Hey Traders,

I've been saying this for a year. AI is deflationary. Not someday, now.

And it shows up first in the one number that decides everything for inflation: wages. This note might be slightly dry, but it's important for you to understand.

The oil spikes, the tariffs, the sticker shock at the pump: those are sparks. Inflation only catches when a spark lands on dry timber. The timber is wages.

AI just soaked it.

A price shock only becomes lasting inflation when it reaches wages. AI is breaking the wage engine.

So the next Fed move is a cut, not a hike. Rates come down.

The tell is wages

The number that tells you where inflation is headed: unit labor costs. That's just wages measured against what each worker produces. David Rosenberg calls it the big tell, and he's right.

Watch it and you can ignore most of the noise. Right now it's running near half a percent year over year, down from about three percent a year ago. That's a wage engine cooling to idle.

Why so cold? Productivity. Over the past year, roughly ninety percent of the growth in the economy came from productivity, not from adding workers.

Normal is fifty-fifty. When output per worker screams higher like this, companies eat rising costs instead of passing them to you.

And this is the anti-1970s. Back then, unions and cost-of-living clauses turned every price rise into an automatic raise, and every raise into the next price rise. That loop is the wage-price spiral, and it's the only thing that makes inflation stick.

It's gone. Think of AI as a worker who never asks for a raise, never quits, never organizes. Every task it absorbs strips a little more pricing power from labor.

No leverage, no spiral.

The one honest exception

Prices are still high, I know. But high isn't the same as rising fast. Inflation is a rate of change, not a level.

Volcker never made prices fall. He only slowed how fast they climbed.

There's one place the inflation is real: the buildout. The AI construction boom is the most capital-hungry in a generation, and everyone is bidding for the same memory, chips, and power. That's why Apple (AAPL) just raised prices.

That part is real, and I won't pretend otherwise. But it's cost-push. It lives in the price of things, not in wages.

It's transitional, not structural. A buildout ramps, peaks, and matures. The pressure fades with it.

The opportunity

Here's the part that matters for your money. Two temporary things prop up yields right now: buildout pressure and Fed fear. Neither one lasts.

The disinflation underneath does. When the buildout subsides and the wage story wins, rates fall.

So lock in higher yields while they're still on the table. We may look back at this window as a generational chance to do exactly that.

When the next Fed move flips from hike to cut, duration stops being the enemy, rate-sensitive names breathe, and gold gets its handcuffs off. The "higher for longer" crowd gets caught leaning the wrong way, which is usually where the best trades live.

The one risk to my call is another outside shock: a fresh energy war, a broken supply chain. That buys the inflation crowd time. Time is all it buys.

A shock that never reaches wages fades every single time.

It comes down to one question. Does the shock reach wages?

This time it can't. AI won't let it.

Rates come down from here, and I want you positioned early.

One more thing before I go.

Positioning early is the slow money, the macro side of this. But there's a trade in every single session between here and that first cut.

Mark and Licia hunt those daily moves before the bell, while I'm watching the longer arc.

If you want the same-day side of this story, that's where I'd point you.

Trade smart, stay hedged.

Hans