Meanwhile, everything I look at continues to signal maximum caution over both the coming weeks and months to year. What feels so obvious to me seems so foreign and antagonistic to many. When I experience these periods of hardening conviction amongst an ever diverging sentiment and consensus, I just keep digging and re-underwriting. I try to step into ‘the shoes of an alien’ who knows nothing about the world we live in and is just seeing everything for the first time. It’s nearly impossible to eliminate all biases we carry, but attempting to put myself in an outside person’s brain to evaluate the landscape and assess the facts helps me to parse signal from noise.

Our latest Forward Guidance episode with chartbook download is linked here.

Simplifying the agriculture trade.

1. I remain very long agricultural commodities. I laid the thesis out in last week’s Scouting the Tape and have been discussing in chat before that. I want to offer a simple summary.

2. They are the biproduct of everything that is scarce right now. Within the final cost of corn, wheat and soybeans is the fuel it takes to plant, tend and harvest crops (oil and gasoline prices are vertical), the fertilizer it takes to grow crops (fertilizer prices are vertical), land, farming margins and financing costs. On top of that, US farmers have been in a severe recession with materially ramping bankruptcies and closures, setting the stage for production decreases there as well. All of this equates to higher prices for the end commodity. I think betting on the physical underlying ags is not only the simplest expression of the trade but also the highest upside with least downside.

3. Ags are not susceptible to the same demand destruction that oil is given you need food to live. There also is no strategic agriculture reserve.

4. The timing of the supply shock matters much more for ags than it does oil as well given we are entering peak spring planting season. When key commodity supplies come back online, oil can be restarted whenever, but you can’t plant crops out of season.

5. Lastly, remember what I wrote about the move in producers before the physical commodity. I pointed this out in both gold and oil. Linked here. A similar idea has been playing out in the ag space.

   

Iran thoughts and if/when the oil market becomes a forcing function?

1. I don’t really want to discuss the Iran war a whole lot but it’s important and necessary so I have a section about it. That said, the other topics I write about I think are more unique, interesting and unfortunately bearish. The main message is there is no near-term opening of the Strait. It is going to be a extended, ugly battle to get there. This is the stuff global crises are made of.

2. Trump could be playing a waiting game with developed country allies in Europe and Asia. We wrote about the US’s energy dominance last week and the record low natural gas inventory levels in Europe and Asia going into this year. The below chart provides useful context to how much of a problem this is for energy importing countries who are short commodities. Check our X feed for recent tweets about our short Japan, Korea and Europe positions.

3. It seems likely to me that once the market works through the large build up in floating crude stores (soon), most of which I believe is from sanctioned producers (eg Russia), the temperature on the Strait closure will turn up a notch.

4. Coal switching was a big topic in 2025 and is likely to remain so in 2026.

5. See our coal write up from February.

Distraction and diversion tactics from the administration are working.

1. Last March I was invited onto a crypto VC podcast amidst the market panic to talk macro. It was interesting to hear their perspective on what was going on because it differed a fair amount from how I was seeing the world. My main takeaway that did not resonate with them was that while tariffs were the pomp and circumstance, the equity market sell off was driven just as much if not more by other policy items like deficit spending cuts and immigration reduction that would put downward pressures on growth. That notion got laughed at but fast forward through 2025 and the tariffs remained but what didn’t was the firing of Elon, ending of DOGE and reversal in their 3% stated fiscal deficit target back to 5-6% deficits, all helping to recover the equity market.

2. Today I see something very similar. The writing has been on the wall as the toolshed has largely been emptied. The Fed has used most of its rate cuts, liquidity facilities like the RRP are depleted and the positive fiscal impulse from OBBB is moving into the rearview amidst an already fragile and deteriorating labor market. With equity markets at all-time highs and record valuations, this is a bad setup that is unlikely to end well. So what do you do? Insert classic diversion and distraction tactic ahead of midterm elections. Now with the Iran War there is something for the administration to blame for the poor market performance and they have finally gotten the US population to stop talking about the Epstein files. When the War eventually ends, there will be a bounce in risk assets, maybe even a Fed cut or two, and everyone will think things are back to normal for risk assets. Maybe this will even all be timed to occur right before November. Generally speaking however, the problems at hand facing the equity market are more structural and heavy in nature today than around Liberation Day last year.

What gets the Fed to cut?

1. There is a lot of noise and uncertainty around the Fed’s policy path. This is unlikely to resolve anytime soon given the ongoing major commodity supply shock and transition of new Fed leadership in a few months. That said, I found it helpful to try to arrive at what I think would get the Fed to act.

   

2. Probably the most straightforward catalyst would be a ~20% equity market correction as that has negative reflexivity that spillover to consumers via wealth effect and corporate investment/hiring.

3. Outside of that, I believe the labor market is the next catalyst. The labor market has been very weak for over 2 years now. New job growth excluding healthcare has been flat or worse since early 2024 and negative since April 2025.

   

   This weakness can also be seen in alternative data measures like Revelio and ADP.

   

   If I were to guess what gets the Fed to cut, I don’t think one more negative print is enough, but two or three materially negative reports might get them to act. Meeting cadence here matters as well given there will only be one more NFP print before April’s meeting and then by June’s meeting we will have new Fed leadership and NFP reports for March, April and May. It’s possible that going into the June meeting that four of the last six months are showing negative job growth. It would be pretty clear at this point that the Fed would be late to supporting growth even if they did decide to cut in June which the market views as highly unlikely at this stage.

   

   An uptick in unemployment rate towards 5% over the coming months would help the case. However recent increases there have been slow given the ‘no hire no fire’ stagnant environment.

   

4. The inflation side of the mandate is the least likely to instigate cuts given it has largely flatlined and the ongoing oil supply shock will not help in the near-term.

   

   If I were a Trump appointee who wanted to make a case for cuts, I would point to the seasonal distortions seen every Q1 since the pandemic and how they point to a declining trend.

   

   But given the Fed’s closer proximity to their perceived neutral rate after the 2024 and 2025 cuts, it is a higher bar to proceed from here. It is also not helpful to see inflation breadth rising as the number of components inflating >3% and >5% per year are rising while the components <0% are falling.

   

   I am of the view that the disinflationary fruits have largely been squeezed. The most positive component is generally housing as its lagged effects are working through, however I question how much lower it can go given the labor force reduction from immigration increases replacement costs over time and financing costs remain elevated.

   

5. In summary, there isn’t a strong case to be made for the Fed to cut interest rates because of progress on inflation, particularly given the commodity supply shock is likely to cause problems for at least the next 3-6 months. This leaves their market stability and full employment mandates as likely to lead policy for the foreseeable future.

6. Looking at previous periods of Fed cutting, one could point to both early 2008 and late 2001 Fed cuts with the unemployment rate ~5%. In both cases, NFP prints were decidedly negative in the -50k to -100k+ range or lower. Both instances also saw >50% peak to trough S&P 500 drawdowns, but the Fed cuts began well before the drawdowns approached their extremes. The follow on round of cuts in September-December 2001 began with the S&P 500 -25% to -35% off its high while the January-March 2008 cuts came while the S&P 500 was -10% to -20% off its high. In neither instance was it Fed cuts that ultimately stopped the decline in equity prices.

   

7. In other words, the Fed put is probably lower than where many market participants currently perceive it to be and it is up for debate whether it even would fix anything.

   

8. I also interpret recent market price action to be saying “Houston, we have a growth problem”. It is approaching a near certainty at this point that the Fed will be late to supporting growth. We are beginning a slowly moving trainwreck.

   

In the next 12-15 months, we are likely to approach a decision point for policymakers and bondholders.

1. I hate to say it, but the historical relationship between unemployment rate and fiscal deficits as a percentage of GDP says we’re either headed for hyperinflation or a massive recession and big jump in unemployment.

   

2. I’ve been wondering if bond volatility is cyclically bottomed. My gut says yes.

   

   

3. I think volatility across asset classes is entering a new structurally higher regime for that matter. Keep in mind that all else equal that lowers risk limits and gross exposures, particularly when paired with rising bond yields and volatility. This shouldn’t come as a surprise to anyone given we’re in a midterm election year and fighting a significant war. I suggest caution when anchoring too strongly to recency bias.

   

There are truly no safe havens out there.

1. I was talking markets with my friend Ram who has been calling things well and we view the world similarly. He mentioned even things like industrials ($XLI ETF) are stretched.

2. I had been coming at the AI capex bubble top from a few different angles but this is another layer of confluence. Every possible you want to bet on this trade whether that be hyperscalers, raw inputs or semiconductors look topped.

3. Oh you want to bet on the industrial builders who will benefit from the OBBB and AI capex boom? Good luck making money there as they all trade at massive all-time records that make the 2000 and 2008 stock bubbles look like childs play. Below are the top four holdings of and other major industrial indices.

   

   

4. Defensives are another example of this extended valuation problem everywhere you look.

Crunch time is near and I continue to believe there is way too much complacency, regardless of the situation in the Middle East.

As we have been discussing in the chat, we favor agricultural commodities, natural gas producers, coal equities and other oil/energy equities from the long side. We have been seeking out shorts in the tech and semiconductor sectors in addition to Europe and certain Asian markets. Bonds remain for trading but we like a short bias there.

I hope everyone has a great weekend. Good luck out there.

If you’ve been following our work, you know we’ve been the big ugly bear over the last few weeks, emphasizing caution. and I recorded another Forward Guidance episode yesterday and the link is below. Please send Tyler get well wishes as he is out sick and could not make this one.

Why agricultural commodities are a screaming buy.

1. Wheat, corn, sugar, soybeans and all agricultural commodities have traded well following the start of the Iran war.

2. Unlike oil where developed countries have strategic reserves and the ability to restart production at any time, agricultural commodities have particular seasons dictated by weather. We are approaching the spring peak for fertilizer demand in March to May where 50-75% of annual fertilizer is applied just before or during planting. This is why it’s a problem that ~1/3 of the world’s seaborne fertilizer trade passes through the Strait of Hormuz and for individual types like Urea and Sulfur, its closer to 50%.

   1. Current Polymarket odds show the Iran conflict to end in ~May. This is a massive problem if the Strait of Hormuz doesn’t open until May.

      

   2. With a ceasefire by ~June.

      

3. Food prices tend to follow oil prices.

4. There is another key element to price action and the long thesis that most aren’t connecting the dots to.

   1. Farm bankruptcies are accelerating as they face the most severe gap between their production costs (seeds, fertilizer and fuel) relative to market prices received for their crops (corn, soybeans, etc.).

      

   2. The financial squeeze is severe as the volume of new farm operating loans rose nearly 40% in Q4 and over 20% in 2025. This comes at a time when total US farm operations have been in a secular decline for multiple decades. There is no relief in sight.

      

   3. The US farming industry is in a recession, full stop, and the only way out is higher prices for their agricultural production.

5. So to put it all together, you have a massive supply shortage induced price spike in two key agricultural inputs (fuel and fertilizer) on the doorstep of peak spring planting season while farmers are in one of the worst agricultural recessions ever faced. Food is also not like oil where as prices go up people can fly and drive less as demand can be more elastic. It’s behind oxygen and water as the most bare necessities with inelastic demand.

   1. Non-commercial net long futures positioning is still short in most of these assets.

      

   2. Sugar

      

   3. Corn

      

   4. Wheat

      

6. The only cure for this dilemma is higher food prices, which is why we are long the whole complex - wheat, corn, soybeans, sugar. This complex is our largest long position and it’s not close. Some of these long-term charts look insane.

   1. CANE - sugar

      

   2. CORN

      

      

   3. WHEAT

      

Oil and gas equity dynamics.

1. I want to call attention to a few considerations around oil and gas equities that have me still bullish the sectors.

2. There is no immediate help coming from US producers.

3. It should be everyone’s base case that this conflict is more akin to Russia-Ukraine than it is like previous multi-day Israel-Iran skirmishes.

4. Meanwhile no one trading US natural gas seems to care.

   

   

5. And in Asia and Europe, natural gas is trading for over 5x the cost of the same molecule in the US which has to do with 1) the US being the largest oil and gas producer in the world but 2) developed countries in Asia and Europe were running the lowest inventory stockpile levels in years going into this.

Which currency is the safe haven?

1. Piggybacking off my prior energy point, the below gives a sense of how big of a problem Japan has. I talked about this in last week’s Scouting the Tape as well.

2. On the other hand, the balance of global capital flows creates a major headwind for the US dollar and denominated assets. Given this problem and the challenges facing US bonds that I’ve discussed in the past, I really don’t like being long dollars either.

3. Well that leaves us with the only non-printable store of value / currency as gold. For these reasons above and no end in sight to the underlying fundamental drivers of the issues at hand, you will not see me get bearish gold anytime soon. I also love that positioning has been flushed. My base case from here is that the dollar rises and that could cause some short-term pain for gold, but I do like how it is trading nonetheless.

4. It really does seem like 2026 is going to be a game of hot potato across commodities. You probably should do yourself a favor and just put every single commodity ticker on your watchlist right now. It’s quite remarkable to finally see this all play out in real-time - it truly is a time to buy stuff you can’t print. Etch that into your brain and keep your head on a swivel for the next rotation. I think agriculture has a lot of room to run from here and my focus is there, but my guess is over the next few weeks we also get amazing buying opportunities in others. This is the place to be in 2026.

Bonds-R-F’d.

1. This is just your weekly reminder that long duration sovereign bonds are a horrible place to store wealth.

Short $NVDA.

1. I discussed two weeks ago that I believe semiconductors are topped, especially relative to the market. NVDA is potentially the most vulnerable name out there as it comprises nearly 8% of the S&P 500.

2. I love the risk / reward of a $192 weekly close stop loss with a $140-$150 price target and take profit level.

I really hate to be this big of a bear. Anyone who knows me knows I am a big optimist. I love life and the future couldn’t be brighter. But one of the gifts I’ve been given is that I don’t really care about consensus or falling in line and I am inclined to seek truth above all. Always keep an open mind.

Maximum caution ahead as we traverse March before possibly seeing some reprieve in April. I believe the path of least resistance for equities remains down, bonds remain a terrible investment and correlations across the market are rising making even the secularly winning sectors vulnerable to risk off moves. We prefer a long / short portfolio with agricultural commodities and energy on the long side and technology, semiconductor equities and bonds on the short side.

Have a nice weekend y’all. I wish health, peace and love to everyone. Stick together.

This market environment is one where my average hold period is down to effectively day trading and the importance of being nimble and open minded to changing information is as critical as ever.

We recorded our latest Forward Guidance on Thursday after the close but for most up to date real-time views, join the chat.

There’s a policy shift ongoing that is not being heavily discussed.

1. Consensus now sees the first rate cut as coming in September.

   

2. And we’ve seen a continued backing up of 1H rate cut odds.

   

3. Now I know there have been a lot of 2022 comparisons thrown around - it’s hard not to given the Q1 war analog creating a commodity price spike, sticky inflation and falling Fed accommodation - but this may be the most 2022-like condition yet and it is not good for the liquidity and risk asset outlook.

4. My inflation outlook is that there is little to no downside left and I have an upward drift bias on commodities. Given the Fed already views the Fed Funds rate as around or near the upper bounds of neutral, no inflation progress is problematic for them. The other side of their mandate, the labor market, is undoubtedly weak but cuts to combat it are likely to make the inflation problem worse - the Fed is as boxed in as ever. Their third mandate, market stability is becoming more and more likely as the instigating factor for Fed support which means we need to see equity markets continue to correct lower before any action.

5. I’ve been discussing for awhile now that I think the ‘run it hot’ narrative will be tested. With no new material midterm-driven stimulus measures enacted nor meaningful Fed liquidity support, the two key ingredients for ‘nothing stops this train’ are missing. Given that, even the winning gold and metals trades can be tested. After all, gold had a -21% drawdown in 2022.

   

   Which is ironic, because we’ve already had the same exact drawdown in 2026. I guess this is why they say history rhymes.

   

US-Japan decision time.

1. Policymakers have a decision to make:

   1. Defend 158 USDJPY to suppress global bond yields and fight inflation, or

   2. Let 158 USDJPY breach and with it global bond yields and inflation go too.

2. The Yen is back to its ~158 level that has been defended on numerous occasions over the past few years.

   

3. Now pretend you are a monkey and know nothing about financial markets and then look at this chart.

   

4. Now for them overlayed.

   

5. What are they considering in making such a decision?

   1. Domestic inflation in Japan is already likely to be a problem - June delivery of natural gas and oil are +100% and +45% YTD, respectively. Continued weakening of the yen only makes this problem worse.

      

   2. Bond market instability which can stem from too loose monetary policy risks spillover into equity markets.

6. Policymakers have a decision to make:

   1. Defend 158 USDJPY to suppress global bond yields and fight inflation. In this case we likely see equity markets down.

      

   2. Let 158 USDJPY breach and with it global bond yields and inflation go too. In this case we would see Japanese bond yields move higher and drag global yields along with them.

      

Combatting a few popular AI narratives.

1. I want to revisit a topic I wrote about a few weeks ago before the recent leg up in AI fears. Deflation is politically unpalatable and I will explain why from a few angles. Most of the AI job loss takes I have read do not account for societal, market and political reaction functions and that is a problem for accurately predicting outcomes.

2. The recent rapid acceleration in AI innovation and adoption is a biproduct of government policy. I spoke about it in last week’s Forward Guidance but let me add some detail.

   1. Since 2021, we’ve had the CHIPS Act, National AI Research Resource, Inflation Reduction Act, Executive Order 14179, Executive Order 14318, Executive Order 14363, The "Winning the Race” AI Action Plan and Federal Preemption and AI Litigation Task Force. All of these have been executive, fiscal and/or federal initiatives to stimulate and incentivize AI innovation and acceleration.

   2. Monetary policy has also been a massive accelerant as uneven Fed policy has suppressed long end yields via large balance sheet intervention in long duration bonds to support financial markets while coming at a cost via abnormally high inflation and front end interest rates that has hurt Main Street and small businesses.

3. The main point I want to make is while the technology and VC community will tell you otherwise as they believe they live in their own world, the truth is the AI acceleration has been created and fostered by government policy, full stop. The speed of innovation would be multiples slower without it. Why this is problematic is because it has come at the direct expense of the majority of the population who does not benefit from it. Said another way, government has chosen policy to speed run the demise of Main Street, small businesses and the average worker. This is not sustainable over a long period of time.

4. Just as quickly as the hand that giveth, the hand can taketh away. We’re already seeing datacenter pushback in both blue and red states equally - from DeSantis to Sanders/Warren. As we approach 2028 presidential election where for the first time ever younger generation voters will equal or outnumber boomers, the asset price first approach to policy will be tested.

5. None of this is to say AI adoption will decrease - it obviously will only increase given its huge productivity increases. But there is much more to asset prices than that and the market is forward looking. Just like previous technological bubbles didn’t see an end to their adoption, quite the opposite actually, but they did stymie asset prices for periods of time following the peak hype cycle.

6. As mentioned last week, I think semiconductors have topped for a very long time.

It’s no longer just Mag7, but there is nowhere safe in equities.

1. For the last few weeks I’ve been discussing the problems I see for small caps given they have already priced in all of the economic data improvements we are seeing.

2. With all the talk of the AI and tech bubble, value forward P/E ratios are the highest since 1999!

   

3. Then I see data like this from Citadel’s Scott Rubner around retail activity continuing to increase.

   

   

4. Which becomes an even bigger head scratcher when, despite record buying, all the retail baskets look like garbage.

   

5. Anyone active in markets knows this chart is going to make its impact heard in markets at some point, the question is when.

   

6. As we all are playing hot potato across violent sector rotations, it’s important to remember that cash is a position, and sometimes the best position. There is a lot of room for stock market correlations to increase off the record low base that has formed. Heck, even another 2022 analog for you. In simple terms, this means everything down together where not even metals are safe should be on your 2026 bingo card.

   

If you’ve been following our work, you know for weeks now we have been suggesting maximum caution. That view continues as we traverse the month of March before possibly seeing some reprieve in April. I believe the path of least resistance for equities remains down, bonds remain a terrible investment and correlations across the market are rising making even the secularly winning sectors vulnerable to risk off moves. We prefer a long / short portfolio with metals, energy and agricultural commodities and related equities on the long side and technology, semiconductor equities and bonds on the short side.

Last week’s labor data ended with a bang on Friday’s abysmal NFP report. This week we get CPI on Wednesday and JOLTS on Friday, neither of which are likely to be positive. Our base case is that inflation is generally done going down and more likely to rise in coming months while the labor market continues its deterioration. I would venture to guess Rick Rieder isn’t all that upset about not getting the Fed chair nod given the shit storm that is brewing.

Good luck out there and I hope everyone has a great week. Join us in the chat for more great dialogue.

Forward Guidance Chartbook - Mar 6, 2026 - Lekker Insights

4.61MB ∙ PDF file

Download

Download

Links are here…does anyone know why thumbnails for Twitter/X links no longer work?

https://x.com/ForwardGuidance/status/2029931314690883975

https://x.com/ForwardGuidance/status/2029931315961676253

I think semis have topped for a very long time.

1. I have been tweeting on this topic and talking about it on Forward Guidance for many weeks now. Positioning is extremely crowded into the sector at a time when forward looking rates of change should begin rolling over.

   

2. Hyperscaler spenders have underperformed the equal weight S&P 500 by -25% since their peak in late October. If you’re pointing to “AI capex” as your bull thesis, you’re late. The trade has played out and the next order of business is for these hyperscaler spenders to reduce spend in order to try and slow/stop share price declines. Semi’s are the next on the chopping block.

   

3. Everyone is all in.

   

4. Heading into midterms, political winds are likely to blow against datacenter expansion as we’ve already been seeing. Electricity is the hottest component of CPI for the last year and now with oil prices waking up too, keeping a lid on this for consumers will be a top priority. Mix in job losses starting to accumulate on the back of AI adoption gains and it becomes a fairly easy bipartisan issue for both sides to rally behind.

This oil move is more than just Iran.

1. I originally posted the oil long in late December ahead of the Venezuela intervention.

2. I am reminded of the GDX breakout last summer preceding gold’s breakout by about a month that had a lot of anxious eyes on it wondering if gold will follow. We all know what gold has done since. The recent move in XLE has been decisive as well, up over +20% in less than 2 months to start the year. While yes there is obviously some geopolitical premium in the price of oil right now, I’d trust this move longer-term.

   

3. Heck, who’s to say the geopolitical premium should even go away anytime soon given seemingly every week there’s a headline of Ukraine and Russia hitting another oil pipeline or refinery. After all, Russia is still the 3rd largest oil producer in the world.

4. On Friday afternoon in the chat, I posted about a new long I started building this week which is now a large position for me. We like a basket of natural gas exposure here as prices have fallen back into value territory with many catalysts and ways to win still ahead. Our names are EQT, AR, RRC, CRK, CNX, EXE.

Don’t be lulled into Treasuries.

1. US 10y nominal yield differentials versus Japan and Europe are at their lowest since March 2022 and March 2023, respectively. Both of those proved to be horrendous times to own Treasuries.

   

2. In the short-term assets trade off sentiment and flows, in the long-term they trade off fundamentals. What’s changed? Sentiment has turned fearful as AI advancements have created new risks of mass labor displacement leading to layoffs. We also have the Fed resuming $500B per year in balance sheet expansion to support the sovereign bond market alongside a recent QRA hinting at coordination with the Treasury to further alleviate long duration pressures. Long-term, the picture has not changed and the deficits are still not in check. The recent updated CBO forecasts are still showing consistent 5.5-6.0% deficits with no end in sight. If anything, job losses make matters worse as the government collects less income and capital gains tax revenues. The picture is bleak and owning bonds will not save you. Gold is the new risk off safe haven.

   

3. I question how long this divergence with commodities can last.

   

Market structure is such that we are less likely to see a violent move lower, but that does not mean we don’t move lower.

1. I have noticed many pointing out the level of hedging, put skew and short selling in the market as a reason to be bullish. My take is more nuanced. While yes, this market structure limits how quickly and violently the market can unravel, it does not prevent the direction of travel altogether.

2. Similar to 2022, I think we are entering a structurally higher volatility environment which is not surprising to anyone given the plethora of boiling pots out there.

3. Hedging metrics and put skew are elevated - many investors are seeing the same risk factors. I’ve been writing for a few weeks now that this sell off is going to frustrate the hell out of people - it’s a slow bleed for a reason. The Fed is behind the curve, the labor market is still weakening and there is no new fiscal stimulus yet announced. This also shouldn’t surprise anyone as 2022 was a bad year for financial markets but great for main street and ultimately helped Biden significantly outperform in midterms.

4. How to play this environment? Expect violent rotations to continue and it may help to focus on a long/short portfolio in many instances instead of outright short. If it feels like every time the Nasdaq is on the precipice of breaking down, that’s the hedged market structure for you. But that doesn’t mean it can’t slowly grind down, burning put holders theta and frustrating short sellers with the constant down, up, down chop. Invest in assets in bull markets, charts going from bottom left to top right. Short assets in bear markets, charts going from top left to bottom right.

This week we have labor market data ending with NFP on Friday. No strong views on the month to month reports but if I were to guess there’s greater risk of showing weakness and maybe some reversal of January’s gains, rather than strength. I think between this and other signs of problems across the markets and economy, Fed cut odds for April/June could increase and lead to yield curve steepening. The curve remains too flat and nominal yields too low.

On top of that we have the Iran situation ongoing. While I saw many celebrating the decimation of Iran’s leadership as a bullish catalyst on fintwit, I disagree. While we didn’t see any worst case outcomes (yet) in the attacks, I don’t think any of it is bullish. It’s still a net positive for commodity prices and all else equal that’s bad for financial assets and economic growth. Regime change in a hostile country with 90 million people does not resolve in a weekend.

Come join us in the chat. One thing you’ll notice is I have my core views, theses and biases that I structure my book around. For smaller and newer ideas, I sometimes have a ‘throw shit at the wall and see what sticks’ approach in my trading. I use the chat to try and offer a glimpse into my real-time thinking. It’s my hope that it is additive to readers’ processes, offering differentiated views and thought provoking ideas. It’s pretty cool to see some of these daily threads getting 100-200+ replies. Participation is what creates healthy and flourishing environments that help everyone be better. I appreciate all of you who are active in the community.

We recorded a live Forward Guidance in Nashville on Friday with and . The conference was insightful, productive and a lot of fun. I will definitely be back next year and couldn’t recommend it more.

Houston we have a problem (for US stocks)…

1. Midterm odds are not trending in a great direction for Republicans (and likely risk asset holders).

   

   

   

2. Why? Well what do all of the newly elected Democratic leaders have in common of late? Tax hikes and AI regulations. Not exactly what you want to see when the S&P 500 is sitting at all-time highs and comprised of a record concentration of AI-related tech companies. And even if you disagree with something here, the fact that the Democrats are gaining traction with some of these policies means the Republicans will have to try to win those voters over by appealing more to them.

AI trade seeing some ‘chinks in the armor’…

1. In what was a nice little Friday evening news drop, OpenAI announced a large capex guidance reduction. Just a few weeks ago we had a big Friday night news drop that everyone ignored. Not a big deal though, private equity stocks have only fallen -20-30% since then.

2. The talk of financial X all weekend was Burry’s short AI thesis (which I haven’t read but I think aligns with our views in many ways) but since he’s viewed as a permabear these days it wasn’t that crazy. But then everyone lost their shit when Citrini’s 2028 AI dystopia blog was released. Also haven’t read that but find the response interesting. Half of people think it was the most novel thing they’d ever read and are still happily sitting max long AI plays while the other half got triggered and called it doomer porn while also sitting max long AI plays. I assume it’s awesome and look forward to reading at some point.

Economic reacceleration trade may be overdone in the short-term…

1. The Fed’s current posture is very much “on hold”…

   

2. …which doesn’t at all jive with the ‘run it hot’ narrative. Not to mention we really haven’t seen much in the way of new 2026 fiscal stimulus that myself and many others have expected as part of a midterm buying votes strategy. Still have a long ways until November though. I am long IWM puts.

Maximum caution is warranted as we traverse the next few weeks. I don’t think the market is properly priced for the macro environment we are about to find ourselves in. I am bullish on this chart over a long-term time horizon - buy low sell high.

Now that the Olympics have wrapped and the State of the Union on Tuesday night, the door for Iran action may be open this week.

Good luck out there.

When people talk about a “Fed-Treasury Accord,” they are usually referring to the landmark 1951 agreement that established the modern independence of the U.S. central bank. It ended a period where the Federal Reserve was effectively “captured” by the Treasury Department, as during that time the Fed had an obligation to peg interest rates on government bonds to artificially low levels to ensure the government could finance the costs of WW2 without interest payments skyrocketing. The cost of this policy was inflation. This "divorce" restored the Federal Reserve's independence to conduct monetary policy focused on price stability rather than financing government debt.

After the war, inflation began to rise and the Fed wanted to raise interest rates to cool the economy, but the Treasury and President Truman insisted on keeping rates low to keep the cost of national debt down. This created a massive “tug-of-war” over who controlled the nation’s money before an eventual formal agreement was reached on March 4, 1951. The key outcomes were:

• Ended interest rate peg: The Fed was no longer obligated to peg interest rates to support the Treasury’s borrowing.

• Established Fed independence: The Fed gained the freedom to use monetary policy to pursue economic stability and control inflation, establishing its “dual mandate” framework we see today - maximum employment and stable prices.

Rising concerns of fiscal dominance today are a result of unsustainable government spending levels that are accommodated and enabled by the Fed via continued backstopping of the US Treasury market. Actions of this nature have occurred in every year following the COVID pandemic.

While the 1951 Accord established “independence,” the two institutions very much continue to work together. This can be seen at a smaller scale by the routine Treasury Secretary and Fed Chairman weekly breakfast meetings and on a larger scale via the various crisis response programs. Every year new acronyms are made to obfuscate this lack of independence, whether that’s QE, MSLP, BTFP, RMP, you name it.

Reading between the lines today…

In the Treasury’s recent Quarterly Refunding documents, we have received another glimpse into what this coordination looks like.

One example is how the Treasury’s projections for debt issuance assumes Fed balance sheet expansion via Reserve Management Purchases (RMP) of bill issuance in the SOMA portfolio, in perpetuity. They show this to account for an increasing portion of total US debt issuance over time, which happens to be new information because Powell and the Fed’s communication on the topic indicated the large $40B/month amount was “temporary few month front-loading” but “thereafter we expect the size of reserve management purchases to decline”. So either this communication was known to be untrue from the start, the Treasury is the one actually calling the shots or they’re taking the liberty to assume the aggressive pace of these purchases by the Fed, but either way, there is inconsistency here.

Next we have a section that discusses the “U.S. government’s consolidated balance sheet”, detailing the composition of privately-held and Fed balance sheet Treasuries and the effect of issuance adjustments.

This introduction of adjusting issuance based on the composition of only privately-held Treasury securities can be translated to mean - reducing coupon issuance. This is the clearest continuation yet of the ‘Active Treasury Issuance’ policies introduced by Yellen under the Biden administration, otherwise known as ‘Yellenomics’.

You can see here how the Fed’s unbalanced monetary policy has increased the duration of its balance sheet in tandem with the Treasury’s reduction in the duration of its issuance.

This chart highlights the problem even more clearly. The Fed’s SOMA portfolio owns a much larger share of 10-30 year Treasuries than the privately-held ownership. Said another way, the Fed is suppressing long-term bond yields (likely by 50-100 bps) by having an outsized footprint in this part of the market. This suppression of long-term bond yields has led to a more supported stock markets and the front-end Fed Funds rate remaining abnormally high for too long as a result. This uneven transmission of monetary policy is a key reason for why main street and small businesses have been crushed over the past few years as they borrow off the front-end, meanwhile large cap tech, hyperscalers and AI capex spenders borrow off the long-end and have benefitted from abnormally low funding costs. You can thank the Fed for a large part of the inequality we see across the economy today.

Other interesting tidbits…

They also highlighted the shift in foreign demand to private sector buyers. This is most notable on the long-end maturities.

While the Treasury highlights private investors’ increased price sensitivity, that doesn’t jive with their increased involvement in the long-end despite “some domestic sovereign alternatives offer higher yields than US Treasuries on a currency hedged basis”. Most believe this rise in foreign private sector holdings is the offshore hedge funds engaging in the basis trade which continues to grow.

I liked this discussion of the US dollar’s declining share of global FX reserves being offset by rising gold holdings. It’s interesting to me that Powell wouldn’t talk about this but the Treasury is.

They also highlighted aging demographics in the US as one of the drivers of Treasury market support. This is actually needed as Baby Boomers accept lower and lower real returns as they age and retire and effectively help to subsidize the financial repression for younger generations.

Market implications…

To summarize, the bull case for gold is unlikely to go away anytime soon. We have stock markets at all-time highs and unemployment rate below <4.5%, yet the US government has restarted quantitative easing to support the bond market again without any crisis type event. It’s February of a high stakes midterm election year with even more consolidation of power occurring in the coming months with new Fed leadership. Do you think this type of behavior is going to increase or decrease in the next 12 months?

I am linking our Scouting the Tape from two weeks ago on Feb 1 as I think the views laid out largely still hold.

I have not been this bearish in a long time.

1. Expression of the view is important. Looking around the market there are very few places that provide value as even the unloved sectors are now quite loved in the short-term. My view is for a 4-6 week period of weakness in equities that sees particularly uncomfortable downside in US large cap tech, Mag7 and semiconductors.

2. Cash levels at lows, gross hedge fund exposure at highs, months of distribution in large cap indices, Fed on pause until June, rising geopolitical risks, increased populist/anti-free market policies ahead of midterms…the list goes on of reasons to expect a higher baseline level of volatility in 2026, and therefore reduced exposure to risk assets.

3. These violent rotations do not occur during abundant liquidity and healthy market functioning. In fact they are usually a precursor to increased violence.

4. The market is providing numerous cautionary indicators whether it be consumer staples outperformance, the bid for bonds or the underperformance of the Mag7 market generals. Here’s an interesting one for you. While the Mag7 hyperscalers are the largest AI capex spenders and the SMH semiconductors are the receiver beneficiaries, you’d expect there to be correlation. The last time the correlation between the two has fallen this low (negative) was late 2024/early 2025 ahead of the large Q1 correction.

   

The bond market does not offer safety at these levels.

1. This week’s price action reminded me of Friday April 4, 2025. If I would have written this same view that weekend after it would have also sounded crazy, but hear me out.

   

2. What has changed since then? Inflation is slightly lower but global fiscal spending is higher, the Fed is less supportive of long duration and the dollar is weaker. The OBBB is stimulating a corporate capex boom and the administration is doing its best to reinvigorate main street ahead of midterm elections. None of these ingredients make for strong bond market performance.

3. 4% 10yr is still way too low and defies previous norms. Even if the Fed cuts multiple times this year, 3.4% on the 2yr is around fair value as it should yield higher than FFR. 2s10s and 2s30s yield curves are still too flat relative to healthy historical standards and the Treasury and Fed is openly looking to steepen them. As we move closer to the first FOMC meeting of Warsh’s term in June, steepening is likely to continue as the market digests another few rate cuts and additional fiscal policies intended to buy votes are rolled out.

4. Not to mention, the dollar versus any other global currency are some of the worst looking charts you’ll find in all of markets (bearish dollar). US Treasury bonds are claims on future dollars with a small (too low in my opinion) yield component. Gold and other global currencies are a better safe haven here in my view.

Deflation is politically unpalatable. Scarce, hard assets are still your best long-term bets.

1. The capabilities of AI are astounding and its acceleration is already creating massive disruption. We have likely not even scratched the surface in terms of its effect on the labor force, employment and change coming our way for the average worker as adoption rates are still in their infancy.

2. But, hell or high water, politicians and governments cannot allow deflationary busts to occur. Deflation results in job losses and nominal decreases in wages and employment. Financial repression and inflation will always be chosen as it is a much less visible pain. Whether AI has a deflationary impact or not, it will be met with additional stimulative fiscal policies that offset that deflation.

3. I spoke about this exact topic in a presentation I gave last summer.

4. Regardless, AI will not be able to create coveted physical properties and real estate and you won’t be able to 3D print life experiences with loved ones or scarce goods.

5. The luxury watch index is a great example of this as it has already bottomed and is turning up. The rise in collecting cards is another example - the trend is here to stay.

   

It’s a holiday shortened week that’s lighter on economic data but still has plenty of events - monthly options expiration, a potential Supreme Court IEEPA ruling, and continuing Iran talks.

I’ll be boots on the ground in Nashville for ’s macro conference. We’ll be doing some live Forward Guidance interviews as well which should be fun.

Thanks again to all who are participating in the chat. Dialogue has really picked up and is getting quite active as it has been a great place to share ideas, hear differing opinions and strawman market views.

I hope everyone has a great week.

Last week we managed to catch solid moves on both the short and long side of the market. We came into the week with a negative bias and added to it on Monday/Tuesday before closing all shorts and adding longs on Thursday. I typically am not this active on large positioning changes but as I’ve been saying for a few weeks I think this market environment calls for increased tactical operations.

About 60% of the S&P 500 have now released Q4 earnings and this coming week is the last major reporting stretch. That could help add some support to the market as buyback blackout windows end in earnest. We are still awaiting the Supreme Court’s IEEPA decision and the Iran situation continues to boil in the background. I wrote about the dilemma the US faces with Iran and my conviction around a strike has been waning of late. The last thing Trump can afford right now is a spike in oil prices and risking approval ratings by engaging in another Middle East conflict. I don’t have a terribly strong view but that was one component of my bullish flip on Thursday. I also don’t think IEEPA will be anything groundbreaking as it would be unlike the Supreme Court to do anything that puts the country in a disadvantageous position (eg tariff refunds), while tariffs have largely settled in at their run-rate pace with some risk towards reduction on increased dealmaking.

Metals got that dawg in ‘em. Fade at your own risk.

1. I’ve been saying this for a few months but the number of obituaries written at every local metals top is really stacking up now. Meanwhile China just announced its 15th straight month of gold accumulation. GDX looks like a very normal pullback and a screaming buy to me - it couldn’t even sniff its yearly open. I got very long last week.

   

2. And copper?

   

3. And silver? You’re going to get bearish silver when its down -40% outright and -30% vs. gold? All while the Chinese consumer is just starting to heat up? Find me a time in history where this first dip is not to be bought.

   

4. Meanwhile the dollar looks like this and might be rolling over again…

   

5. …and USDJPY is back to the area where the BOJ intervened and metals roofed.

   

6. Unless you think Trump appointed a Fed chair who’s not going to follow through on the #1 requirement from the job description (cutting interest rates), I think you have to be a metals bull here.

I’ve been talking about China for a few weeks and it’s been on the smaller side of things for me with some trading in and out, but read this as me starting to pound the table to buy China.

1. There is a major aspect of China’s industrialization over the last few decades that many are missing - the grid buildout required for that is now becoming more valuable than ever in the competition for datacenters, AI and compute. And China’s lead in electricity capacity is not even close.

   

2. In 2025 alone, China installed ~315 GW of solar and ~119 GW of wind, exceeding the entire cumulative U.S. solar capacity.’

3. China has been the largest acquirer of gold for years, which has also been the top performing asset in the world. In a world where Treasuries are falling as a share of global reserve assets and gold rising, this bodes well for China. They just clocked their 15th straight month of gold accumulation.

4. Many early indicators are showing the Chinese consumer is off to a very strong start in 2026. Chinese e-commerce platform JD.com data shows that since the launch of the New Year Goods Festival on January 25, the search volume related to New Year goods increased by more than fourfold year-on-year. This shouldn’t come as a surprise to anyone given their goal to lift household consumption from their recent 5 year plan released last October.

   

5. Lastly, long China in many respects is a great way to position for a Democratic victory in November’s midterms. A reduction in Trump’s unilateral authority likely provides more runway for China to take lead on the global stage.

I continue to believe investors are way too apathetic towards the bond market. There are large risks boiling under the surface.

1. I really can’t stress enough how much a weaker dollar matters for the go-forward market environment. It both puts a floor under commodities and inflation and incentivizes financial capital flight out of the US. This at a time of a capex boom and larger than usual financing requirement in the US is extremely both inflationary and bullish for yields. Read my recent piece for further context.

   

2. US public and private sector supply - the US continues to run >5% fiscal deficits and has faced supply problems for years that have crowded out the private sector. But now thanks to the OBBB’s immediate capex expensing, we are seeing the spending boom also take hold in the private sector. On top of that, the AI buildout continues to increase in velocity with every hyperscaler blowing analyst estimates out of the water. The ramifications these have for cost of capital cannot be understated. Demand for debt financing is booming while supply (via foreigners and Fed balance sheet) is not supporting the growth - it must come from somewhere and that means yields will rise to bring enough buyers out of the woodwork.

   

3. Global yield spillover - Japan is just one example and it looks like their stimulative policy just got reinforced with huge victories in the snap election over the weekend. On top of that you have Europe and China also doing major stimulus. Global run it hot policy is real.

4. Warsh’s policy objective is to continue the balance sheet duration reduction that the Fed began in Q4 of last year. This will continue to be a negative for the long end of the curve and cause significant steepening as FFR cuts occur.

5. Fed cuts accelerating - we have been pointing this out for weeks and another weak labor data week has pulled forward rate cut odds as we’ve been expecting. We are now seeing white collar job losses join in the main street and manufacturing woes. It is not surprising at all to see the Powell Fed begin to change their tune in a more rate cut amenable fashion after the white collar job losses begin, despite brushing over the main street recession that’s been in full force since 2024 because of their policies. The political elite policies leave the average Joe behind yet again.

   

6. Positioning has gotten bad again as the recession scares have built up in recent months. “Investors are piling into intermediate Treasuries”.

7. I think investors piling into bonds here due to recession concerns are going to be hurt very badly. If we get any signs of growth problems, the administration will be launching an full scale stimulus attack given the midterm election year. It’s just such a lose-lose setup for bonds in my view.

   

8. Has everyone forgotten about the Supreme Court’s IEEPA ruling? Not that I think it’s going to be anything dramatic, but the risks to me are only towards higher bond yield outcomes, not lower.

There’s so much going on in the world of macro right now and a plethora of opportunities if you’re looking in the right places. The most money to be made this year will not be in trying to figure out the direction of the next 50 points in the S&P 500, but rather playing for dispersion and loading up at attractive entries to your favorite long-term secular trends. There will be occasions just like every year where investors are forced to sell what they can, not what they want. I think we just had one of those in metals.

This week we have the last big slate of earnings, a bout of Fed speakers, retail sales, NFP and CPI. It’s an action packed week into a long holiday weekend (President’s Day 2/16). We also have the ongoing Iran situation as talks continue and the US is still amassing a military build up in the region.

Join us in the chat for more real-time discussion and insights.

Have a great week out there.

Lekker Insights Beautiful Clean Coal February 3 2026

550KB ∙ PDF file

Download

Download

Summarized Version is below.

The Contrarian Setup

Coal is the energy sector’s most hated asset class. ESG mandates have made it uninvestable for most institutional capital. Consensus expects secular decline.

And yet U.S. coal generation increased 11-13% in 2025. Natural gas prices have structurally shifted higher. Data center power demand is accelerating faster than renewables can build. The Trump administration has delivered the most coal-favorable regulatory environment in decades.

This isn’t a call for coal’s permanent renaissance. It’s a thesis that the market does not yet fully appreciate the catalysts that could drive significant outperformance in coal equities over the next 12-24 months.

The Investment Thesis

Core premise: Coal equities offer asymmetric risk/reward because:

1. Natural gas prices have structurally increased (LNG exports create floor), making coal competitive for power generation

2. Steel demand is strong (SLX ETF +46% YTD 2025), directly supporting met coal producers

3. Power demand is accelerating from AI/data centers faster than new generation can be built

4. Regulatory tailwinds from Trump EPA rollbacks extend operating life of existing plants

5. Valuations are depressed 4.1x EV/EBITDA despite improving fundamentals

Understanding the Two Coal Markets

This is crucial: thermal coal and metallurgical coal are completely different businesses with different demand drivers, different customers, and different price dynamics.

Thermal Coal (Power Generation)

• End use: Electricity generation

• Customers: Utilities, IPPs

• Price driver: Natural gas prices (fuel switching threshold ~$3.50/MMBtu)

• Key equities: ARLP, BTU, HNRG, NC

Metallurgical Coal (Steelmaking)

• End use: Blast furnace steelmaking (irreplaceable for BF-BOF process)

• Customers: Integrated steelmakers globally

• Price driver: Steel demand, particularly from India and Asia

• Key equities: HCC, AMR, METC

Understanding this distinction is essential for positioning. A rally in SLX (steel) benefits met coal producers. A spike in Henry Hub benefits thermal coal producers. Different trades.

The Natural Gas Connection

Here’s the mechanical relationship that drives thermal coal demand:

What happened in 2025: Henry Hub rose from ~$2.20/MMBtu (2024) to $4-5+/MMBtu. The EIA explicitly states: “Coal generation increased by 13% in 2025 due to more competitive fuel costs relative to natural gas.”

Why this is structural, not temporary: U.S. LNG exports increased 25% in 2025 to 14.9 Bcf/d, with another 10% growth expected in 2026. Plaquemines LNG and other Gulf Coast facilities are creating persistent demand for U.S. natural gas. The EIA projects Henry Hub to average ~$3.50/MMBtu in 2026 and $4.60/MMBtu in 2027—both levels supportive of coal generation.

The trading implication: Coal equity prices typically lag natural gas moves by 1-3 months. When Henry Hub spikes above $4/MMBtu, consider building thermal coal positions before the full earnings impact is recognized.

The Steel-Coal Nexus

For met coal producers, steel is everything.

Why steel demand = met coal demand:

• 70% of global steel is made via the blast furnace process

• Every tonne of BF-BOF steel requires ~780 kg of metallurgical coal

• There is no commercially viable substitute for coke in blast furnaces

• Met coal serves as reducing agent, fuel source (~2000°C), carbon source, and structural bed

What SLX strength signals:

When the VanEck Steel ETF (SLX) rallies, it’s telling you:

• Global industrial activity is recovering

• Infrastructure spending is accelerating

• BF utilization rates are rising

• Met coal demand is increasing

The transmission mechanism: SLX tends to lead met coal equities by 1-3 months. If SLX rallies while HCC/AMR lag, that’s a catch-up opportunity.

Who Benefits Most from Steel Strength?

Tier 1 (Pure-Play Met Coal):

• HCC (Warrior Met Coal): 100% met coal, exports to ArcelorMittal/Nippon Steel, most direct beneficiary

• AMR (Alpha Metallurgical): 100% met coal, highest operating leverage, aggressive buybacks amplify per-share gains

Tier 2 (Significant Exposure):

• METC (Ramaco): Met coal with growth profile, smaller scale but higher growth rate

• CNR (Core Natural Resources): Arch + CONSOL merger, ~40% met coal exposure, owns Baltimore export terminal

• SXC (SunCoke): Coke producer with long-term take-or-pay contracts with integrated steelmakers

Tier 3 (Minimal Pass-Through):

• ARLP, HNRG, NC—thermal producers with no met coal exposure; steel thesis doesn’t apply

The Political Landscape

The Trump administration has delivered substantial regulatory relief for coal. Here’s what’s happened and what it means for investors:

What’s Been Done

• EPA proposed repealing all GHG emission standards for power plants

• 37% of U.S. coal capacity (~71 GW) received 2-year MATS exemptions through July 2029

• Powder River Basin reopened to coal leasing

• Coal designated as a “mineral” for permitting purposes

What’s Protected Through 2028

• MATS exemptions extend to July 2029 regardless of elections

• Once final rules are published, reversal requires 1-2 years of new rulemaking

• Market forces (gas prices, power demand) operate independently of politics

What Could Change

• 2026 midterms: Democratic Congress could block further deregulation but can’t force new regulations

• 2028 election: New administration could begin rulemaking to reinstate standards (wouldn’t take effect until 2030+)

• Courts: Environmental groups are challenging rollbacks; rulings expected 2026-2027

The Bottom Line on Politics

The American Action Forum concluded that Trump’s coal EOs are “unlikely to reverse the declining trajectory of U.S. coal production due to escalating mining costs, competition from other energy sources.”

This cuts both ways: Market forces drive coal demand more than EPA rules. Natural gas prices, power demand, and capital costs determine retirement decisions.

The Investable Universe

Pure-Play Met Coal (Steel Correlation)

Thermal/Diversified (Power Generation)

Royalty/Specialty

ETF Option - COAL Range Global Coal Index

Key Monitoring Indicators

Price Signals

• Henry Hub Natural Gas: Critical threshold at $3.50/MMBtu

• Australian Hard Coking Coal (HCC Index): Global met coal benchmark

• SLX performance: Leading indicator for met coal equities

Demand Indicators

• EIA Weekly Coal Production: Tracks production trends

• Utility Coal Stockpiles: High stocks (>120 MMst) bearish; drawdowns bullish

• Coal’s Share of Generation: Track via EIA Electricity Monthly Update

Political Calendar

• Early 2026: EPA expected to finalize GHG standard repeal

• November 2026: Midterm elections

• July 2029: MATS exemptions expire

The Risk Case

What could break this thesis:

1. Natural gas collapses below $2.50/MMBtu for extended period (thermal coal thesis dies)

2. Global recession tanks steel demand (met coal thesis dies)

3. Utility retirements accelerate despite economics (structural headwind)

4. Court rulings invalidate EPA rollbacks (headline risk, but long implementation timeline)

5. Liquidity risk: Coal equities trade with lower volume than major energy names

Bottom Line

Coal isn’t coming back as a growth industry. The secular decline is real. But markets can be wrong about timing and magnitude.

The setup today:

• Structural support from LNG-driven natural gas prices

• Strong steel demand supporting met coal

• Regulatory tailwinds extending plant lives

• Depressed valuations with negative sentiment

This is a contrarian, cyclical trade—not a buy-and-hold forever position. The catalysts are in place for a period of outperformance.

What are your thoughts? Reply to this email or leave a comment below. Be sure to join the subscriber chat for additional updates.

The top two points from last week’s Scouting the Tape proved prescient as the 2s30s curve steepened by ~14 bps in a straight line all week and metals had one of their worst sell offs in many years on Friday.

In the January 19th Scouting the Tape, we called for a top in front end rates which has played out, but the best idea from that week was our bearish ETHBTC / low $2,000’s ETH call. Both targets have been met with close to -15% and -30% moves, respectively and we’d now recommend closing these positions out.

This past week I also published another piece titled The Elephant in the Room which aimed to reinforce the significance of the recent FX moves on other parts of the market, primarily cross border capital flows and demand for US Treasuries. I continue to believe the ramifications of these changes have not yet been felt nor well understood by other parts of the market, particularly equities and bonds.

As a reminder, for intra-week updates please join our subscriber chat. I think last week proved to be a good idea to have notifications on for new messages given the market action and timely discussions. Friday began the day with a flashback to the summer 2024 VaR shock and finished the day with a bottom tick metals re-entry.

Something sketchy is brewing…gold volatility has only been higher during the Great Financial Crisis in late 2008 and COVID Crisis in March 2020. Trust historical signals of this magnitude and keep your head on a swivel.

1. I don’t have much to add to this other than I’m trying my darnedest to figure out what it means for the rest of the market. Normally these spikes coincide with large sell offs in the stock market, but we haven’t seen that yet. I think we will and I am betting my capital on it. Don’t be a sleepwalker here.

   

Something sketchy is brewing…part 2…it’s all fun and games until stocks follow Bitcoin, which happens just about every single time.

1. Like clockwork, every time there is a -20-30%+ sell off in Bitcoin, it leads a move lower in equities. As the Bitcoin decline accelerated again over the weekend, keep your head on a swivel.

   

2. I posted this meme on X and thought it did a good job of summarizing a lot of the reactions I saw over the course of the week. Lots of judgement on the moves in crypto and metals, but not a lot of people taking a moment to step back and think critically about what it means for the broader risk complex. The market has a way of shaking all of the trees where people are hiding out. I posit semis and AI are next on the list.

   

Something sketchy is brewing…part 3…follow the insiders.

1. Over the last few weeks I observed a number of comments around the lack of insider selling of late that didn’t make note of the corporate blackout windows affecting most of the market. Sure enough, the second earnings season rolls around and the companies leave blackout, insiders are sprinting to market with their sales at a record clip.

2. Last week marked the peak restriction window with >80% of the S&P in the blackout period. After this week it begins to fall off much quicker as <50% will remain in the blackout period and declining over the rest of February.

   

3. On top of the corporate insiders, in a CNBC interview Bessent noted that last year’s stock market performance doesn’t dictate the next year’s. Could be just an off handed comment but he’s not stupid.

   

What to do with metals and commodities.

1. Last weekend I warned of caution as volumes, volatility and prices were all reaching fever pitch levels. By CoB this past Monday I was completely out of the entire complex. While many assets began correcting in the middle of the week, gold and silver continued to blow off until their record sell off on Friday. I thought I was going to be on the sidelines for longer but ended up re-deploying near the lows during the liquidation. Now as I strategize looking forward, I thought this tweet perfectly summed up what’s going through my mind.

2. Then I also think back to Bessent’s interview with Kudlow just two weeks ago where he said he wants the new Fed chairman to be a Greenspan-like supporter of the productivity boom where 7-8% GDP growth is possible. I’m hard pressed to find a reason to turn structurally bearish on the metals complex. While I do respect the work this admin has done around fiscal sustainability in just one year and believe it doesn’t get enough attention, I think the low hanging fruit has been harvested and I don’t see a path to <5% deficits anytime soon.

3. Maybe metals don’t go anywhere for 3-6 months and just consolidate to let the moving averages catch up to price after a historical 6 month rally - this would be standard behavior. Maybe they catch a cold on the back of the pending volatility I think is going to hit the equity market. But either way, I can’t stop thinking about the key messages from my Macro Themes piece in that Trump has midterms to win and stimulating economic growth is the path that both underlying political incentives AND their overt messaging leads you to. So maybe the play from here is to focus your metals bets on the pro-cyclical beneficiaries that are most tied to industrial production and the economy. That wouldn’t surprise me in the slightest given the Gold/Copper chart looks like this. If this mean reverts to any reasonable degree of previous instances, say a prayer for inflation.

   

Subscribe now

Not much talk about this week’s Treasury QRA. I don’t know what it will bring and it very well could be a nothingburger, but I think the risks skew towards more Yellenomics. It’s also labor data week with JOLTS, ADP, Challenger and NFP where I’m expecting more of the same trend we’ve been seeing. I have some ideas around the bond market depending on what we get from these two pieces of information.

Hope everyone has a great week ahead. Join us in the chat with thoughts, comments, questions and more discussion!

In simple terms, Friday’s USDJPY intervention and follow through this week signals coordinated policymaker action to weaken the dollar. Mind you this is coming at a time when no volatility has shown up in the equity markets, global fiscal deficits are still running strong and the K-shaped US economy remains sturdy at an aggregate level. For some, this is an easing of financial conditions, think consumers of oil or other large US exports. For US customers and consumers, it represents more of a neutral to tightening effect as imports to the world’s largest importing and consumption driven economy become more expensive.

The goal of this piece is to provoke increased thoughtfulness around the second and third order effects of these policy changes. I will list a few points I am thinking about and try to keep them brief as I am still processing all of the impacts myself.

Global capital flows are shifting.

A few weeks ago on Forward Guidance we discussed the massive decline in US trade deficit. We are starting to see the beginning of the strategic rebalancing that the Trump administration has been pursuing since inauguration in 2025. This has material implications for capital flows as there are less dollars proliferating around the globe to be recycled into US assets. The recent Japanese intervention is a practical example of the effects of this playing out in real-time. The yen has been weakening too much relative to the dollar, so the Japanese government intervened by selling dollars to buy Yen. The capital to transact has to come from somewhere, and given they are intentionally weakening the dollar, it would be logical for them to sell US assets as well (aka Treasuries). Even if they aren’t, it doesn’t really matter because the US and Japanese governments, in a coordinated effort, are sending a signal to the market that they will do what’s necessary to weaken the dollar. So if you own dollar denominated financial assets, the natural response would be to either sell some of those or hedge the currency to reduce your dollar exposure.

Why does this matter? Because it is a very clear action that says the quiet part out loud. As foreign demand for US assets decreases, the US government (Fed and Treasury) will be forced to play a bigger role in financing the unsustainable government deficits and US capital markets.

With a stubborn and politicized Fed, the White House and Treasury are taking matters into their own hands.

Labor market data continues to weaken and forward inflation continues to look benign, yet the market expects no cuts through April and a shallow cutting path thereafter (likely due to the chance that Powell stays on as governor).

Trump and the White House have been trying every means necessary to effectuate a looser Fed rate policy but their latest actions have likely worked against that effort as seen by Powell’s Sunday night video and attendance at Lisa Cook’s Supreme Court hearing. This has forced the administration to seek other means to achieve their intended outcomes. A dollar down move of this magnitude is showing there are clearly larger forces at play that are moving chess pieces around the board.

What’s not being talked about enough is what this means for the rest of the commodity complex outside of metals. I believe gold (and indirectly the other metals) have been front running this next leg of dollar debasement. The market is still trying to figure out what shape or form it will take, but it’s clearly happening.

The trade after the trade is understanding what comes next and for that one should look across the rest of the commodity complex. I think this puts a tailwind behind the price of oil given the fundamental and geopolitical outlook that already exist. Bitcoin and crypto are also interesting to me here. While small caps and other pro-cyclical and liquidity beneficiaries have rallied hard, Bitcoin has continued to lag. Bitcoin has had over 4 months now to work through an extreme amount of selling. While I’m not convinced the conditions are imminently ripe for the next major bull run leg, I do think it outperforms small caps from here and if we were to get positive news and a macro leg higher in equities, I believe it would lead there as well.

Increasing demand for credit.

Another important element is the tax-incentivized capex boom in the US. As it continues to progress, we will see a sustained increase in demand for credit from both consumers and corporates, the two cohorts of the economy with the least levered balance sheets. We talked about this as well on FG.

So while the change in trade deficit and capital flows represents a reduced supply of foreigners willing to financing US capital needs, a reinvigorated main street economy represents an increased demand for financing from US households and corporates. In tandem, these are two sides of the same negative liquidity coin, and there is only one game in town that can provide the requisite backstopping - the Fed. When you consider Friday’s actions amidst the backdrop of functioning markets and an increasingly dovish monetary policy stance (reducing QT, ending QT and restarting QE all sooner than expected), it appears there is a growing appetite from policymakers to backstop markets more pre-emptively. You can’t even really call it papering over the cracks, it’s more akin to laying new concrete before cracks even begin to surface.

Long duration bonds continue to be a horrible investment and while governments routinely intervene to slow their demise, that intervention shows up elsewhere and can be capitalized on, if not expressed directly in the bonds themselves.

In summary…

Recent global policymaker actions have demonstrated a continued increase in willingness to become more and more preemptively stimulative. Whether that’s the growing fiscal burdens, Trump’s attempts at main street reignition and Fed policy influence or the recent currency interventions, the direction of travel is clear that fiat currency will continue to be sacrificed at a more rapid pace. This does not mean be max long risk assets because everyone is already in the boat. It does mean there will continue to be an abundance of opportunity because where free markets are intervened upon creates excess, imbalance and capital misallocation. The most important thing is to keep an open mind.

Secular inflation provides a tailwind to all nominal asset prices (except bonds) over the long-term, but the prices you pay for your assets of choice still matter immensely and the dispersion and rotational violence can happen quick.

The administration is telling you they want the dollar lower and this should be a key input into your investment allocation process. In the short-term, they have a non-cooperative Federal Reserve which is likely to make for a bumpy path. My focus is on buying secular winners at value prices and shorting secular losers when they become too rich. Don’t let the day to day moves stray you from the overarching path here.

At the highest level and in simplest terms, this coordinated policy approach says to sell US assets because that is what the governments who control the strings are doing. The reality is it is more nuanced than that.

2s30s yield curve is too flat.

1. Last week yields peaked on the Trump Greenland TACO, but it’s interesting to me it also coincided with Warsh’s Fed Chair odds also peaking. I have noticed market participants are very fond of the Rick Rieder potential appointee news and I have no reason to doubt their sentiment. But I do doubt that any of the potential nominees can cure what ails the bond market. It also should be a fair assumption that any leading candidate being considered is telling Trump what he wants to hear about rate cuts, otherwise they wouldn’t be chosen.

   

2. The problems facing the bond market are severely structural, with pre-existing secular pressure and soon to be cyclical pressure as well (which was missing for the last 2 years). Not to mention it seems we are not too far away from additional policymaker intervention to weaken the dollar which would be fuel to the fire.

3. Long end yields have consolidated for a month and a half on an upward sloping trend line. I like playing for something like this on the 30yr by April/May.

   

4. We may get an attractive entry this week on shutdown fears.

   

5. When structuring that trade, I’d also prefer to be long vol than short it. I have less conviction on this aspect of the expression in the near-term but if you ask me does bond vol see higher or lower levels over the next 1,2,5 years, I say higher.

   

Metals caution.

1. You will not find me trying to short a sector I am extremely secularly bullish on. I have been a gold/metals bull since late 2022 and was pounding the table hard on multiple occasions including July and August of last year before this recent historic leg up. That said, I’m nervous here locally. Trees don’t grow to the sky in a straight line.

2. From Friday’s message in the chat I said, “Felix and I found ourselves ending this Forward Guidance recording cracking jokes about the periodic table. Lastly, you have silver pressing up into a huge $100 psychological level. All that is to say - I have found myself thinking about the age old markets wisdom that when you’re high fiving and cracking jokes, you better be making some sales…my focus for the year is to resist being dogmatic and don’t get married to any view or asset…one question I like to ask myself is how likely is it I’ll get another chance to buy a given ticker at these levels.” My current view is ‘very likely’.

3. I say this in a joking manner, but don’t ask me for any more specific reasons why I am cautious. Everyone has seen the RSI extension charts, overbought levels, etc. etc. This whole rally has been unorthodox and wild and numerous times I’ve warned against calling a top in metals. I mentioned the Yen/Dollar currency moves in the chat Friday and this could be a source of vol for the metals complex. I’ve had the best start to a year I’ve ever had and am just fine with not being max long until the pico shmico top. I’ve seen enough signals from my process to take my ball and go home for a bit. Sometimes it’s good to pinch yourself and remind you that flat is a position. My biggest metals position that remains is copper but everything else is on the chopping block in the short-term.

My short Mag7 and large cap tech timer may run out this week if I don’t see enough further progress made to the downside.

1. We got a strong drive down to start last week but it was bid up hard. The market continues to prove resilient with internals and technicals also holding up well.

2. I have been short Mag7 and large cap tech against my longs for almost 2 months now and my timer for a more substantial downside move is running long in the tooth. It has been a very profitable trade and was unique then, but is now becoming mainstream news. MAGS is flat since September while everything else has ripped higher.

3. Shorting any market is difficult, let alone an all-time record bull market/bubble with secular inflation causing an upward drift to nominal asset prices. As we’ve seen, using funding shorts to reduce market risk of a portfolio, and playing sector rotation trades has been very profitable. That said, you never want to overstay you’re welcome on the short side.

4. The good news is - I have some ideas brewing for new funding shorts I will share soon.

China is front-page news, but I don’t see many connecting the dots.

1. Everyone understands the emerging market thesis and have bid up almost every non-US stock market, except for their largest supplier and financier. Here’s my take - China is to emerging markets what the US is to developed markets. Many developed markets are facing uncontrolled debt burdens, fiscal sustainability issues and fiat currency crises - problems that emerging markets know all too well. The difference is many have already faced the brunt of these issues (for now) and are actually benefitting from greater disinflation due to cheap Chinese imports that have been steered away from the US. All else equal this means greater room for fiscal and monetary stimulus across EM.

2. Recent Carney and Macron statements - bullish China (eventually).

3. News of China’s military investigations - no Taiwan invasion soon.

4. And why not throw in a seasonality chart for good measure.

   

5. Let’s see how markets react early this week on the military stuff and go from there.

Hope everyone has a great week. To leave you with some food for thought heading into another FOMC meeting on Wednesday - I’m not really sure what Powell could say to price in a more hawkish route than what is currently expected. 70% odds of no cut through April still seems too high to me. That framing may be useful to your positioning throughout the week. I’ll also take the under on government shutdown length extending beyond a few days as neither party has any political capital to spare heading into midterms.

Good luck out there. Intra-week thoughts and updates will be posted in the subscriber chat.

Let’s dig in.

It seems likely to me that front end rates are topping out here locally. This has implications across asset classes, most specifically for FX and commodities.

1. Previous instances of falling short-term rates have coincided with strong forward gold and metals returns. The gold run is showing no signs of stopping - let’s see if oil and energy joins in as well.

2. Market does not currently believe Trump’s new Fed chair will get big cuts through as there’s still a ~44% chance of 1 or fewer cuts before midterms. This is too low in my opinion - providing further fuel to this notion.

3. Equity leadership has already noticeably began moving away from US, big tech and towards gold, commodities and rest of world - corroborating a weaker dollar picture. This has all started happening pre-Greenland noise.

Trump continues to be the human steepener. He is like an elephant on a seesaw sitting on the front end of the curve and instigating the long end with his every move and tweet. I believe this trend goes into overdrive before it slows down.

1. Fed policy of $40B/month RMP + 2 or more rate cuts keeps a lid on the front end while supporting growth (and the long end)

2. Other Fed policy prong of duration tightening to reduce duration of balance sheet portfolio adds upward pressure to long end yields

3. Bessent’s weekend interview with Larry Kudlow confirmed they 1) are looking for a Fed chair who will be a Greenspan-like supporter of productivity, aka cut into a hot economy and 2) will continue to use all means necessary to make sure Powell doesn’t stay on the board after his Chair tenor ends.

4. This policy mix is in many ways opposite of that which has existed since the October 2022 bear market bottom where policymakers supported the long end at the expense of an otherwise abnormally high front end. This effect flows into asset winners and losers in almost an equally opposite effect (e.g. long small caps and cyclicals instead of big tech).

Here’s a thought on crypto. ETHBTC looks horrible to me and that jives with my view that there is a new policy in town of letting the long end find fair value while keeping the front end low to help main street. This is bad for long duration assets of all kinds.

1. -10% in the ETHBTC pair seems reasonable to me. Very weak momentum.

   

2. As does a revisit to ETH’s multi-year range low in the low $2,000s. Not a good look on the weekly.

   

For a parting thought - the market general needs some work.

Probably a good time to resurface this meme.

Hope everyone has a great holiday-shortened week.

1. Macro Themes

2. Investable Ideas (we are here)

3. Top Picks

Picking up where I left off in Part 1, I wrote “asset dispersion will be profound between winners and losers and the main focus is finding ‘win-win’ setups”. This post is intended to help parse signal from noise in order to think through some of those setups.

Remember when the phrase “unprecedented times” became used so often around and after COVID that the joke started to write itself? Well the new word I am nominating to promote to that level is “paradox”. Everywhere I look I find myself describing things as a paradox. Some examples:

1. How is “run it hot” the most consensus theme of the economy when the underlying labor market points to a deep recession?

2. How are stock markets at all-time highs with consumer sentiment at all-time lows?

The simple answer is that markets today are a result of years of band-aid and duct tape style solutions to fixing the economy. I describe 2026 as a delicate balance to keep all of the balls juggling in the air without dropping. The delicateness is a result of years of kicking the can on our problems for the next administration and generation to face.

With that said, do not let the growing complexities overshadow the realities of the current market environment. Instead I suggest focusing on the incentives of key decision makers, demonstrated reaction functions and historical precedent. The key to dominating 2026 will be aligning behind the trades that sit at the crosshairs of the competing objectives.

1. Main Street Reignition

The K-shaped economy is a household term at this point so I don’t think I need to repaint that picture again here, but I will try to offer a new perspective. Throughout 2025, when push came to shove, the Trump administration resorted to a market-first approach that has continued to resoundingly benefit Wall Street/large corporations/AI technocrats at the expense of Main Street. It’s not that they necessarily want to change that, but rather will need to reorient their prioritization if and when a growing tension arises. The reason a “run it hot” policy strategy is even required is a result of the societal issues negatively affecting the “bottom half of the K” that have festered unabated for years. A true run it hot scenario is bearish for long duration assets as yield curves bear steepen and the cost of capital rises, which is at complete odds with the suppressing of long-term interest rates that has directly benefited speculative and technology assets in recent years. The “run it hot” effects look differently when equity multiples and index concentration levels are at record highs and investor cash balances at record lows. The idea I want to stress is not as much a directional call as it is an asset selection call. There will be big winners from this regime but finding them will likely require going where others are not and doing things differently.

Assuming you believe in the high stakes magnitude of the midterms and the government reaction function to stimulate fiscally and keep monetary policy loose to try to win, the most obvious resulting trade to me is betting on long-term yields to rise. Whether the policy works and sends nominal GDP to 8% or it doesn’t because the recessionistas have a point and the economy is too weak to catch its gear, I don’t think the specifics of the outcome doesn’t really matter a whole lot for this bet to win.

2025 taught the Trump administration a huge lesson - publicly touting "it's Main Street's turn" and a message of "taking pain" backfired bigly. It caused a record sell off that forced a walk back of rhetoric and delay/reversal of policy objectives.

2026 will demonstrate they've learned that lesson and will act accordingly. 2026 is about "Main Street's turn" because if it's not, they will lose the midterms and Trump's safety, wealth and legacy will come under attack. It HAS to be "Main Street's turn" this year or else. However, they are going to adapt to the mistakes of 2025. They will be more subtle and less blatant in their communications as to what parts of the market this is a negative for. They can't have a wealthy/corporate tantrum like they did after Liberation Day or their agenda will be stopped in its tracks once again.

You can already see this in how the market is trading. While they were touting "Main Street's turn" in early 2025, the market knew that wouldn't be the case as small caps topped in November while Nasdaq continued to make new highs into February. Most of 2025 was an anti-growth/countercyclical policy agenda. Today we have the exact opposite setup from a policy perspective and once again the market is sniffing out this changing of the guard.

The below image is a look at the regional Fed ISM survey data over time. You can see the indices going below 50 (contractionary) in late early 2023 around the time of the regional banking crisis. Since then they have remained in contraction, albeit with a slow, gradual improving trend higher. I posit in 2026 we see readings >50 into expansionary territory.

We are coming out of a nearly ~2 year main street recession (main street can be translated as the highest propensity to spend and consume goods and services cohort), and bond yields couldn’t fall during that period. Sprinkle on top of that we are turning the page on a 2025 that was all about anti-growth/countercyclical policy. These agenda items included tariffs, immigration and deficit reduction, and the one-time negative effects of these will roll off this year.

Shoutout to Brent Donnelly who I got this chart from, but you can see the tapering off in sentiment around the bear case for US Treasuries.

When you zoom out, even these last few years look like a long hibernation period. On a longer-term chart, the 3.75-4% area looks like a major resistance zone turned into support for the US 10Y yield.

The monthly chart looks strong and particularly so when paired with the idea that the largest and most pain-inducing deficit effort in recent history has ended with a 5.5% annual deficit to GDP.

Now overlay this with bond volatility via the MOVE index.

The Trump admin has a choice in 2026 - stimulate Main Street to win the election or keep a lid on bond yields. The former will take priority and the latter will be chased like a dog on a leash.

2. A New Fed Policy

A core pillar and result of the “run it hot” policy strategy is a steeper yield curve. This stems from higher nominal GDP as a result of fiscal stimulus that serves as a tailwind to long end yields. But there is also a monetary policy prong to the strategy that we are seeing in real-time - pressure to keep front end rates as low as possible. Financial repression would be another phrase to describe what we are witnessing, but that has much more negative vibes so you won’t hear policymakers mention it.

The steeper yield curve is also being reinforced by a policy change the Fed began late last year that I still don’t think is getting enough attention. While their policy is supportive of the front end via Fed Funds rate cuts and the newly announced Reserve Management Purchases (RMP), it is doubly bad for the long end. First, that front-end liquidity helps to support growth and financial markets which puts somewhat of a floor on long end yields. But more importantly, they are actively reducing the Fed’s balance sheet duration, which I believe may be a first since the 1950’s bills-only policy. To repeat it again, I do not believe this aspect is being appreciated enough by market participants. Look no further than the exact bottom in long-term yields being put in the day the Fed announced this shift in late October. I am of the view this is why Bitcoin and momentum assets got hit hard in November.

It’s important to point out that this yield curve steepening impact is the exact opposite of what fiscal and monetary policymakers have done since the risk asset bear market ended in October 2022. From then on through 2023 and 2024 we saw large, continuous efforts to do the opposite - suppress long end yields. This was done via the BTFP in March 2023, ATI in October 2023, draining $2T from the RRP and slowing/ending QT early. Given this 180 degree pivot in policy strategy, it should come as no surprise that the market should see leadership rotation.

Long assets that perform well in a steepening yield curve environment and stay away from ones that don’t. Cyclical and industrial commodities, energy and financials benefit here, whereas long duration, speculative assets and technology should lag. This approach happens to dovetail nicely with the main street reignition idea as well. Stimulus to the highest propensity to spend consumers is likely to boost demand for tangible goods and services more than it is for financial and intangible assets. Position accordingly.

This decision is also made easier by the fact that concentration among the top technology companies is at all-time highs. With everyone piled into the same boat, it doesn’t take much of a changing tide to translate into big shifts in financial markets. The US stock market is now AI. The big tech monopolies, or Mag7 as we like to call them, have become too big to fail as they are now one of the core pillars of the US retirement system and source of government tax receipts. Historically, investing in too big to fail enterprises works until it doesn’t. More on this later.

3. Global Focus and Continued Non-US Outperformance

The US stock market as defined by the S&P 500 is tech and AI which is all of the talk of markets today. It is overlooked that many non-US equity markets outperformed in 2025 and I think will do so again in 2026. 2025’s non-US outperformance was a warm up with the main event is still ahead.

For starters, Mag7 returns have been on the decline, as have their revenue and earnings growth metrics. It’s not often discussed that most of them underperformed the S&P 500 in 2025.

The same vibe holds true for the tech sector broadly which comprises a record market concentration.

Given I believe both fiscal and monetary policy in 2026 will be focused on supporting main street and many other places besides tech, in addition to what I believe is a concentration problem, it’s not an area I am excited to invest in. A similar fiscal stimulus phenomenon is also happening globally as fiscal deficits are not just a US thing. China for example is likely to run a larger deficit in 2026 than in the US, which is particularly interesting given their focus on domestic consumption. Meanwhile Chinese equities still trade extremely cheap to US and we know their technology sector, among many others (Uranium, EVs, solar, etc.) are at a minimum competitive with and at a maximum superior to their US counterparts.

One screen I have run globally for idea generation has been looking into countries whose bond markets are performing the best. Given the fiscal sustainability problems plaguing developed markets, investing behind countries with the healthiest bond market trends could be a ‘keep it simple stupid’ way to allocate capital across this theme. China fits this bill and has much more room in their bond market to stimulate fiscally. Brazil is another example along this line of thinking.

One reason for this dynamic is the US’s trade deficit reduction with China has forced those cheap goods to go elsewhere around the globe, creating a deflationary force for every other country. This should continue to be a tailwind as the US deficit is still dropping and goods inflation out of China continues to be very weak. Central bankers around the world are welcoming this development with open arms, however it does create the same negative effects for their other policymakers tasked with preserving domestic industry competitiveness.

The last point to mention that’s separate but related to all of this is the US dollar which I expect to see another 5-10% decline in 2026. Liberation Day set in motion what was already a slowly melting ice cube of capital flows into the US peaking out. NIIP (net international investment position) in the US is at highs at a time when the White House’s policy agenda is aimed at shrinking the trade deficit which will result in less capital flows into US assets - both the stock and bond market. With foreign buyers already reducing their footprint in the US Treasury market, it is likely that the Fed will have to play a bigger role than before and that means debt monetization and dollar bearish. Additionally, it is likely the new Fed chair will be even more amiable to Trump’s loose policy suggestions, the effects of which would be seen in a lower dollar. Together all of this provides another tailwind to non-US assets.

4. AI Megatrend Persists But With Different Beneficiaries

It’s no question we are in a secular AI megatrend. We are a few years into it and just starting to see the benefits go mainstream. I suppose I should preface this by saying I am often speaking in broad strokes here. Given we are in an AI megatrend, there will be new winners that pop off every week on the back of this innovation. But when I am speaking about it here, I am generally referring to the large cap tech, Mag7 and semiconductor parts of the market - think QQQ, MAGS and SMH.

While the AI boom has been strongly backed and supported by the US government to date, there is a changing tide that is resulting from its impact on labor force reduction and job loss, as well as energy costs affecting the population. To understand the direction of travel of current political discourse, look no further than the recent few tweets from AOC, Elizabeth Warren and Bernie Sanders to find pushback against AI and datacenters. Democrats have found early success with this approach, and it will likely ramp in the coming months. Proof of this notion can already be seen in Trump’s latest rhetoric hinting at making tech companies pay for electric bills and power consumption, as well as more announcements coming on data centers.

This is part of the delicate balance the Trump administration will try to manage. With concentration of Mag7 and Semi’s at all-time highs, there is much more room for error than meets they eye. Not to mention the capex is increasingly hitting the debt market and potentially equity financing too as the capex burdens are becoming larger. This is a change in the previous capital-light big tech business models and has evolved into an AI “space race” that is almost certainly going to produce subpar rate of return investment decisions.

As the bottlenecks have moved from chips to datacenters and now to raw materials, it screens much more attractive to play this theme further downstream. It also dovetails nicely with the other market dynamics of main street stimulus and a steeper yield curve - an environment that benefits commodities and energy producers. The other approach that has seemed to work well is playing the tip of the spear innovators whose businesses are benefitting from incorporating AI to boost revenues or cut costs but I don’t have much edge in this area so have not been too focused on allocating capital to it. Here I am focused on power generation and energy plays that I expect to benefit from continued emphasis on grid buildout and secular sticky inflation.

5. Geopolitics

The final area I want to touch on may not typically be an area you want to place specific bets around, but one that needs to be incorporated at least to some degree. There are major geopolitical events that now have quantifiable odds of occurring via betting markets, but what I believe is more important is the trends and regime shifts that they may be signaling regardless of each particular outcome.

Let’s use the China - Taiwan situation as an example. I have no edge in predicting an outcome here so I try to stick to what I do know.

1. I believe whether it escalates to physical violence or remains ‘cold’, there is a clear power struggle ongoing between the two largest economies in the world vying for influence and leverage over each other to achieve the best outcomes for their national interests. This includes threats of military action, but also strategic supply chain decisions, hoarding and restricting key exports and forming alliances globally.

2. The US has amassed ~20% of its naval assets in the Caribbean and is becoming increasingly engaged in military conflicts globally (Venezuela, Ukraine, Israel/Iran, Yemen, Nigeria, etc.). A more active and deployed military means less resources are available for new future unknown conflicts.

3. Taiwan’s importance and economic value is rising dramatically with the AI boom. See quoted tweet. Hot assets and rising stars of any type become more coveted by those around it.

While I do struggle to see how a move on Taiwan would not be mutually destructive, I also know that whenever humans are involved there can be volatility and what may appear to be ‘irrational’ decisions on the surface can be very rational when better understanding the incentives and power struggle under the surface.

The focus should be on placing bets that don’t require extreme outcomes to win. For me those look like:

1. Regardless of physical violence or not, adversarial competition means there is a premium placed on commodities, raw materials and scarce resources. Again, this dovetails with a broader macro environment that benefits commodities, cyclicals and curve steepening assets. Focusing on the most supply constrained and in demand cross sections of this venn diagram will lead to outsized returns.

2. There is a fairly wide valuation discrepancy across Chinese vs. American industries despite China’s competitiveness. This also comes at a time when the macro tailwinds are favoring non-US assets and a weaker dollar. Additionally, there’s a probable case in which China runs a larger fiscal deficit in 2026 with an even bigger focus on domestic consumption. Lastly, China has continued to make ground with the US in its competition for global influence and in many cases almost serving as the de facto central bank and financier for emerging markets, fitting behind an attractive broader macro theme.

3. Looping in geopolitics to all of this, it seems to me that one side of the equation is mispriced. Either there is real risk of geopolitical conflict with China/Taiwan and Mag7 and Semiconductors are way too expensive for that scenario, or the risk is much smaller than perceived and competitive Chinese technology firms are way too cheap relative to the tailwinds they have.

There’s obviously a number of different geopolitical events ongoing from Russia/Ukraine to Iran/Israel to Venezuela/LatAm to Greenland. All of these have different levels of relevance to markets and global economies as well as different probable outcomes and effects. It has been clear from the beginning that Trump’s #1 priority is to lower the price of oil to keep a lid on inflation and he will go to any length to do that. There is only so much that is in his control here after the low hanging fruit (Saudi deals) has been harvested. I think oil and gas is an attractively priced area to invest given my outlook for the space, but nonetheless, there other commodities that may have similar tailwinds but are more supply constrained. The whole metals complex has put this on full display for all to see - it is a field awash in opportunity for those willing to look deeper.

The funny part about “annual outlook” reports that we all like to write ahead of a new year is that for markets, the calendar year doesn’t mean a whole lot. We use YTD metrics to gauge results but assets don’t put in tops and bottoms or trend changes just because of clean month or year ends. I only write this because us humans have a tendency to get caught up in the new trends and directional calls and sometimes forget that new information can change the circumstances. Said another way, 6% bond yields, a 20% correction in Mag7 and a 20% move higher in metals and Chinese stocks might make me change my mind on a particular view. Markets are not static and investing rewards a dynamic mind. We must preserve our ability to hold multiple, often times conflicting, truths at once.

The 3rd and final part of this series will drop next week. As a macro investor my bread and butter is not single names but I thought it’d be a fun exercise to help me try to identify my strongest views, prioritize them and simplify into the most concise format possible.