Kevin Warsh: Hawk

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Which Way, Warsh?

By Larry Benedict, Founder, Opportunistic Trader

Last year, Kevin Warsh said that “inflation is a choice.”

More from Warsh:

The central bank can hit any price level that it wants, any inflation level that it wants. We might not like how they do it, but the idea that they should be blaming somebody else strikes me as quite antithetical to good economic history.

At the time, Warsh was still a private citizen. Now, he’s the Chair of the Federal Reserve.

So, if inflation is a choice, what will Warsh choose?

We’re starting to get some idea…

Last week, the Federal Reserve unanimously voted to keep rates unchanged.

That was expected.

But Kevin Warsh offered a distinct change in tone from his predecessor, Jerome Powell. For one, he declined to contribute a ‘dot’ to the ‘dot plot,’ which charts FOMC participants’ expectations of where the Fed’s rate should be in the future.

For another, Warsh’s presser didn’t offer much in the way of handholding. He was mostly curt, to-the-point, and offered little forward guidance.

But he did have this to say:

Persistently high prices are a burden for the American people. But the recent past need not be prologue. I am pleased to report that members of the FOMC are unambiguous and unanimous. This committee will deliver price stability.

Translation: Warsh is focused on inflation.

That makes sense.

Against a sturdy jobs market and healthy economy, Warsh’s primary goal is to rein in inflation.

May’s Consumer Price Index (CPI) of 4.2% showed year-over-year (YoY) inflation tracking at more than double the Fed’s 2.0% target.

Other Fed officials reinforced Warsh’s hawkish stance. Nine are now expecting at least one interest rate increase this year. That’s a dramatic shift from the March dot plot, when not a single official expected a hike.

The change in tone led stocks to sell off, with the S&P 500 finishing the day on its daily lows. Higher interest rates are a negative for stocks priced for strong growth.

The meeting also showed that Warsh intends for the Fed to remain independent. That means economic data (and not political pressure) should continue to drive the Fed’s decisions. And that puts inflation front and center…

While AI stocks, SpaceX and a growing pipeline of other high-profile IPOs are grabbing headlines, interest rates remain a key stock market mover. If inflation stays high, that’s going to put pressure on overstretched stock valuations.

As we’ve seen, the market has enjoyed a massive rally off its March lows. But last week’s reaction to Warsh’s comments was a timely reminder of just how sensitive investors remain to changes in interest rate expectations – something exacerbated when they’re sitting on profits.

Clearly, rate expectations are changing.

That means we’re in for an interesting second half of the year.

Micron Just Confirmed the AI Memory Supercycle…

By Nick Rokke, Senior Analyst, Brownstone Research

Wednesday evening, investors waited with bated breath for Micron’s (MU) FY Q3 earnings report.

Micron is one of the “Big Three” memory suppliers. The other two of the group are Samsung and SK Hynix. For years, Micron’s memory products almost traded like commodities, with ebbs and flows as gluts and deficits appeared in the market. For much of the company’s history, the stock followed a similar pattern—ebbs and flows.

But that was before the AI trade…

New memory demand from AI applications has turned MU into a rocket ship. Prior to Wednesday’s earnings, the stock was up approximately 255% year-to-date and 740% over the past 12 months.

Going into the report, expectations were already high. Investors had every reason to wonder whether the good news was already priced in. And ahead of the print, some of them chose to sell. Shares of MU were down about 12% from Monday’s open to Wednesday’s close.

That was a mistake.

Micron did not just squeak past expectations; it vaulted over them.

Revenue soared 346% from this quarter last year. And Micron’s EBITDA (earnings before interest, taxes, depreciation, and amortization) soared 714% year-over-year to $36 billion. Both beat expectations by over 16%.

These are huge numbers.

But in this market, backward-looking numbers aren’t enough. For high-flying AI stocks, forward guidance matters even more.

Micron delivered there too. Management raised this quarter’s guidance to $50 billion, also 16% ahead of the consensus number.

And this was one of the most optimistic conference calls I’ve ever heard. Management said that they expect “tightness” through 2027. And they have “no line of sight as to when memory supply catches up to demand.”

This says we can expect prices and profits to remain high for years to come. And these prices should remain high even when Micron gets new capacity online, likely in 2028.

And as we get closer to having widely available artificial general intelligence (AGI), the AI infrastructure buildout will continue. And AI data centers can’t be built without advanced memory. The more powerful the models become, the more memory they consume. And the rise of agentic AI increases the need for faster high-bandwidth memory (HBM).

Micron is scaling into that demand. Its HBM4 12-high product is ramping twice as fast as HBM3E, with more than $1 billion in HBM4 revenue already shipped.

And the business model is changing. Micron now has 16 strategic customer agreements. These are binding, multi-year commitments. Together, they represent at least $100 billion in contract revenue, along with $22 billion in future deposits and related commitments.

This gives forward visibility into revenue and earnings. And this is also how a cyclical memory business becomes more durable in an AI supercycle.

That’s why our advice remains the same. We recommended Micron in October 2024 in The Near Future Report. Readers are up over 1,000%. We continue to hold.

Micron’s report gave the market the answer it needed.

The hyperscalers are still building. The AI labs are still scaling. Memory suppliers are still sold out.

That means the AI infrastructure boom is intact. It also means the technology bull market has more room to run.

Two AI Agents Make a Deal…

By Ben Lilly, Senior Crypto Analyst, Brownstone Research

A Ricardian contract was signed on-chain last week by two AI agents.

Think of this as a digital agreement designed to be read by both humans and machines.

These differ from smart contracts, which are essentially lines of code that execute automatically.

Ricardian contracts combine code and law. Which means the transaction is valid, legally binding, and understandable by all parties involved.

It was invented in 1996 by cryptographer Ian Grigg. And for agents, it transforms code into law.

What makes public blockchains an ideal layer for these contracts is that the document can be posted on-chain via a hash. This hash is proof that nothing in the contract was tampered with. And the fact that the hash sits on-chain means it’s on a public and transparent ledger, making it immutable.

All this matters because the Ricardian contract allowed two incorporated agents to conduct a deal. That was the news from the creators of ClawBank and Shodai.

ClawBank is named after OpenClaw, an open-source autonomous AI agent. OpenClaw runs 24/7 on your computer or server, helping you accomplish whatever tasks you ask of it.

ClawBank equips an AI agent with an entire banking stack. The stack here includes things like USD accounts, FedNow, ACH, wires, crypto wallets and more.

Meanwhile, Shodai is an agreement protocol that helps people, organizations and agents coordinate around commitment. It is essentially the contractor that helps draft the contract that agents can then agree upon.

And using these two pieces of technology, two agents negotiated scope, price, deadlines and terms for an agreement. The two signed the deal and linked the legal document to a Shodai smart contract.

This was an autonomous process.

Now, the transaction itself wasn’t exciting. It involved a simple company logo.

But that isn’t the interesting part. The interesting part was the fact that the agent found another legal entity, negotiated, generated a legal contract, agreed on milestones, and transacted.

And here’s the nutty part: No humans were involved in the actual deal-making process.

The implications are profound. And I’m sure it makes some of you reading this more than a little nervous. But this is absolutely the future.

It’s a future where enterprises run fully autonomously without humans. It’s a future where agents don’t just assist with operations, they own and run the entire business.

This is part of a larger trend known as zero human companies (ZHC), and it’s a huge opportunity set for blockchain ecosystems. All the infrastructure that would be required for a ZHC is being built out on public blockchains.

ZHCs will only pick up from here. And since these entities are on-chain, we’re likely to see a wave of new investment opportunities spring up as they gain traction.