9%. Truflation also peaked locally at the end of May. We see disinflation returning, while growth and liquidity hold.

• Key indicators are back below key levels: In response to news in Iran, rates + the USD are back approaching/below key levels.

[TLDR] The main risk to detrimental inflation, and to the business cycle, seems to be resolved. Our view is that, if Iran is truly over, this bout of inflation truly will be “transitory,” and the business cycle remains on track.

• Tightening financial conditions remain the consensus fear: The market fears sustained elevated inflation, and a potential Fed rate hike in response. While odds have come down, Polymarket still expects a 37% chance of a rate hike this year.

• Federal debt remains a pressure point on rates: ~$10T of debt to roll in the next year keeps pressure on the Fed to keep rates low. We think odds of a rate hike are overblown.

• US growth remains strong: PMIs continue to impress, climbing in May, and productivity is still rising, as the AI revolution powers on. We see more room to run, as the leaders of the AI wave show incredible growth in fundamentals. Revenue, once doubted, is materializing in spades, which keeps the buildout on strong footing.

[TLDR] Strong growth, disinflation, and reduced geopolitical uncertainty leave us seeing the risks of stagflation decreasing, and the odds of a goldilocks scenario increasing.

We lean towards expecting a “run it hot” regime, with rate hikes less likely than the market expects, and the debasement trade returning. We think this is underpriced by the market.

More like the 1990s than the 1970s.

• The US government imposed export controls on Anthropic’s newly-launched Fable model: A security breach in Anthropic’s first publicly-released Mythos-class model was reportedly surfaced by Amazon developers. Anthropic reportedly declined to patch this vulnerability and withdraw access until it was patched. In response, the administration issued an export control, and Anthropic then withdrew the model completely from all customers.

• The net effect? Frontier model companies are de facto “too big to fail”: The counterintuitive point here is that by acknowledging the threat of these leading models, the administration is de facto treating them as strategic assets. Any asset strategic enough for the government to intervene is functionally cemented as “too big to fail.”

• This is structurally bullish for the AI revolution: This is a proof point of AI’s fundamental strength in the global economic and geopolitical chess match, and a tailwind for its continued growth and development. AI is ever more real, and here to stay.

• Another effect? A tailwind for open, distributed AI systems: Centralization and censorship risks have been made abundantly apparent. The risk to any sovereign, company, or individual that such a critical tool and resource can be unilaterally withheld is too great. Yes, leading centralized players are cemented in their role, but so has the force driving demand for their counterweight - free, open, distributed, sovereign versions of this technology.

• The marginal willingness to pay for AI tokens is weakening: Combine this warning signal of centralization risks with the continued open source progress (as open weight solutions shrink the gap to frontier capabilities), and the marginal willingness to pay for AI tokens pulls back on the margin. Overall volumes (paid and unpaid) are still growing dramatically, to be clear, but the tailwind for the open AI ecosystem strengthens.

[TLDR] AI is ever more real, and here to stay - bullish for the continuation of the broader AI trade and broader business cycle and macro strength.

Yet within the AI ecosystem, we see demand for open solutions primed to explore.

AI pulls crypto forward. (Keep an eye out for more writing on this in the weeks to come).

• ~$6.5B in outflows from crypto ETFs over the last 5 weeks: Prices were weak amidst this backdrop.

• The backdrop: Geopolitical & inflation risks due to the Iran conflict coincided with preparations for the impending SpaceX, Anthropic, and OpenAI IPOs.

• Crypto is in a historically-attractive accumulation zone: BTC is more than -1 standard deviation oversold, which has historically been among the best times to accumulate for long-term holders.

[TLDR] We’ve seen record crypto ETF outflows. The key risk in Iran appears to be resolved. Macro still reads strong.

Crypto sentiment feels like it’s shifting from despair to apathy. These are the among the most challenging times to buy, but with a long time horizon, these are rare opportunities.

Until next month,
Devin