As for the markets, I have a lot of different thoughts this week so some will be quick hitter ideas more so than usual. Maybe over the coming weeks a few of them will really tug at my attention and I will go deeper. As a reader, I would suggest that is something to be on the look out for - when I write about sectors or trades consistently week over week, odds are my conviction and interest in them are growing.

S&P 500 Retail index is saying something much different than Nasdaq.

1. This chart is bat shit crazy to me and is the K-shaped economy in a nutshell.

   

Continued fascination with the oil market dynamics.

1. The magnitude of the SPR release is not getting enough attention in my opinion. Once again we have another example of Trump and Bessent doing the exact same thing they criticized Biden and Yellen for doing. Exact same thing.

2. This may be one of those instances I mentioned in the introduction where your antennas should perk up because I keep writing about something. The oil complex has been in just about every Scouting the Tape for weeks on end now. Last week I noted the XLE/XLK divergence. In April I discussed the risks of a US export ban and the bull case for long dated Brent oil futures.

3. A quote of my recent tweet put it very succinctly.

4. Inflation is here to stay and your portfolio best be positioned for it. You can entertain yourself with the table game of the day at the semiconductor casino but getting really long critical commodity infrastructure and national energy security plays will probably net out the same if not better returns over time with a lot less stress.

FX and the dollar.

1. On Monday I tweeted the following arguing for a rise in the dollar. I got lucky on the timing.

2. I will leave you with just one chart which is the weekly DXY with RSI and MACD indicators. The technical setup here looks unbelievably bullish to me.

   

3. In recent weeks I’ve been writing about the setup in USDJPY and what policymakers can do about it. This is all related to the dollar. I continue to believe FX and the dollar are integral to understanding the direction of global macro right now.

Taiwan.

1. Watch this recent Trump interview. It is the most soberly I’ve heard him speak on the Taiwan issue and he seems a bit shook about it.

2. It got me thinking about this tweet I wrote last December where I called NVDA a national security threat.

3. It has me thinking, has the Trump administration been blowing the bubble in the AI sector (purposefully, they aren’t stupid) because they need these companies to have cheap and large access to financing to re-shore the semiconductor and chip industry to the US as quickly as possible before Taiwan loses its independence? Outside of national security or strategic imperative, there aren’t many great reasons why you’d want both your stock market and economy so levered to one extremely cyclical sector while negatively impacting the majority of the population.

4. I’ve been noodling over this line of thinking for a few days and it won’t go away. Then I see this Chamath clip of him talking about Taiwan’s declining relevance which has me thinking he got this narrative from his buddy and podcast mate David Sacks who happens to be Trump’s AI czar.

When do SOFR futures become interesting?

1. The recent change in the Fed Funds rate market has been dramatic. We’ve been playing the rates market well this year having made money from both the long and short side.

   

2. Since early April we have been bearish on SOFR futures under the expectation that inflation was going to keep surprising to the upside. In late April we continued to expand on this idea, detailing the worsening inflation picture and the negative outlook for SOFR futures.

3. Here we are weeks later and you have almost 2 rate hikes priced into 2027 and I' find myself asking what is an attractive entry, if any, to get back into the trade from the long side. I’ve been focusing a lot on the June 2027 contract.

   

4. In that April 10th post I wrote “the optimal entries should come when equities are still trading well but inflation is surprising to the upside”. I think that could come over the coming 1-2 months. I think we still have a few more worsening inflation prints to get through but there will be a time to get long SOFR again as cheap insurance. I want to fade the rate hikes happening but do so from a great price.

Agricultural commodity futures are ripe for speculation.

1. I started writing about ags in a few March editions of Scouting the Tape. Initially laying out the high level trade and then simplifying it further. I believe this is an area to be seeking attractive risk/reward setups and trading around the complex.

2. One of the trades I am currently long are live cattle futures (LE). What if I told you that since the March 2020 COVID bottom, the asset has matched the S&P 500 return with a smaller max drawdown (-17%) and lower volatility. Suffice to say live cattle prices are in a secular bull market which is why you’re reading about the cost of beef hitting new highs every 3 months. I like the 5:1 risk/reward setup out of this head and shoulders on the daily chart. I’ve been long for a few weeks now so have a better entry than the current level but still really like it.

   

3. Live cattle are cows that have reached their finished weight (1,200-1,500 pounds) and are ready for slaughter. This is the primary point of price discovery for the beef industry, meatpackers and grocery chains, creating for a large and liquid market. There are also feeder cattle futures (GF) which constitute younger calves (700-900 pounds) that are sold to be fattened up for eventual slaughter. There is a concept that simplifies the supply chain known as “cost of gain” where essentially feeder cattle + corn + time = live cattle. The cattle crush spread is a profitability or margin calculation that = live cattle - (feeder cattle + corn).

4. From here you can understand that when the cost of corn and other agricultural commodities rise, it has a serious impact on the supply chain. It can cause the cost of feeder cattle to drop as they can only charge the market rate for the finished beef and thus their cost inputs must rebalance. Live cattle on the other hand are more resilient to broader ag inflation because their price includes all of the costs throughout the supply chain. I am drastically simplifying things here but maybe I will try to elaborate each week on a new aspect of the agricultural commodity complex as I assume most of my readers did not grow up in Wisconsin and have no familiarity with this stuff.

Capital vs. labor.

1. Shout out to for the updated capital vs. labor chart. I wrote about what I think is a bubble in corporate profits last week and used their chart to illustrate the divergence between the two camps of the economy.

Thank you all for reading and I hope everyone has a great week. On the next Forward Guidance episode I will have a shaved head courtesy of our wonderful fundraiser donors.

Chartbook:

Forward Guidance Chartbook - May 15, 2026 - Lekker Insights

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The bubble in US corporate profits.

1. It’s interesting how divisive the topic of whether or not stocks are in a bubble is. Bears point to high P/E multiples on record profit margins while bulls point to record EPS growth. Both are correct. Where I shake out is that the bubble is in corporate profits as a result of both fiscal and monetary policy supporting corporates and capital over labor for many years running. This explains why it is such a heated debate, because both camps are technically correct. With bulls arguing that stock prices are supported by record profits and earnings and bears belief that this imbalance is unsustainable, both can be true.

   

2. All-time high profit margins corroborate this view. Dissidents will point to rapid technological innovation as the driver of a structurally higher corporate profit plateau, I would point to the government policies that allow that to be the case - mega cap tech monopolies, the rise of duopolies/oligopolies across every sector and continued tax/fiscal policy that favors the large at the expense of the small.

   

3. Notice something changed after 2020 when the US government doubled its money supply on the spot and started putting corporate debt on its central balance sheet. No wonder corporate profits exploded.

   

Divergence between oil prices and XLE/XLK.

1. Looking back over the past number of years, it is not normal to see such a large divergence between the price of oil and the ratio of oil stocks (XLE) to tech (XLK). A large gap has opened up between the two and I would bet it closes, but trade structure and timing are obviously critical.

   

2. I am a believer that the lasting impacts of the supply shock will keep oil prices elevated for longer than the market currently has priced in.

3. The long December oil futures trade we wrote about in the beginning of April played out well and I still like it.

4. Lately I have been focusing more on the oil and gas equities, particularly international exposure, which I also wrote about a few weeks ago. XOM is an example of an international focused major that has pulled back -18% off its highs back to February 4th (pre-Iran War levels) right into the 100dma. I’m long it among a basket of names.

   

Divergence between equity indices and stock and bond volatility.

1. A potential divergence between equities moving higher while stock and bond volatility measures bottom out is also worth watching over the coming weeks. We’re now inside of 6 months from midterms so it is not surprising volatility would find a floor soon. Thus far nothing conclusive here but something to keep an eye on.

   

NVDA - the bull / bear battle ground.

1. I am infatuated by the NVDA chart. I’m not sure if it’s because it makes up 8% of the whole S&P 500 index or that its market cap fluctuates a few hundred billion each week without anyone batting an eye. Either way, the $5.3T behemoth is an important one to watch.

2. I would say bulls are currently in the driver’s seat as it closed at new weekly closing highs.

   

3. That said, the current ‘double top’ pattern is not new for the stock. Most notably it did this in November last year, closing at a weekly high but then not revisiting those levels for 6 months and testing a -22% peak to trough drawdown in between. January 2025 saw something similar. We’ll watch it play out together.

   

Financial conditions, monetary policy and gold.

1. Over the last few weeks I’ve been frequently writing about the ongoing risks of overheating in the economy and how policy is too loose. A number of trolls on X have wrongly interpreted these ideas as me being bearish when I specifically compared the environment to 2020-2021. The reality is that this behavior should make you less bearish in the immediate term, but more bearish on longer horizons. When governments enable above trend growth and a worsening secular inflation environment, it feels good upfront but makes the ramifications harsher on the back end because they are forced to slam on the brakes harder than they would if they took the pain sooner. Literally 2022 to a tee.

2. You don’t have to look further than the Fed’s own website to see that its baked in the cake that inflation will rise above 4% this year. There are many ways to play this environment, sometimes it makes sense to grab a seat at the casino table and play along, and other options include patiently playing the inflation protection trades that will work at a slower pace now while speculative fervor is high and work even better when it dies. Everyone has a different style.

   

3. What’s clear, however, is that the market is saying it has no clue what is going to happen to the Fed Funds rate. I’d imagine without a Trump hand picked Fed chair, the odds of hikes would be higher, but most market participants believe the bar for this to happen is much higher under a less independent Fed. Unfortunately we won’t really get much more insight into the thinking here until June’s FOMC which is still over a month away.

   

4. One relationship I am paying close attention to is dollar and yields, which in normal, healthy functioning times are often positively correlated. While too early to declare just yet, the recent dollar down, yields up has been interesting. Japan has been ground zero for what happens to a currency and sovereign bonds when policy is way too loose - yields up and currency down. If we listen, the market will tell us what it thinks about the current policy stance.

   

5. Given this is a global phenomenon happening across developed markets as everyone is allergic to hiking rates into a commodity supply shock, fiat to fiat crosses might not provide as much insight as normal. For this reason, keep an eye on gold too as it will continue to benefit from this globally coordinated ‘run it hot’ approach to growth and inflation. I am long.

Declining tariff revenues heading into 2026’s first Trump-Xi summit.

1. Among the list of failures the Iran war has made mainstream media forget about (eg Epstein files, Pam Bondi, affordability crisis), tariffs is one of them. Monthly tariff revenues are down over -30% since October 2025.

   

   

2. This decline in tariff revenues is ongoing despite a 7% increase in the monthly import volume which means the effective tariff rate has fallen even more.

   

3. This past week the Supreme Court struck down Section 122 tariffs which were the Trump administration’s replacement for the IEEPA tariffs which were previously struck down. It’s a nuanced headline because it only blocks the tariffs for two private importers and the tariffs remain in place for all other importers while the appeals play out. These tariffs expire in July and are likely to be replaced by Section 301 tariffs after that, with appeals and court cases dragging out well into 2027.

4. In 2023 and 2024 the US collected ~$80B in tariffs per year, that rose to $260B in 2025 and is likely to end 2026 somewhere in that same neighborhood. While it is nothing novel to say peak tariff hysteria is behind us, taking that one step further it may be the case that from here the majority of tariff risks lie to the downside which equates to upside growth / increased trade. Additionally, with supply chains now having over a year to adjust, it seems to me that the Trump-Xi meetings carry much lower stakes this year than last.

   

Hope everyone has a great week ahead. Tell your mom you love her today!

If you haven’t yet, I suggest giving last week’s Scouting the Tape a read. It is separate but related to what I go into below and will help paint the full picture of everything I am thinking about.

The most consistent message from Warsh, Miran and Bessent is their interest in shrinking the Fed’s footprint in financial markets.

1. This looks like at a minimum reducing the duration of the Fed’s balance sheet (currently ongoing slowly) and at a maximum reducing the size of the Fed’s balance sheet (currently not happening - balance sheet is growing thanks to RMPs).

   1. This approach allows the Treasury market to serve as a natural governor on congressional spending and fiscal profligacy.

   2. This in turn raises long end bond yields, all else equal, thus creating a headwind for asset prices and creates a steeper yield curve which helps to even out the playing field for main street and Wall Street by removing the suppressed yield curve that has inflicted pain on front end borrowers (small businesses and low and middle income wealth cohorts) and disproportionately benefited long end borrowers (large corporations and wealthy individuals).

   3. Given the stock market effectively is the economy today, dampening equity indices slows the economy. This is what could allow the Fed to cut interest rates further, assuming inflation is under control (which it isn’t). The problem is the White House and Treasury do not allow stock market corrections and utilize their fiscal and currency tools to manipulate equities higher, thus continuing the inflation persistence.

2. The facts as they stand, however, don’t necessarily paint a clean picture and suggest that Warsh, Miran and Bessent’s actions might not follow their words.

   1. For starters, the Fed’s balance sheet began growing again in December 2025. This has been led by ‘Reserve Management Purchases’ of $40B/month. They are supposed to taper down after April, but it remains to be seen what Warsh will do here. If rate cuts are off the table because of an inflation problem (as appears likely), I could easily see him increasing these to support the front end in a different way - it is de facto QE. The chart below shows while the Fed’s MBS holdings have continued to fall, now back to October 2020 levels, the rise in Treasury holdings back to July 2024 levels has brought the total balance sheet increase back to May 2025 levels.

      

   2. While Bessent, Miran and Warsh have voiced their discontent with the previous administration’s use of Active Treasury Issuance (ATI) as a covert form of yield curve control, they appear to be hypocritical given their usage of the same exact tools. We will find out more in next week’s QRA but the seeds were sown in February’s QRA. I wrote about it here:

   3. And now most recently in his confirmation hearing, Warsh spoke numerous times about data overhauls and revamping at the Fed. While on the surface they will say this is to improve accuracy, the reality, just like Trump’s replacement of BLS staff and canceling of key data releases, is to fudge the numbers to paint the picture they want it to paint - the opposite of accuracy.

3. There’s an overarching takeaway here which is that ‘financial policy’ as a whole (fiscal + monetary) has been almost completely taken over by the Treasury and White House. While I don’t think Warsh does himself any favors by refusing to disavow Epstein or acknowledge the 2020 election results, the truth is the Fed has not been independent for a long time now, especially since 2020. Yellen and Powell worked extremely closely through the various fiscal stimulus and bond market liquidity measures, just with less of a loud public focus on the issue. The trajectory is for this independence to continue to weaken - both out of desire by current leaders and frankly necessity given the problems have gotten so bad that closer coordination is required to avoid disaster or crisis (which may not be unavoidable in the end).

Another bout of inflation is largely baked in the cake.

1. 2025 saw one of the largest efforts in recent history to curtail profligate government spending, yet all that could be mustered was a small reduction in the budget deficit.

   1. The DOGE and shrinking the fiscal deficit Trump admin rhetoric was not all just talk. The federal workforce shrunk by ~10% in 2025 alone. The fiscal deficit as a percentage of GDP fell from ~6.3% in 2024 to ~5.8% in 2025. But that’s the problem - it’s still at 5.8% despite the major push.

   2. Because the budget cuts targeted non-defense discretionary spending (which is only about 15% of the total budget) while increasing defense spending, the impact on the total federal deficit has been marginal. It was more of a reorganization than it was meaningful cuts.

   3. Without budget cuts and a deficit to GDP greater than 5%, the government’s interest burden continues to grow at an exponential rate and forces the Treasury to pay the interest on its debt with the issuance of more debt. This is the type of behavior you see from troubled and distressed companies.

2. “It’s not possible for us to take care of day care, Medicaid, Medicare, all these individual things,” Trump said. “They can do it on a state basis. You can’t do it on a federal. We have to take care of one thing: military protection. We have to guard the country.” Wars are inflationary and we are in a wartime economy with no end in sight.

   

3. The closure of the Strait of Hormuz has created long-lasting physical shortages that will result in higher oil prices for longer - implying an inflation problem for at least the next year until the base effects fall out after Q1 2027, however the feed through of these price increases into and around the rest of the economy tend to take longer to work through. Eric Nuttall of Ninepoint and HFI Research have both been highlighting the significant decrease in US crude reserves. This reduces future resilience to supply shocks and will keep oil prices elevated into the future.

4. Immigration impacts are likely starting to feed through to wages. After the initial mass reduction in immigration was paired with tariffs and cuts to the government workforce to suppress economic growth in 2025, it appears the effects are now working through the economy. With green shoots appearing across the industrial and manufacturing base thanks to the capex boom and OBBB tax incentives, the labor market is now also showing signs of an uptick. With economic expansion in some of these industries now happening for the first time in years, hiring should follow. But with a lower supply of workers, particularly foreign born, that is likely to at a minimum keep wage growth steady, while at a maximum cause it to pick up from here.

   

   

5. Considering all of the above, paired with policymakers attempting to exert control over maintaining loose monetary policy, it’s very difficult to see how the US and rest of world avoid another serious bout of inflation over the next 12-24 months.

Gaming out US-Japan decision making.

1. Last week I had a full section on this same topic that I wanted to revisit, simplify and offer some other perspectives.

2. Here is a scenario analysis of the two simplest paths (obviously there is a lot more nuance and levers to pull in reality).

   

3. What isn’t yet obvious to people is that it is now a lose-lose for Treasuries.

   1. If the BOJ truly turns hawkish to defend 160 USDJPY, US Treasuries suffer from i) Japanese capital flight to repatriate back home, ii) a weaker dollar creating inflationary pressures domestically in the US and globally for commodity prices and iii) negative wealth effect of falling US asset prices that hurts tax revenues and worsens fiscal deficit.

   2. If the BOJ maintains the status quo and allows USDJPY 160 to break higher, US Treasuries suffer from i) contagion from rising Japanese bond yields and ii) carry trade reinforcing positive wealth effect making inflation more persistent, while (iii) the stronger dollar helps to offset some of the commodity inflation.

4. I view the tensions here as Japan wanting to prevent a social crisis resulting from falling real wages and runaway inflation while the US wants to maintain the US asset bubble for as long as possible. From this perspective, Bessent and team are likely pushing for the BOJ to remain dovish to bolster global liquidity while using reserves to try to maintain the 160 level on USDJPY. In return the US is likely offering access to commodities and national security. Japanese policymakers are rightfully nervous about runaway inflation and may use threats of selling US assets and/or unwinding the carry trade in their negotiations, however given the unsustainability of their overleveraged fiscal position amidst a commodity supply shock likely know that defending the 160 USDJPY level is throwing good money after bad.

5. The BOJ, ECB and Fed will continue to work in close coordination as they always do. So if the ECB and Fed are both going to ignore inflation and stand pat in order to maintain economic growth, or even attempt to maintain an easing bias in the case of the US, there isn’t much incentive for Japan to turn hawkish.

6. There’s an argument to be made even one BOJ hike this year would not change the upward trajectory of USDJPY given their inflation and economic problems are much more dire than the US’s.

What is the market saying?

1. Here is the 30y - 3m yield curve. This is one of the most bullish charts on my entire watchlist.

   

2. Below is a chart showing the US 30y-2y yield curve on top (blue) vs. the 30y yield on the bottom in orange. What you will notice is that for nearly 10 years following November 2008, the two moved together with a positive correlation. Then from January 2022 onward, the correlation has frequently alternated between positive and negative. Why did this start happening? The short answer is policy intervention to try to manage markets.

   

3. Why does this matter more now than in the last few years? In the below chart I’ve zoomed in further and added the USDJPY chart (in white on the bottom). You can see USDJPY is up against 160 and the 30y yield is up against 5% - both critical levels with competing priorities.

   

4. The free market approach would be to allow natural price discovery with both yields and the dollar strengthening, however we don’t live in a world of free markets anymore so we will await policymaker action to determine which way things move. There is a QRA meeting next week which very well could see the US Treasury further manipulate issuance to reduce pressure on bond yields. The problem is that with all of these volatility and market suppression tactics, they continue to make inflation pressures worse and risk a bigger problem down the road.

5. Channeling my inner Peter Brandt, the ascending triangle on the US 30y bond yield chart implies a 6.6% target (the widest height of the wedge). I understand Bessent and team’s desire to keep a lid on bond yields to support economic growth, but I believe it would be a mistake to continue manipulating this market lower as it would create a larger inflation problem down the road. The economy is already showing signs of reheating in the labor market, across wages and green shoots in housing - further suppression of rates to bolster liquidity will all but guarantee a meaningful overheating. However the presence of this risk of continued Fed and Treasury intervention is why it is imperative to own commodities and hard assets.

   

6. Let it be known that in 2022, yields actually didn’t break out until after the peak in war hysteria and front month oil. I actually believe there’s an argument to be made that Trump escalates or prolongs the Iran War in order to ensure physical commodity shortages don’t just increase price, but actually cause demand destruction which would slow the global economy and put downward pressure on bond yields. If it sounds like a cut off one arm to spare the other, trust your instincts. But the 2022 analog gives some level of credence to that idea if the correct read through is that once the war hysteria and economic uncertainty subsided, yields took off because global recession was taken off the table.

   

The yield smile.

1. There is a theory known as the dollar smile which describes a phenomenon where the US dollar strengthens during extreme scenarios (extreme fear or exceptional US growth) and weakens during moderate global growth, forming a smile-shaped curve. The dollar acts as a safe haven during crises and a high-performing asset during US economic superiority.

   

2. I have been thinking about this a bit differently with a focus on bond yields that might be better suited for the evolving fiscal dominant landscape we find ourselves in - the Yield Smile™.

   

3. Basically this is what I view Bessent and policymakers trying to manage markets towards. Low volatility, stable systematic buying pressure and passive flows behind US equities that just grind up slowly by a little each year. Move to far in either direction and risk a problem in the bond market. The difficulty right now though is that 3 straight years of the juicing the market via various interventionist policies has created the tinder for another inflation problem. Bond yields are pushing up against their upper limit and any further tactics to suppress them only makes matters worse. That’s not to say it can’t work in the very short-term, but it seems irresponsible to continue these policies and does not jive with the principles they have stood behind.

SOFR curve moves.

1. At the turn of the year the market was pricing in a ~15bps lower FFR in Dec 26 than Dec 27, this moved hard until late March where Dec 26 FFR was priced ~30bps higher than Dec 27. The move has since mean reverted back to pre-Iran war levels of ~13bps higher in Dec 26 than Dec 27.

   

2. Meanwhile, Dec 27 was pricing in a ~25bps lower FFR than Dec 28 and that has come all the way back near flat.

   

3. Dec 28 is interesting because it goes out to the end of Trump’s term. This part of the curve has seen less volatility than 26 and 27 but has still priced in marginally less rate cut expectations than at the start of the year.

4. The question I keep coming back to is whether or not any cuts can or should happen without a crisis given where inflation is expected to rise to over the next 12 months. I’m currently in the camp that neither the growth nor inflation pictures justify any rate cuts over the next 12 months. History has shown that a co-opted Fed and/or manipulated data can help the White House and Treasury takeover Fed policy to force cuts, but it isn’t really something I want to bet on outside of cheap entries for insurance policies. The other thing to consider is that if you have my view that long end yields become a problem before anything else, then you’d expect yield curve control oriented policy actions to come at some point. If and when this happens, it means the government is stepping in to support markets before they become a problem for the broader economy. These actions would reinforce stubborn inflation and persistent nominal growth, and thus further reduce the need for rate cuts.

Here’s some fun chart art looking at $EDV, the Vanguard Extended Duration Treasury ETF. All of the below are inverted - so chart going up means price of the ETF is going down.

1. Weekly

   

2. Monthly

   

3. Quarterly

   

4. Annually

   

Now let me add USDJPY to it (in orange).

1. Weekly

   

2. Monthly

   

3. Quarterly

   

4. Annually

   

5. I’ll let you be the judge as to which way these are headed.

Recapping our April 10th, post-TACO, Scouting the Tape.

1. Bid December oil futures (although make sure this is Brent, not WTI, due to the risk of US export controls).

2. Bid 10y-3m yield curve steepener.

3. Look for positive mean reversion across Mag7, AI and semiconductor complex into early summer.

4. A clear mind, independent thoughts and seeking out all possible signal while removing noise is key in these markets.

Thanks for reading and good luck out there.

Our latest Forward Guidance podcast is out here.

The Yen has been top of mind for awhile now but I haven’t been able to identify exactly why.

1. Wrote this note on January 27 after the latest USDJPY intervention.

2. Discussed US-Japan policy decision making in the March 7 Scouting the Tape.

3. Posted about the headwind that the NIIP imbalance puts on the dollar.

Setting the stage.

1. The Japanese Yen has been on a multi-year weakening trajectory that has also coincided with rising JGB bond yields. The read through is that monetary policy is too loose relative to growth and inflation and thus both their currency and bond market are losing value at the same time.

   

2. This idea can also be viewed through the lens of yield differentials. The relationship between Japan’s bond yield differentials with other developed markets and relative currency performance significantly shifted around Liberation Day in April 2025. Instead of seeing a strengthening Yen when yield differentials have moved in its favor (higher Japanese bond yields relative to other developed markets), the Yen has weakened relative to the Dollar and Euro. So either, US and Europe are both suppressing their bond yields relative to Japan while keeping their currencies strong (doesn’t make sense because if they were to be doing the former, the latter wouldn’t occur). Or, the Yen is saying that Japanese monetary policy is still too loose and their currency is depreciating against the US and Europe while their bond yields rise more relative to the US and Europe’s. Looking at the yield differentials historically, they do not often go much lower from here outside of a crisis.

   

   

3. Looking at yield curves across the regions, both the 30s-10s and 10s-2s are much steeper in Japan than in the US and Europe. This further corroborates the idea that Japan’s monetary policy is too loose and investors are becoming increasingly uninterested in long-dated Japanese government debt.

   

   

Quantifying Japan’s problems.

1. Japan’s Debt to GDP ratio is ~230% which dwarfs the US’s at ~125% and the Eurozone average of ~90%. While the US and Europe have high debt levels by historical standards, Japan's debt is a systemic outlier that limits its ability to fight inflation with higher rates. For every 1% increase in interest rates, Japan’s annual interest burden increases by roughly 2.3% of its GDP. For the US, that same 1% hike only costs 1.2% of GDP. Japan is effectively twice as sensitive to interest rate shocks as the US, and even more than that relative to Europe.

2. The above metric is how much the fiscal side of Japan’s government is borrowing relative to the size of its economy. On the monetary side, Japan’s central bank’s balance sheet is ~100% of the country’s GDP. In Europe, the ECB’s balance sheet is ~40% of Eurozone GDP and in the US, the Fed’s balance sheet is ~20% of US GDP. In other words, the Fed’s footprint is 1/5th the size of the BOJ’s. The BOJ owns more than 50% of the entire JGB bond market which means there is no natural price discovery. When yields rise, the BOJ is effectively allowing it, but as that happens, the value of their own balance sheet is decreasing.

3. Lastly, Japan also has the most negative real interest rate policy (interest rates minus inflation). BOJ’s policy rate is currently set at ~0.75%, ECB’s at ~2.0% and the Fed’s at 3.6%.

4. Looking at the inflation picture a bit closer (the second half of real interest rates). Prior to the Iran War, inflation in Japan and Europe actually appeared to be in a better position than in the US with core running in the 2-2.5% YoY area while core in the US has been stuck in the 2.75-3% YoY range. Despite better relative inflation, that still puts real rates in Japan at ~-1%, Europe ~0% and the US ~+0.75%. Given the Strait of Hormuz closure and ensuing commodity supply chain issues, we have gotten March’s inflation data that is showing a severe impact to headline inflation and a larger relative increase to Europe and Japan given their reliance on imported energy.

   

   

   

5. In summary, Japan is in a difficult and much more trapped situation than Europe and the US. The Japanese government is ~80% more leveraged than the US government and the BOJ has a 5x larger footprint than the Fed relative to its economy. The US and Europe have been able to maintain neutral to positive real rates while Japan has been forced to run deeply negative real rates. The Yen is devaluing despite rising yields because the market sees that Japan cannot afford to increase interest rates without triggering a fiscal crisis and their currency is the only release valve left.

Policymaker incentives and decision making.

1. There are a few elements at play here - there are the mechanics around the optically important USDJPY 160 level and then there are the fiscal and monetary policy considerations around the ongoing energy crisis.

2. The 160 level has been clearly defended by US and BOJ policymakers over the last few years.

   

3. Japan is highly susceptible to inflation due to its food and energy import dependence. Japan imports ~60% of its food on a caloric basis (>90% of soybeans, corn and wheat) and ~90% of its energy supply (oil, LNG and coal). The Eurozone is in a better position as they are a net food exporter and import only ~50% of their energy supply, but have less of a physical reliance on the Strait of Hormuz and larger renewable wind and solar buffer.

4. The commodity supply shock puts global central banks in a difficult position. They know their monetary policy tools cannot address the root of the crisis and their natural inclination is to do nothing as a result. They see the inflation pressures but fear a tightening monetary response risks adding insult to the injury that is already being caused to consumer demand destruction and the negative effects that would have on the economy and growth. On the other hand, allowing policy to run too loose introduces risks that their monetary stance adds fuel to the inflation fire, can lead to a weaker currency and potentially exacerbate the energy price shock.

5. It is my observation that global central banks like to move in unison and operate with a high degree of groupthink. After all, the rising sovereign debt problems are a global phenomenon and have been shown to require tight coordination amongst policymakers in order to suppress volatility and cooperatively manage the global FX and bond markets.

6. It’s not a great situation either way. For Japan, if they allow USDJPY > 160, bond yields may start moving more aggressively higher and the risks of an inflation problem increase. Given Japan owns ~50% of their sovereign bond market, that seems like an easier market to manipulate than the flows of the global FX market.

7. For the US, USDJPY > 160 means the carry trade lives on. There would be risk of bond market spillover into the US from JGB yield contagion, but Bessent and his predecessor Yellen have shown their appetite to use all available tools to suppress bond yields via ATI and YCC. The downside to USDJPY >160 is a strong dollar and the negative effects that could have on risk assets. The alternative where USDJPY 160 is heavily defended and swatted down has historically not bode well for US tech equities, which we know is a priority of this administration, particularly during an election year.

   

8. All in all, policymakers number one goal is to reduce volatility. Given USDJPY is a systemically important funding pair, low volatility is key as carry trades don’t do well with volatility. They also must have an eye on inflation because over time it tends to increase bond and currency market volatility.

9. What I am gathering thus far, is that Bessent and co are throwing the kitchen sink at the dollar to keep it down. It has been trading in a structurally damaged way since Q1 2025 and is key to keeping financial conditions loose when the Fed is trapped and cannot loosen policy due to too high inflation. In addition to YCC and ATI, this is yet another way the Treasury market has coopted policy away from the Fed. This works in the short-term as you can see via stock prices. The flip side to this, however, is the bottling up and accumulation of inflation risks due to too loose financial conditions. By suppressing the dollar and bond yields, you bolster financial markets and economic activity at the risk of reigniting another inflation problem. Notice inflation bottomed post Liberation Day last year and is once again reaccelerating.

10. The lid on US bond yields is becoming increasingly difficult to hold. Yield differentials are falling, meaning global sovereign bond markets are becoming more attractive on a relative basis, inflation pressures are mounting and the economy is reheating. This is the big picture and the chart I think is not getting enough attention.

    

11. I believe oil and commodity problems are here to stay which puts continued pressure on USDJPY. The BOJ and ECB are unlikely to hike into energy crises at risk of exacerbating the demand destruction. Bessent does not want to kill the Nasdaq and prefers the carry trade to continue as he likely feels he is better suited to address the US bond market versus the global currency market. For Bessent, it’s not just a USDJPY issue, its a USD vs everything issue and the flows there are just too big to stop. The same likely holds for BOJ as they own ~50% of their bond market and can control that much easier than they can control global currency flows. Since the US dollar became a petrocurrency in the late teens, its relationship to energy crises has flipped as seen in 2022 (stronger dollar). In addition to Bessent not wanting to swat USDJPY to avoid a Nasdaq problem, he also doesn’t want too weak of a dollar that risks a domestic inflation problem during a midterm election year that is already shaping up to be an uphill battle for Republicans.

12. I think policymakers can defend the 160 level (would be ignorant for one to believe they can’t, at least in the short-term). However, their will and incentive to do so must be evaluated.

    1. Japan’s bond market is largely government owned - the BOJ owns 50% of their government’s outstanding bonds. It’s not the same ubiquitous safe haven / SoV holding that USTs are.

    2. Hiking rates or turning hawkish certainly doesn’t fix the root of the problem (energy supply crisis) and it might make matters worse domestically (cause a stock market decline that hurts people’s savings and creates negative wealth effect).

    3. The problems are widespread and not just confined to Japan. Indonesia, India and many others in Asia (and to lesser extent in Europe) are seeing their currencies start to depreciate more meaningfully against the dollar. How much Bessent and US a) want to help when the problem is out of their hands due to oil, b) can help when the problem is so widespread across all currencies and c) are incentivized to help when if they do via unilateral dollar weakening will stir domestic inflation problems that we know are politically unfathomable long-term.

13. If I were a betting man, they continue to suppress volatility and let USDJPY slowly drift up while working to avoid large moves in either direction, both via suppressing bond markets and letting the hidden inflation tax do its work. Eventually though, the markets will catch on, the inflation pressures will become large enough, and the levee will break. Trying to control things you ultimately can’t can succeed in the short-term but it often makes the wildfire worse on the other end, whenever that is.

Letting markets speak.

1. Of late, USDJPY has not moved with DXY as much as before.

   

2. Given a large part of the DXY is the EURUSD cross, this shows that the Yen has been trading even weaker to the Euro.

   

3. Yen positioning is short, but not particularly extreme in one way or another relative to the last 5 years.

   

   

4. Watching the bond markets will be critical as this is all very intertwined. Will we see an awakening of bond vigilantes?

   

5. I’m not sure of the answer to that question, but I like the risk/reward, particularly given how cheap implied volatility is around the idea. Both US bond and USDJPY currency volatility are trading at multi-year lows. I have been placing bets on rising bond yields, weakening Yen and rising volatility.

   

   

6. We’ve seen over the past few years that gold is the release valve for all of this policy manipulation and volatility suppression. Despite what I believe to be conditions that indicate things are coming to a head, gold volatility is also meaningfully off its highs.

   

Looking elsewhere in Asia.

1. Given my views on Japan, I’ve also been digging into other Asian countries that might be in the same or worse position, but have less currency intervention risk. I did a quick screen of other possible candidates. Each country is unique and deserves its own research and discussion as their fiscal and monetary policy positions vary greatly. There are other elements as well, for example, despite the difficult positions Korea and Taiwan are in relative to the commodity supply chain problems, they benefit from the AI craze and are more difficult markets to short.

   

Risk of US oil export controls?

1. There is a historical correlation between gas prices and election outcomes, primarily as a gauge of voter sentiment and economic dissatisfaction, rather than a direct, consistent predictor of victory. Rising gas prices often correlate with lower presidential approval ratings and reduced electoral success for incumbents due to the “pocketbook effect,” where voters notice fuel costs more than other economic factors.

   • Impact on Approval Ratings: Studies have shown a strong inverse correlation, with a 10-cent increase in gas prices previously linked to a roughly 0.60% drop in presidential approval.

   • Incumbent Weakness: High prices generally harm the incumbent party, whereas lower prices, often caused by natural seasonal dips after Labor Day, can temporarily boost an administration’s standing.

2. Therefore it is not good for the administration when gasoline prices are still going vertical, despite their best efforts to manipulate the paper oil market.

   

3. Combining the price shock with the Iran War being an extremely unpopular undertaking, it’s no surprise the midterm odds have been falling for Republicans.

   

4. We’ve been discussing all year how important this election is for Trump, first in our 2026 outlook and in recent Scouting the Tapes.

5. The crude oil export ban was only lifted in 2015 as a result of the massive rise in domestic production.

   

   

6. The surest fire way to reduce gas prices at the pump going into midterms would be to reinstate some for of export controls. This would lower domestic US oil and gas prices and provide a stimulus to consumers and businesses nationwide. While it would reduce US domiciled prices, it would be a large tailwind to non-US oil and gas prices and increase pressure on other countries. This isn’t that crazy of an idea given Trump has already shown us countless times he is not afraid to throw allies under the bus.

7. The market is not oblivious to this risk as the spread between Brent and WTI is sitting at its recent highs, despite front month oil prices being a fair bit off the highs.

   

8. Given this risk, I prefer non-US exposure. Here is a list of the largest oil and gas stocks worth looking into that may provide more insulation than their domestic counterparts if the US were to re-instate some sort of export ban.

   

Semiconductors vs. NVDA

1. As a parting thought, I found something that caught my eye. Since NVDA and MAGS all-time highs in late October 2025, SOXX is +48%, NVDA is flat and MAGS is -4%.

   

2. Looking back in time, I’ve found that it’s extremely rare for NVDA to ‘play catch up’ to SOXX. So if you expect NVDA to break out to new highs here, you’re sorta betting on SOXX continuing its run but via the slower horse. I’ve started building long dated NVDA ATM puts. I think volatility is too cheap.

3. MAGS trades a bit differently and can continue higher even when SOXX stalls out from time to time, but MAGS is yet to see its highs retested. It’s interesting to see MAGS trading back up to its yearly open while we no longer hear anything about the capex burdens, FCF concerns and lack of share buybacks.

I hope this has been a thought provoking read. Please comment or reach out with any ideas that come to mind. Have a great weekend everybody.

Upcoming IPO supply.

1. Credit to @history_applied on X for the idea following the below tweet.

2. Private capital markets have never been as large as they are today so there’s never been anything close to what we’re seeing in pre-IPO land. The fact that we may see 3 IPOs this year that are instantly top 10 largest market caps in the world is wild to wrap your head around. It’s an interesting thought exercise to try to quantify their impact on the rest of the market.

3. Napkin math says QQQ has a ~$30T market cap and ~$3-4T of IPO market cap coming down the pipe. That $3-4T of new IPO market cap equates to ~9-12% of total ~$33-34T pro forma QQQ market cap. In other words, for these three companies to join the index, every other company’s weight must decrease proportionally by ~9-12%. To be precise, 3 companies will also be removed from the index but the smallest companies have market caps in the $15-20B so the removal of their market caps are insignificant to our napkin math.

4. Taking it one step further, the negative impacts manifest in two ways - mechanical selling and thematic substitution.

   1. Mechanical selling: The QQQ ETF currently has ~$400B in AUM, so to add a new ~9-12% position requires ~$36-48B of selling of its current holdings.

   2. Thematic substitution: The companies most negatively impacted are legacy software firms (eg IGV ETF). Investors view these AI businesses as both software killers and ‘new software’. While everyone is understandably viewing the SaaS apocalypse through a fundamental lens, there’s a very real mechanical, index level element to it too.

5. So how do you express this trade?

   1. First glance would be to short the most acutely affected software which is playing out in spades right now (see IGV).

   2. You could also use QQQ as a funding short versus your favorite longs in parts of the market that are neither affected on a sectoral basis nor an index rebalancing perspective. For example, long oil and gas via XLE against short QQQ. Not that it is recommended to rely on technical analysis for ETF pair trading, but I like the risk reward setup here. Feel free to apply this logic to your favorite sector, country or ETF that is far removed from mega cap tech concentration.

      

   3. One might also think to short the largest market cap companies in the index who could be most affected by the largest negative flows on a nominal basis (eg Mag7). The other element to consider here is that the market may view these IPO events as liquidity/balance sheet boons for the businesses with large stakes in the newly public companies. Microsoft (~25-30% of OpenAI), Amazon (10-15% of Anthropic) and Google (strategic stake in Anthropic) stand to benefit the most. Nvidia owns a small stake in OpenAI and Tesla a small portion of SpaceX via xAI, however both are much smaller percentages of their market cap relative to the first three. Apple, Meta and Broadcom have no ownership in any of them.

6. This is a very unique scenario the market has never experienced before prior to the rise of private capital markets. The above logic can just as easily be applied to the S&P 500 index as a whole, or SPY instead of QQQ. The magnitude of impact on SPY is about half of QQQ given underlying SPY market cap is ~$60T compared to QQQ’s ~$30T. This means its up to a 4-6% in each company’s weight. Despite it being a smaller effect, the size of assets tied to the index is drastically larger. There is an estimated ~$15T in total assets tracking or benchmarked to the S&P 500, with ~$700B in SPY alone compared to QQQ’s $400B. This is a whole market moving event!

It’s never a good thing to overstretch ($STRC).

1. I’ve been writing about the Strategy capital structure over the last few weeks but want to expand on it.

2. The "blow up risk" framing for MSTR misses the point. It's not an Enron overnight implosion - the capital structure doesn't work that way. The real risk is death by dilution. With the stock -75% from its highs, I’m surprised this is still controversial. They're already diluting common stock ~3% annually to service debt interest and pref dividends. If they issue another $10-15B of STRC that rises to 5-7%. Permanently instituting a 5-7% annual dilution rate to your common equity strikes me as a poor strategic decision and I imagine the company’s corporate finance team is well aware of these risks.

3. While most are focusing on the success of STRC and its growth, which can likely be attributed to the company’s tried and true strategy of dumping on retail (see -75% performance of MSTR from its peak). Most recently their CEO was on a Bitcoin podcast saying this is a great savings vehicle for people living paycheck to paycheck, comparing this preferred stock to a bank account. This is on top of the company’s frequent disingenuous ads. Even if the immediate term demand from unsophisticated investors is there, maxing it out increases dilution strain and adds risk to the capital structure.

4. What do you notice about this picture? One of these instruments is sold to retail and the rest are sold to institutions. I’ll leave it to you to see which one has grown the largest and guess why.

   

5. The moral of the story is they’re reaching a point where STRC is tapped out and that is one less tool available to acquire more Bitcoin. MSTR common equity is already largely tapped and the unsecured credit markets are also unlikely available. From here, the remaining tool would be to encumber their Bitcoin holdings to issue secured debt against it and further lever the company up. The problem with this is that it adds even more pressure to their annual interest and dividend burden as that debt would come with a cost. It also removes a lot of future financing flexibility if they were ever to get into a bind. I would think they’d save this lever as a last resort rather than empty those bullets now.

6. Assuming they don’t go the secured debt route, the only real way to increase their financing capacity to buy more Bitcoin is if the price of Bitcoin itself materially rises. Obviously an expanding MSTR premium to NAV also would suffice but that is unlikely to happen without the former. You can see how reflexive this all is.

7. With Microstrategy soon to be out of the market, and a Bitcoin price increase the only real way for them to come back, they will need someone else to carry the burden of bidding the asset from here. Given the company is levered, all of its financial and balance sheet health metrics worsen if Bitcoin does not stay elevated. The situation to be weary of is one where BTC trades into the low 50s, and the annual interest and dividend dilution burden on MSTR rises to 4-8%. Let’s say the price of STRC then also falls and they have to further increase the dividend rate and the MSTR dilution along with it. This is where a prolonged period of BTC weakness starts to create a material drag and negative bleed spiral on MSTR. This will create a direct conflict between STRC and MSTR holders because the trade off will be to either let MSTR dilution run rampant or cut the STRC dividend rate and impair the pref holders. Again - neither are “blow up risk” in an immediate evaporation sense, but rather a long-term demise for MSTR holders, which shouldn’t be controversial given that’s exactly been what’s going on since late 2024.

8. Back in November 2024 when I happened to get lucky and call the intergalactic MSTR to almost the hour, someone asked me to explain how it works and I made this meme. It’s funny how well this simple picture describes every new ‘financial innovation’ that Saylor drums up.

9. I find it a discouraging sign that BTC is flat to the S&P 500 over the last month. Given it has been trading with a lot more downside over the past bunch of months, I still don’t think it’s an interesting long. I believe we’re at or near peak short squeeze / animal spirits locally and when you combine that with Saylor jamming into BTC hard ahead of STRC’s ex-dividend date, I’m unimpressed that it’s only flat to S&P 500 in the last month.

While I’m at it, might as well cover my quick thoughts on $BMNR, ETH, SOL and HYPE.

1. BMNR’s rate of ETH purchase (and equity sales) have nearly doubled since early February. This has weighed on the company’s premium to NAV (green line).

   

   

2. Some data provider dashboards show BMNR’s premium to NAV as closer to 0.9, others show it still above 1.0. My calculations have it just crossing below 1.0 this week.

   

3. Moral of the story here is that unless a second wind arrives, Tom Lee is also going to be sidelined for awhile or at least be forced to retreat from the recent level of buying.

4. From the early Feb lows, the four majors have largely been trading in lockstep.

   

5. SOL has been the noticeable laggard. I’m not really sure what’s going on here. Maybe it has something to do with the large hack of one of its major exchanges but I don’t know.

   

6. HYPE has been the best performer and most interesting out of the 4 majors. Despite declining revenues and open interest since last summer, it’s garnered a lot of attention around its traditional asset trading, especially on volatile weekends with war headlines and oil moves. I will be interested in watching its revenue profile over time to see if it can diversify away from crypto because as of now it appears to be still heavily reliant on crypto prices doing well. Their CEO was recently featured on a magazine cover. It’s a great product and one of the few success stories in crypto from the last 18 months. I’m struggling to wrap my head around its valuation at $43B (or $11B circulating). It’s been difficult to get a straight answer around unlocks from people closer to the project than me. Robinhood trades ~$75B, Nasdaq trades ~$50B and Coinbase ~$40B.

   

   

Trump admin policy agenda.

1. When I objectively analyze the aggregate of Trump’s economic agenda, it is quite the mixed bag. On the one hand, there are countless pro-growth measures ranging from financial and energy deregulation, OBBB tax incentives and easing pressure on monetary policy and financial conditions.

2. On the other hand, there are also many blatantly anti-growth measures like ending immigration, tariffs and slowing global trade, reducing government spending and starting a war that leads to an oil price/supply shock.

3. The current tallying up of results is showing a 30 year bond yield at the same level as January 2025 inauguration (the 10 year is ~20-30 bps lower). I would rate the anti-growth measures as stronger and more immediate than the pro-growth measures which take longer to work through, but yet bond yields aren’t showing much progress nor a bid for safety. I attribute that to the fact that government spending is still at long-term problematic levels.

4. I don’t have many answers for you on this one but the point of the section is to more so amplify this idea that you don’t hear much about. Many of the administration’s largest policy changes thus far have weighed significantly on economic growth. These measures have worked to dampen growth and keep a lid on bond yields in the short-term. The cost has largely been borne by middle and low income workers and young new entrants to the workforce who are facing some of the worst labor market conditions in decades. The beneficiaries have been the mega cap tech and AI sectors and wealthy Americans who benefit from the uneven monetary policy and rising asset prices as a result of loose financial conditions. Over the long-term, this is unsustainable, but it remains to be seen when it reverses in the interim.

The dollar has structural problems.

1. When you compare the 2022 oil price spike with 2026’s, the oil price increase has been greater while the rise in the dollar has been smaller. That said, a lot of the dollar’s rise in 2022 came after oil put in its highs. Locally I expect the dollar to bounce here, but I also don’t want to long-term fight the administration’s stated priorities of targeting a weaker dollar when other data points also align.

   

2. I believe this weight on the dollar has to do with the imbalance in the net international investment position as foreign capital is crowded into US assets.

3. Ignoring everything else and simply evaluating how global bond and currency markets are trading, the tape is telling me that policymakers and the powers that be are content choosing to sacrifice the currency to keep a floor under nominal equity prices and a lid on bond yields. This is nothing new.

4. Why my antennas are raised now though is because we have a +60% rise in front month oil (+30% in December contracts) since January 1st. The disinflation from 2025 has reversed back towards inflation. Suppressing bond yields and supporting stock prices loosens financial conditions and the economy and increases the chances that inflation is stickier for longer. I think this is going to be a very important concept for successful trading over the coming months.

5. This week I have reloaded on gold and metals longs as a result. With midterms now only 7 months away and campaigning to start picking up over the next month or two, I don’t really see how the inflation genie gets stuffed back in the bottle. At this point all I see is a ‘pretend and extend’ approach by the administration which will make matters worse down the road.

Have a great week!

Dissecting The Taco

1. The timing of Trump’s Tuesday night announcement outside of regular market hours during low liquidity was deliberate to exacerbate the short squeeze

2. Trump’s high risk tolerance has been demonstrated again, as well as his ability to influence markets in the short-term

   1. This is likely to once again boost his confidence

   2. Despite this being a mixed bag outcome at best, loss at worst

3. Midterm odds, polls & approval ratings likely drove this pivot more than markets

   1. That could give clues as to how he prioritizes markets later in the year

4. The market can start to get back to caring about the macro more broadly versus just war headlines - the problem is it isn’t a pretty picture

   1. Expect a better buying opportunity over the coming weeks

   2. Oddly similar setup to 2025 with April risk off into May China meeting

5. Lots of opportunity out there

   1. Focus on assets with strongest views

   2. Take notes of material observations in aftermath of the taco, both strength and weakness

   3. Stay nimble, emotionally balanced and unattached

Macro Outlook and Actionable Expressions

Labor market is weakening and will weigh (albeit slowly) on consumer. Consumption remains stable as savings rates are falling and households are increasingly utilizing wealth to maintain rate of expenditures. This is an unstable equilibrium however. The likely path is a continued deterioration of the job market as unevenly restrictive monetary policy constricts main street and small businesses, inflationary ripple of the oil shock creates demand destruction and AI advancements continue to eat into white collar workforce. All that said, more rapid job losses and concerns over the labor market may not surface until the second half of the year.

1. History says we need multiple consecutive months of decidedly negative job growth (losses) in the order of <50,000+ in order to catalyze another bout of consistent cutting.

2. This implies a continued headwind on the credit markets and that you should be looking to sell credit risk, not buy it. Financials are a very interesting short category here particularly given no real bodies or contagion have surfaced from the private credit implosion. Likely some money to be made here.

3. No one should be surprised if we do end up getting 1-2 cuts without a big market dump given the midterm election year under a Trump strong armed FOMC. However, even if that were to occur, there will be no visibility into it ahead of Warsh’s first FOMC meeting mid-June. This leaves a window of vulnerability, at least, leading into that, and very possibly beyond it given the risk that Warsh will not want to lose credibility and immediately cater to Trump’s demands.

The liquidity picture is weak as the inflation outlook has materially worsened. The Fed is doing ~$40B/month RMP (aka ~$500B/year of QE) which helps bolster front end liquidity but this is set to decline after tax day as per recent FOMC minutes. The continued heavy Treasury supply as a result of the fiscal deficit problem and Fed balance sheet duration tightening keeps a floor under long-term yields.

1. The steepener trade is approaching attractive entries. We see the current 10y-3m yield curve as a long that risks 15 bps to make 45 bps. We will be watching this closely over the coming weeks for buying opportunities via long SOFR futures and short bond futures.

   

2. What many see as “cycle highs” in yield curve steepness that could mean revert lower, we see as going back to a normally sloped yield curve. See the same chart below, zoomed out.

   

Fed Fund futures are trading in a tight range given heightened uncertainty as they await Warsh’s nomination approval, Powell’s next steps and Iran War resolutions.

1. ~35% chance of at least 1 rate cut by December 9 FOMC

   

2. Like to focus on October 28 FOMC as that is the date where peak rate cut pressure culminates ahead of midterms. The current market pricing of a 20% chance of at least one cut by then actually seems fairly reasonable. More than one cut will require more material equity market weakness. It’s also important to keep in mind the risk that (albeit small) policymaker intervention is focused on the back end and continues to handcuff the Fed.

3. Given the upcoming inflation outlook is likely to be ugly, there is a reasonable case to be made that we see better entries on SOFR futures. Z6 entries below 96.35 create a strong asymmetric upside opportunity with little downside given hikes are extremely unlikely.

   

4. The optimal entries should come when equities are still trading well but inflation is surprising to the upside.

Tuesday, November 3 (US midterm elections) should serve as your event horizon north star.

1. The stakes couldn’t be higher and the direction of travel remains highly unfavorable for incumbents. This REQUIRES action.

   

2. What action exactly? Look to a combination of 1) historical incumbent policymaker approaches and 2) current direction of populist and societal winds. The simplest of these appear in the form of fiscal stimulus and handouts targeted at the middle class that juice the economy and “solve the affordability crisis”.

3. Because of this backdrop and expected behavioral patterns, there should be a prioritization given to 1) goods and services inflation protection, 2) monetary debasement and 3) fading the likelihood of a nominal recession. From an investment perspective, this looks like 1) industrial and operational commodities like metals and energy, 2) gold and 3) entering cyclically sensitive trades at attractive entries. The latter goes against the first point on a weakening labor market. Given this, in addition to historically elevated valuation multiples and credit market concerns, more care needs to be taken when expressing this view in the equity market.

The Iran War couldn’t be more complex, but the simplicity as to what to do about it from an investment perspective is screaming at me.

1. If I knew nothing about oil and simply looked at this chart, I’d be $75 bid all day long if price came back down to retest the breakout level which aligns with a 20 year support/resistance area while the moving averages all are curling up to catch it.

   

2. On a shorter-term daily chart, buying $75 looks like a fantastic way to risk $5 down to $70 to make $25 on a return to $100. I’m taking that bet every day of the week.

   

3. And now what if I said that you can actually take this trade today with a December 2026, March or June 2027 expiry with $72, $70 and $69 entries, respectively.

   

4. Why this makes sense?

   1. Multi-month to multi-year demand destruction across Middle East from Iran

   2. Perpetual Strait of Hormuz tolling at worst, 6-12 month stop/start environment until lasting resolution at best

   3. Global policymaker response of relief , price caps, and strategic reserve drainage helps the trade by lowering near-term oil prices, supporting the economy and future demand while requiring reserves to be refilled in the future

   4. Structural increase to scarcity premium applied to critical resources

   5. Free call option on direct reheating of geopolitical tensions

   6. US crude oil rig count remains negative YTD as severe backwardation has not been enough to stimulate production increases

What brings down the AI trade?

1. It’s likely we are either fully or partially in an AI productivity boom and it is a national security, technological innovation and strategic priority from the administration to try to maintain that. This secular tailwind has made Mag7, semiconductors and AI adjacent trades a safe haven for investors over the last 3 years. In a world that many might view as ‘increasingly going to shit’, this flight to safety may persist into early summer.

2. There is likely to be a point in time over the next 3-9 months where job losses (AI related or not) are causing enough problems in the economy whereby policy reaction function may reverse from recent historical precedent of supporting AI expansion at all costs. This timing also aligns with when broader macro conditions no longer work in the favor of the AI trade and fiscal and monetary policy response is also likely to be more supportive of other sectors and asset classes. This less favorable environment looks like a steeper yield curve and policy responses to help main street and small businesses over large corporations.

3. Said another way, there’s a world where the advancements of AI sew the seeds of its (share price) declines. This should come as a surprise to no one because 1) semiconductors are one of history’s most cyclical industries and 2) that’s how cycles work. Demand brings supply, profits bring competition, and together increased supply and competition increase input costs and reduce margins, negatively affecting forward revenue growth and earnings expectations and thus share prices.

The winners for the remainder of the year will sit at the intersection of multiple, high priority strategic interests

1. Geographic beneficiaries: Latam, Venezuela, Cuba, Greenland

2. Critical resource security: Industrial and scarce metals

3. Defense tech: Drones, space, autonomous

4. Power grid resilience and AI capex raw inputs: Oil and gas, uranium, power generation, related inputs

5. Inflation and debasement protection and anti-nominal recession: Gold, cyclicals, avoid bonds

Navigating the Near-Term

1. Expect a swing long opportunity for risk assets in the next 2-4 weeks - focus on winners and assets still in bull market uptrends, not bear market bounces

2. Trump-Xi meeting May 14-15 likely to be a ‘great success’

3. Powell’s last FOMC meeting is April 29th and Warsh’s first meeting is June 17. Are we setting up for a buy Powell’s departure and sell Warsh’s arrival?

   

4. Liquidity and growth outlook materially worsen from June to August, which aligns with historical midterm seasonality

   

Hope everyone has a great weekend and that it resembles this guy as much as possible.

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

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