The Interstate of the Future Just Broke Ground By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Is this the start or the end of an epic party?
- Liquidity tells one side of the story…
- You cannot comprehend how important the highway is…
- The biggest “public/private works project” in 70 years…
- Zen and the art of options trading…
Normally, it isn’t this hard to pick a side… Weird as it is to say, we’re technically in a new bull market in the Nasdaq 100. Yay! Peak to trough, the index fell nearly 23% from the high on Feb. 18 to the Liberation Day lows. That’s a bear. In the 40 trading days from those lows, we’re up 28% – anointing a new bull market by the traditional description. We saw something very similar back in 2020. The index fell about 27% during the pandemic panic, then sprung back up 20% in 15 days as the Federal Reserve turned on the money spigots. But are these bear markets? Or are they something else? When macro-level distortions beat things down and spring them back up in a span of weeks… What do you really call that? Was what we just had the start of a new downtrend, or a true hiccup? In the spirit of traditionally frustrating market punditry, I’m not here to call it one way or another. There’s plenty of evidence that it’s still time to party like it’s 1995, and you’re only a few minutes late to the festivities. There’s also plenty of evidence that if you show up to this party, you might wind up finding just a couple guys who drank too much and are setting up one last, final, tragic keg stand that’ll put them in the hospital. We’ll lay out the bull case today. Then on Monday, with the jobs numbers at hand, we’ll focus on the evidence showing this economy could soon come to a screeching halt. But both today and on Monday, I’ll share some insights from one really smart guy who knows how to make money – our most important responsibility as traders – no matter what happens. The bull case: liquidity and spending… The source of the market’s May recovery is no mystery. Right now, the major forces at play are the massive spending plan by congressional Republicans – which markets rightly see as a huge liquidity injection – pulling against how unsustainable all this spending is. The embarrassingly named One Big Beautiful Bill Act is still in the works on the Senate floor, so there’s no putting a ribbon on the deficit situation just yet. (My guess is, no matter what, it’ll be big.) But what’s just as important is the fact that this comes on the heels of a new regime of money printing by the Fed. The chart below is the year-over-year change in M2, effectively the number of U.S. dollars in circulation. This is an important measure of liquidity, and the action of the past 12 months looks almost something like a new bull market: 
As we can see, the Fed was at one point vastly printing money at a 25% annual rate in early 2021. From there, it reduced the pace, kept it steady through the second half of the year, and then began drawing it down again when the inflation crisis hit in 2022. By January 2023, the Fed was destroying M2 and continued to do so for the full year of 2023, at one point as much as 5% year over year. Clearly, this was not enough to bring M2 back to pre-2020 levels. But it did help the inflation problem, bringing it down from a peak of over 9% down to where it is today, around 2.5%. What’s noteworthy about this is that going back to 1981, the Fed has never outright destroyed M2 as it did in this short period. Understanding the one-year lag, we can see that this liquidity destruction directly correlates with the 2022 bear market. Now, look to the right of the chart. Since around March of 2024, the rate of M2 creation went positive. Last month saw the biggest annual rate of M2 increase since August of 2022. This chart gets more interesting when you add the Core Consumer Price Index (CPI), also on an annual change basis: 
Annual core CPI started to rise above a year after the Fed’s pandemic response. Inflation kept climbing for the next year, and began to slow as the Fed rose rates and destroyed liquidity. Now, though, we have an important crossover. The rate of new M2 has outpaced the rate of core CPI. Liquidity is expanding, which helps asset prices… But inflation is thus far still on a slow downward track. Regular readers know this is a rare signal. Going back to 1981, it’s only appeared a handful of times – ’88, ’89, and ’95: 
The late ‘80s and 1990 saw a climbing stock market, no bear market, and a brief recession. And 1995 was when the most powerful tech bull market of all time kicked into overdrive. Not to mention, this latter signal was accompanied by actual (not an empty promise of) cuts in government spending, a radically transformative new technology, and a revolution in everyday investor participation in the financial system by way of both savings and investing. Liquidity is a powerful leading indicator. When more dollars float around, especially in an environment of moderating inflation, those dollars are going to be put to productive work in assets. And productive use of capital begets more productivity… Here’s a great and important example. Sixty-nine years ago, President Dwight D. Eisenhower signed into the law the Federal Aid-Highway Act of 1956. The goal was to build tens of thousands of miles of roads interconnecting the United States – the Interstate Highway System. The project would ultimately cost more than $600 billion in 2025 dollars, funded 90% by the government through federal fuel taxes starting at 3 cents per gallon of gasoline. When it was completed in 1992, more than 45,000 miles of new roads were built. People call this a public works project because of how much the government spent. But it took the labor and organization of thousands of private companies to build out the roads over its 35 years of construction. The project also required massive quantities of asphalt, steel, concrete, equipment, and petroleum to power that equipment. Millions of jobs were created, both directly and indirectly, across the spectrum of civil engineering, trucking, fuel, and tourism. Altogether, it’s impossible to understate just how significant the Interstate Highway System was to the GDP of the U.S. From 1956 to 1991, U.S. GDP rose from $439 billion to $6.2 trillion. The acceleration in the rate of expansion is clear as day: 
That’s because the lowering of transportation costs gave way to expanded manufacturing, retail distribution networks, and the birth of the long-haul trucking industry. Hotels, malls, fast food chains, and entire new towns and suburbs spawned in the wake of the highways. Cars got more efficient at driving long distances, and more practical for suburban life. It wasn’t rosy for everyone. The railway industry took a massive hit as cars took over, and railway-dependent old towns of America were abandoned en masse for the Sun Belt. Casualties are a constant in the face of change. The point is, the Interstate was and still is a massive deal. Easily the biggest deal for the U.S. economy since the Industrial Revolution. Now, zoom back to 2025… You might remember a little thing called Project Stargate a few months back. This is an initiative by the U.S. government meant to build the physical and digital infrastructure necessary for widespread AI and robotics. The first number touted was $500 billion. It’s not a bill, so not an official public works project (yet)… But should it become one, it promises to be the biggest one since the Interstate. - The physical highways for cars and trucks will become the digital highway for robots and AI.
- The connected cities and markets will become the extensive network tying the digital advances in AI with physical machines.
- The booms in automotive, construction, and energy businesses translate to AI chips, robotics, energy storage, and data centers.
The companies that have already pledged involvement in the project is a who’s who of AI, networking, and robotics today. Microsoft, Nvidia, Arm, Cisco… OpenAI, Oracle, SoftBank… and many more. AI supercomputer centers are in the works from Phoenix, Arizona, and Abilene, Texas, to the United Arab Emirates, each operating at 1-plus gigawatts of power. What’s today considered a “hyperscale” data center is working with megawatts of power… So, AI supercomputers are scaling that up by 1,000. If Project Stargate comes to fruition – big IF – then it could enable the same kind of productivity expansions that we saw from the Interstate… only exponentially more powerful. Imagine a world where robots are every bit as common as people. As construction workers, as delivery and factory workers. Laugh all you want – this isn’t far-fetched. Amazon announced just yesterday that it’s set to start testing delivery robots: 
Source: Amazon partner Agility Robotics And Tesla plans to build several thousand units of its multipurpose bipedal robot Optimus this year. But someday we could even see more robots in more socially oriented roles – nurses, caregivers, tour guides. Heck, imagine a robot lion tamer. You’re telling me you wouldn’t pay to see that? It might seem impossible now. But then again, the Interstate probably did too back in ‘56. This, to me, is the single biggest tech story of the coming decades. And alongside the broad-based expansion of U.S. liquidity, it’s a solid reason to think there’s many more years of tech-driven gains for the taking. Now, here’s a beautiful thing to understand… You can disagree with everything I just said and still make money. You can be a bear right now. You don’t need anyone’s permission. You just have to understand that being broadly bearish in your mindset doesn’t mean you have to upend your entire portfolio. If your long-term ideas are still in effect, you can let them ride – while trading a smaller portion of your capital more actively. As we discussed, bear markets don’t come around often and they don’t stick around long. When they do, trading becomes a critical skill. That’s something Jeff Clark is the master of. This guy thrives in volatility because he waits for his moment… selects his trades with great care… and pounces on the best setups the market has to offer. It’s how he was able to make huge gains on 16 out of 18 short-term options trades from Liberation Day through today. Now, thanks to his recent partnership with us at TradeSmith, his Delta Report subscribers have direct access to the screener that brings him these opportunities every single day. And if you are a bear… Well, you’ll have a friend in Jeff. Right now, he’s warning that a clock is ticking down to a chaotic moment for the markets. It all has to do with the untenable fiscal path the U.S. is on… the end of a decades-long bull market in a little-understood asset… and the reversion of the worst yield curve situation ever seen. Whether you’re bullish or bearish, trader or investor, Jeff has a message for you right now. He’s holding an event next Wednesday at 10 a.m. Eastern that lays out his whole case. I’ve known Jeff a long time, and while he isn’t one to brag, the fact of the matter is that his strategy absolutely cleaned up in the recent carnage – and going forward, you need to know how and why. Sign up for it here, and when you opt in to our VIP SMS service you’ll get full access to his daily trading blog and any new trade ideas he posts there. Plus, join us tomorrow afternoon when I’m airing a brand-new interview where Jeff shows off two brand-new ideas for you to trade next week. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
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