Part 2 deflation 3/20/26

The Spaces centers on host David Levison’s macro and trading playbook: a conviction that the US yield curve will further flatten/invert from the long end as positioning unwinds, the 10s/30s spread sits below its 200-day moving average, and a potential “death cross” accelerates moves. He expects the long bond and mortgages to get bid, pulling mortgage rates down while equities struggle and credit spreads widen. Volatility remains structurally suppressed by zero-DTE options and short-vol supply, arguing for a choppy, grinding market rather than a sudden spike. Tactically, David outlines short-call strategies on mega-cap tech with monthly maturities to harvest premium, paired with smaller, farther-below-market short puts; he favors accumulating 30-year Treasuries and MBS ETFs. Sector-wise, he sees semiconductors over-extended (Nvidia/Micron/“SanDisk”) amid triple ordering and expects a deflation of AI-linked exuberance, while staples face margin pressure yet may gain from AI efficiencies and activism. Gold, in David’s view, risks a 1980-style comedown as global liquidity recedes. The session also touches on fertilizer transitions (e.g., Pivot Bio’s acreage), geopolitics (Iran oil sanctions rumors denied), and operational plans to migrate Spaces for better audio and recordings. Q&A with James and Bitcoin Tina explores delta/risk management, curve dynamics, MOVE, and zero-DTE’s stabilizing effects.

Space Overview and Participants

• Host: David Levison (frequently addressed as “David,” also referred to jokingly as Dux/Duxster/docs). Primary voice on macro, rates, and options strategy; manages the room and provides most of the analysis.
• Ray (likely Speaker 3): Engages on volatility and yield-curve levels; participates in market-structure questions.
• Sylvie (Speaker 5): Brings questions on Qatar/China gas, fertilizer supply chains; engages in policy-related questions.
• James (Speaker 6): Seeks tactics for managing bounces on the way down and delta hedging in practice.
• Bitcoin Tina (Speaker 2): Focused on MOVE, curve dynamics, 0DTE effects, and trade structure parallels to 2000; queries spread behavior and OpEx.
• Ghosty / Chris Bigosky (Speaker 7): Shares takeaways from another Space (geopolitics), confirms staples cost pressures from a chef’s operating perspective; chimes in on bond/stock correlation progress ("CRZ/zero z").

Session Setup, Audio, and Logistics

• Early light banter (clickbait, snacks, Coke Zero) and consistent references to app instability; joking conjectures about DDoS/Fed/China. Consensus: participants troubleshooting by rebooting apps/phones.
• David plans to improve audio and archiving by moving Spaces to a new setup with instant recording and a searchable database; invites subscriptions and mentions gifting subscriptions.

Policy and Voting ID Commentary

• David’s view:
  • Critiques policy inconsistency: ID for some services/events vs. voting without ID.
  • Proposes national voter registration with verification within 60 days, granting free access to required identity documents; envisions tokenizing/putting records on a blockchain to reduce fraud and facilitate verification.
  • Argues current resistance to ID enables ballot-stuffing/ballot-harvesting (e.g., “dead people” voting, unsecured drop boxes).
• Sylvie: engages but does not deeply take a position; provides a quip about a parent never voting Democrat while alive (humorous aside).

Energy and Fertilizer Supply Chains

• Qatar and China natural gas:
  • Sylvie asks whether China sources natural gas from Qatar.
  • David: Asia sources large volumes from Qatar’s very large fields; acknowledges alternatives exist but Qatar is a major supplier.
• Fertilizer production and alternatives:
  • Sylvie recounts a sequence: BASF once supplied nitrogen fertilizer; supply chains disrupted (pipeline blown up), China took contracts, and then China’s source was hit. Wonders if the US has the manufacturing capacity for fertilizer.
  • David: US natural gas is abundant/heavy; raises Pivot Bio as an alternative (biological nitrogen fixation at the root), noting claims of use on ~15 million acres and registered use for corn/wheat/small grains converting atmospheric nitrogen to plant-usable forms.
  • Sylvie: skeptical on practical deployment—compatibility with farm equipment and application methods matters; also cites the Sri Lanka fertilizer policy fiasco and the political push to cut nitrogen fertilizer usage (mentions attacks on Dutch farmers). Wants robust, proven alternatives; concerned about anti-nitrogen agendas.

Commodities: Gold and Bonds Interplay

• David’s thesis:
  • Notes foreign governments buying gold; poses scenario where gold gains a “3-handle” (context implies a run toward $3,000) and then pulls back $150+, arguing price is relative.
  • Ties asset price rotations to bond dynamics: as bonds get bid and spreads compress, dollar strength and falling inflation follow. He sees the current positioning and price action as deflationary, not inflationary.
  • Specifics: references the 10s–30s spread (10–30) weekly decline (~6.2 bps), below the 200-day moving average; calls this a material move in inflation-expectations signaling.
  • Predicts gold’s risk of a deep, long-lasting drawdown worse than 2011–2012’s multi-year flat/down phase; likens setup more to the 1980 peak aftermath given excess liquidity (4x to 10x expansion post-2011 recovery). Projects a multi-year-to-decade normalization.

Rates, Yield Curve, and Bonds (Core Macro)

• Yield curves and spreads:
  • David repeatedly focuses on 10–30 and 2s–10s shape. Notes the market closing the week with 10–30 meaningfully lower and below key moving averages.
  • He expects further flattening/inversion and calls out a likely “death cross” (50 below 200 on the 10–30) and a low RSI (~34) as bearish for that spread.
  • Argues the “equilibrium state” is a massive inversion; consensus is crowded into “steepen the curve,” and he expects a hard move through zero as the crowd is offsides.
• Volatility across the curve:
  • MOVE uptick “driven by the 2-year.” David: when the 2-year is allowed to be volatile, the long bond can stabilize; suppressing front-end vol forces long-end vol issues. Current structure is shifting toward front-end vol.
• Bonds vs. equities:
  • He expects further equity weakness while long-duration Treasuries and agency MBS rally (“bond below 4%”), reinforcing deflationary pressures.
  • Sees money rotation into long-duration fixed income as yields are compelling (5.5–6% on long zeroes) with “zero risk over 30 years” in his framing; argues this siphons capital from equities.
• Instruments and positioning:
  • Mentions long-duration/zero-coupon plays (“zero z” and “Ultra” exposures), and tracking the 6% mortgage coupon; sees ZC/long duration grinding sideways intraday as equities outflows support bonds.
  • Prefers being long the 30-year and mortgages (e.g., shorter-duration MBS tickers mentioned in conversation: VMBs/MCMA/MBB/JMBS), scaling on strength rather than shorting other curve points. Expects a four-year low in yields to come into view again.
• Credit spreads:
  • David and Tina agree spreads widened (yesterday and today). As curves catch a bid (yields fall), they expect credits to lag wideners, worsening risk appetite.

Equity Market Structure and Outlook

• Volatility horizons:
  • Ray asks about 60-day vs 30-day realized/implied volatility. David: VIX is a 30-day forward; the market is structurally short near-term vol and “steepens the vol curve” by funding out 30-day. He’s not a super-spike vol proponent due to structural supply; expects down moves with rallies and more “orderly” declines than past episodes.
• 0DTE and vol suppression:
  • Tina notes 0DTE selling has been persistent since October; expects a long, choppy grind where options flow dampens index volatility.
  • David: agrees 0DTE flow stabilizes and suppresses vol, especially on the way down (30–40 VIX levels less likely to persist). It can’t repeal the market but can dampen it; implies a “melt/deflate” tendency rather than violent crash dynamics.
• Option tactics for drawdowns (David’s playbook):
  • For dealers or aggressive traders, when puts are richer than calls, be over-hedged/short more stock against short puts to keep delta ahead as the market moves in-the-money.
  • Structures: short an at-the-money call (if bearish) and a put below market (ratioed 1 by 2 further OTM puts), rebalancing deltas “more often than daily” in moving markets; anticipate “limit-down” risk and pre-buy hedges below shorts to protect.
  • As vol rises, short-vol products that stabilized earlier will pause new issuance until conditions re-stabilize, but they historically return, providing additional theta supply.
• Trade ideas and sector views:
  • Large caps/“top 10” mega cap tech and adjacent leaders: David intends to short monthly (≈30 DTE) calls on the largest non-staples/utilities/healthcare names, targeting ~3% monthly credit, e.g., MSFT 380/420 structures; roll repeatedly.
  • Will short limited puts (≈5% OTM) for a small premium to reflect non-crash bias and tighter ranges in suppression regimes.
  • Dispersion is high within indices; hedge-fund and institutional rotation windows (quarterly meetings at end-March/early April) could accelerate a shift from tech to equity income/bonds. Until then, forced sector reallocation creates crowding.
  • Semiconductors and AI complex:
    • David expects Nvidia to underperform materially from here (describes a path back toward prior large levels and deeper), with “cyclical” characteristics reasserting.
    • Notes a storage/AI hardware stock he calls “Sandisk” moving from ~50 to ~800 in a year as emblematic of froth; sees it as vulnerable to sharp mean reversion once Nvidia turns down. Micron cited as “much bigger” and historically volatile; he expects major downside across the semi complex as triple-ordering normalizes and pricing collapses.
    • Sees SMH’s monthly candle structure as turning (hanging star risk) with a likely gap-down and follow-through next month if the pattern confirms.
  • Staples vs. cyclicals:
    • Tina observes bloodbath in some staples (e.g., General Mills, Kraft Heinz) due to pricing power and debt issues.
    • David counters that “liquidity-driven” staples will find investors at discounts and via activism; AI-enabled marketing/ops efficiency and labor redeployment from tech could structurally improve these businesses over time. Near-term, he’d short calls more aggressively than puts on these lower-beta names.
  • Financials and Europe/Canada:
    • David is bearish on US financials (e.g., XLF) and large banks (e.g., Bank of America) given mortgage handling missteps and EM liabilities; expects slicing through recent “Liberation Day” lows.
    • Europe described as a “disaster” (index declines and currency weakness not providing the usual offset); Canada (EWC) similarly vulnerable with recent double-digit declines off highs.
  • Index status: Despite indexes being down mid-single to low-double digits from peaks (NASDAQ ≈ ~10% area; “FANG” ~11% cited), David stresses internal dispersion has been “insanely high.”
  • Microsoft: Both David and Tina note MSFT’s decline began before the recent geopolitical escalation; any “war over” narrative won’t fix structural tech re-rating in their view. David expects MSFT to revisit/take out April 2021 lows once into early/mid-April windows.

Geopolitics, Oil, and Sanctions

• Intraday chatter about “war over” headlines and late-day remarks affecting risk. David frames Treasury rally occurring as equities bled as evidence of rotation.
• Rumors addressed:
  • Claim: sanctions removed on Iranian oil; David and another participant call this false; nuance that certain funds/transactions (e.g., $6B via Korea) were allowed/escrowed under the Obama/Biden administrations, analogous to Maduro/Venezuela mechanisms (sell oil, proceeds held “for the benefit of” the country, not sanctioned entities like IRGC). Broad point: incremental barrels sought in market without directly empowering sanctioned actors.
• Ghosty mentions another Space with unusually respectful geopolitics debate (Tina engaged a pro-communist participant); David plans to listen to the recording.

Market Microstructure, Day’s Tape, and Curve Levels

• Bonds:
  • David notes the long bond essentially flat from late morning onward, with sideways action in “zero z”/ultra exposures while equities sold off—indicative of equity-to-bond rotation.
  • Observes micro steepening between certain points (e.g., 2s–3s ~+1.2 bps; 5s–10s ~+10 bps intraday), but emphasizes the weekly 10–30 flatten and the longer-term downtrend in curve shape.
• Curve history and conviction:
  • David references multi-decade charts (1987 and earlier context) and insists the dominant downtrend in curve shape resumes, expecting a forceful move through zero as positioning unwinds.
  • He dismisses the 2s–10s as easy to push around versus the 10–30 for structural signals; views investor consensus around “steepening” as a contrarian tell.

Bitcoin and Crypto

• Late-session banter on BTC’s pattern:
  • David: expects combined deflation in BTC price and its volatility; flow dynamic where selling puts is used to get long, then a pump, then a “dump after the pump.”
  • Risk management: a participant explains why hedging prevented liquidation during a prior volatility spike; David argues redundancy can be a crutch and prefers reducing overlap/hedging against oneself, but acknowledges extreme crypto mechanics and event risk.
  • Jokes about “trading against myself” to survive manipulation-like events; general acceptance of crypto’s unique microstructure and funding/liquidity gaps.

Consumer Staples Input Costs (On-the-Ground Confirmation)

• Ghosty (as a chef) corroborates:
  • Significant increases in “softs” like wheat and sugar and higher transportation costs passed through by distributors (e.g., Sysco—food services, not Cisco Systems). Notes rapid menu input price increases and margin pressure for consumer-facing businesses.
  • David references Bunge and Sysco as nodes in the food chain subject to these dynamics; consensus that cost pass-through is ongoing even if staples equities are selling off.

Key Takeaways and Outlook

• Bonds and Curve:
  • David expects continued flattening/inversion across key curve segments with technical confirmation (death cross on 10–30) and front-end volatility taking the baton from the long end. Long-duration Treasuries and agency MBS favored; looks for sub-4% 30-year yields in time and a return to multi-year low yields as deflationary forces dominate.
• Equities:
  • Anticipates a rotation out of megacap tech into equity income and bonds as quarterly allocation meetings occur; until then, dispersion and 0DTE flows likely continue to dampen index-level volatility while individual names re-rate.
  • Semiconductors/AI hardware viewed as most vulnerable given crowding and potential order/pipeline normalization; expects outsized downside in the high-fliers after parabolic moves.
  • Financials and European/Canadian equities at risk; staples pressured near-term but could become activist/efficiency stories as AI cuts costs.
• Volatility and Strategy:
  • Short-vol regime persists but won’t prevent a measured deflation in equity valuations. David prefers call-overwriting on megacaps (~30 DTE, ~3% premium target) and selective short put exposure ~5% OTM in tighter ranges, with active delta management and ratios for downside.
• Commodities:
  • Gold at risk of a structural, lengthy comedown akin to (or worse than) the 1980s unwind after a liquidity-driven blowoff. Oil/policy rumors should be treated cautiously; more barrels may hit markets via controlled/escrow mechanisms without direct sanction relief.
• Agriculture:
  • Pivot Bio and biologically-driven nitrogen solutions gaining traction (claimed ~15M acres). Practical deployment and equipment compatibility remain concerns. Broader political pressures against nitrogen use create skepticism about pace/viability.
• Administrative:
  • David will migrate Spaces to a higher-fidelity setup with recording and a searchable archive; encourages subscriptions.

Notable Numbers and Levels Mentioned (Contextual, as cited)

• 10–30 spread: ~6.2 bps weekly flattening; below 200-day moving average; RSI ~34 on 10–30.
• 2s–10s: referenced intraday moves; general level near significant negative territory and weekly close shifts; David expects deeper inversion ahead.
• Equity moves: NASDAQ down roughly high-single to ~10% from peak (approximation during live talk); internal dispersion “insanely high.”
• Options income targets: Monthly call-writing on top mega caps targeting ~3% credit; sample MSFT 380/420 monthly spread discussed conceptually.

Closing

• David plans for continued monitoring of curve flattening, bond firmness, and equity softness into month-end/quarter-end (weekly and monthly closes flagged). Expects Microsoft weakness into early/mid-April, semis underperformance as AI froth unwinds, and renewed bid for long-duration fixed income as deflationary signals strengthen. The room winds down with light crypto humor and logistics about future Spaces and recordings.