Capital Flows: Macro Reports

Credit Cycle Playbook: Stagflation vs Melt Up

Capital Flows — Mon, 13 Apr 2026 03:43:24 GMT

Credit Cycle Playbook: Stagflation vs Melt Up

Credit cycles are path-dependent. The sequence of shocks matters more than any individual data point, because each disruption forces the underlying balance sheet of the system into the open. What was obscured becomes legible. What was priced as stable becomes re-evaluated.

The geopolitical shock currently moving through the system is not a distraction from the credit cycle. It is the mechanism by which the next phase of it becomes visible. The injection of liquidity and credit across the global economy over the past several years did not stay contained within national borders. It moved through cross-border flows, altered sovereign balance sheets, and is now being actively weaponized by economies positioning themselves against the United States in a contest that is fundamentally about technological dominance. Those flows are not discretionary. They are mechanical. And when the purchasing power calculus shifts, whether through nominal or real purchasing power changes, investors on the risk curve do not choose to reposition. They are forced to.

That is the period of time we are living through. This playbook traces the logic of it.

(As a reminder, I am doing a livestream every day at 8:30am MST to build the entire framework incrementally so you can have clarity about WHAT is happening and WHERE we are going. Here is the link for tomorrow morning: LINK)

The Misdirected Narratives About Macro Liquidity:

Geopolitical Endgame and Stagflation

Capital Flows — Tue, 31 Mar 2026 04:30:14 GMT

The Volatile Future:

The post-COVID world we have moved into is one where violent shocks are becoming commonplace. The slow trending markets of the 2010s are becoming a nostalgic memory that growth investors fondly look back upon, where they could just buy tech and get paid without taking any significant volatility. Once you take volatility out of the bottle on a structural basis, you can’t put it back into the jar.

If you are brand new to Capital Flows, my goal is very simple: map the macro regime so that I’m on the right side of it, and find the few large, asymmetric bets that become home run trades.

This report is very straightforward and has two things:

First, a video breakdown of the current macro regime, how to think about the pull back in the S&P500, and how it connects to the larger geopolitical context.
Second, a breakdown of WHERE the dollar is going and the current drivers that have caused a significant whipsaw in positioning YTD.

I have been laying out the larger geopolitical context for years now on how China and the US are at odds, and these proxy conflicts will keep coming up until an ultimate endgame resolution is found. I would strongly encourage you to watch the video and go through the connected slide on this here:

Today’s video:

In this video, I break down the previous macro report on the risks of a global recession (link) and then walk through the drawdown playbook as well as the macro regime dashboard. You can find both of these as PDFs below.

PDFs from video:

Capital Flows Drawdown Study 20260330 (6)

2.62MB ∙ PDF file

Download

Regime Dashboard (6)

38.2MB ∙ PDF file

Download

Agentic Models: (side quest)

A few weeks ago, I did a video on how I use multi-agents to run various parts of my research process for identifying trade ideas. If you want to build something like this with Claude code, I have put together an entire instruction guide here with plug-and-play code.

Ai Arena Build Guide

20.9KB ∙ PDF file

Download

If you want to connect these larger geopolitical and macro flows with the changes we are seeing in the dollar, the report below breaks down all of the drivers in the dollar.

The dollar is the pure reflection of these flows:

Has the Global Recession Begun?

Capital Flows — Mon, 30 Mar 2026 03:33:02 GMT

This report is not an explicit prediction. It is an attempt to explain what it would look like if the current energy shock were to metastasize into a global recession, one that reverberates through the financial system in a manner that has no clean precedent. There is a difference between those two things, and that difference is the whole point.

To be clear, I do not think this is going to happen. And I will confess I am not among the clever ones who spent the last month long oil and short equities, nursing that position like a grievance until it paid. My largest exposure has been in the Hyperliquid ecosystem (link and link), which has quietly benefited from the geopolitical volatility and sits as one of the few assets up year to date, while Mag7 and Bitcoin are both in the red. I raise it only because the most dangerous thing in markets is a framework built backwards from a position.

The Architecture Assumes It

A supply shock is one of the few economic events that breaks the normal rules. In most environments, growth and inflation move together: the economy runs hot, and prices rise, or it cools, and they fall. Policy is designed around that relationship. The entire architecture of modern central banking assumes it.

What do we hear from the Fed? “Our dual mandate is maximum employment and stable prices.”

The dual mandate assumes growth and inflation are allies. In three of four regimes, they are. In one, they become adversaries, and the mandate stops being a policy tool and starts being a cage.

That cage is not theoretical. Since the late 1990s, stagflationary pricing has appeared in markets less than 10% of the time. It is the rarest regime in the table below, and it carries the worst return profile for the assets most people are holding.

This is exactly the moment we are in right now. The reason volatility is so elevated, and the reason people are so afraid, is not that a recession is certain. It is that we are in the one regime where the Fed cannot do anything about it without making something else worse.

The Transmission Chain

The chart below shows nominal and real spending on food and energy components of the economy. In dollar terms and quantity terms, it shows how much the American consumer is actually spending versus how much they are being charged. When growth and inflation rise together, higher prices do not immediately destroy demand. People absorb them. They grumble, they ask for raises, and they keep spending. That is what happened in 2022, and it is why the Fed was able to hike into that environment without triggering an immediate collapse. Real spending was running at nearly 8% year over year. The economy could take the punch.

We are now sitting at roughly 2% year over year real spending (vs. 8% when the last energy shock happened in 2022).

In 2022, the Fed hiked into an economy with enough momentum to absorb tighter financial conditions. Today, the cushion is gone. If another inflation impulse arrives now, through the food CPI lag that historically follows an energy shock by three to six months, the Fed faces a policy environment with no clean exit. Hike into 2% real spending and you risk cracking the consumer entirely. Hold and watch inflation re-accelerate, and you confirm the cage.

The Atlanta Fed GDPNowcast just crossed below 2%.

The Geopolitical Layer

There is a version of this analysis that stops at the commodity price. Oil is up, input costs rise, central banks are constrained, growth slows. That is a complete enough framework for a lot of portfolios. But it is worth at least acknowledging that the energy shock does not exist in a vacuum.

The United States has spent the better part of two years systematically closing off the channels through which China was accessing discounted energy — Iranian crude, Venezuelan crude, both flowing through shadow networks at well below market rates. Whether Operation Epic Fury was designed with that strategic dimension in mind or whether it simply accelerated an outcome already in motion is a question above my pay grade. What I can observe is the structure of what is happening around it.

The headlines about Jared Kushner operating simultaneously as Trump’s chief negotiator in the Middle East and as a fundraiser seeking $5 billion from Gulf sovereign wealth funds — the same funds belonging to governments he is negotiating with — have been framed almost entirely as an ethics story. I am less interested in the ethics question than in what the behavior reveals about the underlying logic. Kushner is not an idiot, and the people around him are not improvising. When the dealmaking layer is this active this fast, it tells you something about how this administration understands the relationship between military action, economic leverage, and capital flows. Trump is not swinging from the hip. There is a sequence being worked.

For our purposes, the relevant point is narrower: the oil shock is not a random weather event. It has authors and beneficiaries. That matters for how you think about its duration and the policy response to it.

Recession as Strategic Vulnerability

The standard recession framework is economic. Output contracts, unemployment rises, and central banks respond. The framework I want to use here is different. It takes the geopolitical incentive structure seriously alongside the economic one.

A recession is not just an economic condition. It is a shift in the balance of negotiating power between states.

The mechanism is straightforward. A country in recession faces a simultaneous compression of fiscal space, political capital, and external credibility. Its government cannot commit resources it does not have. Its central bank cannot normalize policy without worsening the contraction. Its negotiating counterparties — in trade, in security, in capital markets — know all of this, and they price it into the terms they offer.

The country that avoids the recession, or even just avoids it longer, sits on the other side of that equation. It gets to set terms. It attracts the capital flows that fled the contracting economy. It accumulates the strategic leverage that the other side had to spend down just to stay solvent.

This is not a novel insight. It is the oldest logic in statecraft. What makes the current moment unusual is that the mechanism is running in an environment where the central banks of the major importing economies are already constrained by the cage we described earlier.

The G10 is not a uniform block in this environment. It is structurally divided by energy position. The United States, Canada, and Norway produce more oil than they consume. When the crude price rises, their energy sectors expand, and their central banks face a domestically different inflation profile than the countries on the other side of the ledger. Japan, the United Kingdom, Germany, France, Italy, and most of the eurozone are net importers. Every dollar move in the crude price transmits directly into their input costs, their trade balances, and their headline CPI. They are short oil in a world where oil is being used as a geopolitical instrument.

The cage lands differently on each side. A net exporter facing stagflationary pressure globally still has a revenue cushion and energy sector employment to absorb the shock. A net importer facing the same pressure gets the inflation without the offsetting income. Their central banks cannot stimulate freely because inflation has not cleared. They cannot tighten further because growth is already fragile. The constraint, structurally speaking, bears differently on the net importers than it does on Washington.

Geopolitical, economic, and central bank constraints — and the incentives running through each

At the geopolitical level, the relevant frame is not competition between the importing economies. It is the relationship between the importing economies and the powers that benefit when they weaken. A country in recession becomes a more accommodating trading partner, a less credible security guarantor, and a more attractive target for the kind of patient, long-duration influence that China in particular has demonstrated it is willing to deploy. China does not need to attack a weakening economy. It needs only to wait, offer financing, lock in supply relationships, and extract the kind of structural dependencies that are only available to a counterparty negotiating from strength into weakness. Recession is the condition that makes that possible. Avoiding it is therefore not just an economic objective — it is a strategic one. Every government in the net-importer bloc understands this, even if they do not say it in those terms.

At the economic level, the incentive is to buy time before the growth deterioration forces a more disorderly response. Supply agreements lock in input costs before the next inflation print arrives. Investment pledges attract capital flows that would otherwise price the contraction risk and leave. Trade arrangements substitute for price mechanisms that have been disrupted. None of these are clean solutions. All of them are preferable to the alternative, which is arriving at the negotiating table in a recession.

At the central bank level, the constraint is the most visible and the least tractable. Cutting into inflation that has not cleared risks embedding it further. Holding while growth deteriorates risks a demand collapse that makes the next easing cycle far more costly. The added complication for the net importers is that their inflation profile is partly a function of what the Fed does regardless of their own stance — their currencies move against the dollar as rate differentials shift, which means the cage tightens or loosens partly based on decisions made in Washington, not in Frankfurt or Tokyo or London.

What the framework above describes, taken together, is an environment where the standard central bank reaction function is broken, where governments are substituting fiscal and diplomatic action for monetary policy, and where the capital flows that result are not being driven by yield differentials alone. They are being driven by which economies are successfully escaping the constraint and which are not. That distinction — who is in the cage and who has found a way out — shows up in FX first. It is the market that prices the gap between where policy needs to go and where it is actually permitted to go. And in an environment where that gap is widening across the major importing economies simultaneously, cross-border positioning is not a secondary question. It is the primary one.

Pulling All The Pieces Together:

The question worth sitting with is not whether a recession is coming. It is whether the governments and central banks of the major importing economies will permit one. The last time a demand shock of this magnitude created an opening, China used it. The 2020 recession was the moment China cemented its position as the dominant exporter of goods. That foothold was not taken by force. It was taken because everyone else was managing a crisis, and China was managing a strategy.

Chart from Brad Setser

The central banks facing the cage today know this history. Which means the more interesting question is not whether they will hike into a supply shock and risk a recession. It is whether they will quietly allow liquidity conditions to loosen — tolerating financial asset inflation, letting valuations run — rather than accept the political and strategic cost of contraction. The equity valuation chart above is one way of reading that choice. Markets may already be pricing the answer.

I believe that once consensus and all of the economic talking heads on the news realise they’re missing the forest for the trees, there will be a violent change in markets that shakes FX and rates first and then reverberates into an aggressive chase into gold and silver as the inaction by central bankers speaks louder than any rhetoric games they can play at press conferences.

I believe we are entering the final innings of the endgame for both the macro picture and geopolitical stage.

Tomorrow, Part 2. FX and rates are the instruments that price the constraints and incentives we laid out here. The premiums and discounts embedded in those markets are the clearest read we have on which economies the world believes are escaping the cage and which are not. That is where we are going next.

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The Trade Everyone Got Wrong (And What Comes Next)

Capital Flows — Mon, 23 Mar 2026 18:32:43 GMT

The Trade Everyone Got Wrong (And What Comes Next)

I recorded a video breaking down the macro view you need right now.

Crude went from $70 to $120 in days. The rate cut consensus that the entire market was positioned around got wiped out in a week. SONIA moved 45 basis points. EURIBOR flipped from pricing cuts to pricing hikes. The Fed is frozen.

Most of what you’re reading right now is explaining the oil move. That is not the analysis. The analysis is understanding how that move travels through a system that was built for the exact opposite regime, and finding the nodes that haven’t priced it yet.

Watch the video first. Then come back, because below it I’m going to show you exactly how I’m mapping the risk-reward across equities, rates, and crude using the agentic research system I’ve been building.

Positioning Risks and Mechanics:

The Credit Cycle and AI Are Sowing The Seeds Of Risk

Capital Flows — Tue, 03 Mar 2026 00:10:44 GMT

The rules are changing.

When the balance sheet and income statement of the largest economy on earth become cross-collateralized with how AI and global trade unfold together, the way that people thought the world always worked begins to shift. Everyone assumes it’s just a temporary disruption that will mean-revert, and they slap the “nothing ever happens” sticker on it.

This is not a temporary disruption. The rules of the game are shifting at the structural level. AI is simultaneously displacing service-sector labor, enabling autonomous manufacturing, attracting hundreds of billions in credit issuance at the tightest spreads in a generation, and pulling the largest foreign capital inflows into US equities in history. These are not separate stories happening in parallel. They are one integrated system, and the transmission mechanism that links them all is the credit cycle.

Foreign direct investment in the US (white) is at a historic high at the same time the current account (how much the US imports vs exports) is at a historic low. The simple point here is that everyone has taken the dollars they’ve gotten from trade and invested them in US equities.

The capital flows from foreigners have flowed directly into the AI theme, which has pushed US equity markets to the highest valuations in history.

The problem is that as capital flows into AI-related themes, AI is rebalancing the entire labor market and trade, which are themselves the two largest sources of capital supporting these valuations. Notice here that the information technology and financial services sectors have been contracting in their share of the labor market growth, while sectors like construction are rising.

This is playing out in the public markets right now as all of the companies with the highest sensitivity to the power portions of the AI supply chain are benefiting the most, while names in the fintech and information space are getting hammered.

The more important thing to note on the public market side is that the entire earnings yield for Mag7 is negative relative to the S&P 500 Ex Mag7.

This is why the SPY/RSP ratio has been collapsing, because the earnings yield differentials are fairly extreme right now.

The implication BEHIND these moving parts is that the underlying factors are converging and cross-collateralizing in new ways.

So what rules are changing and how does this connect to the credit cycle?

There has been a very simple accounting mechanism that supported the flows into markets over the last 20 years:

Passive flows come from the incomes of everyday people. As people make more income, some of this goes into 401ks and this capital indiscriminately buys the index. It’s an amazing source of liquidity into the greatest companies in the world
Cross-border flows from foreigners. When another country wants to do business with people in the US, they give them goods or services for dollars. If I want to import a bunch of clothes to resell, I need to calculate how much it would cost for me to produce them, and as long as I can import them cheaper than making them here in the US, I give dollars to foreigners who make my goods for me. Here is the thing though: those foreigners who have those dollars end up with A TON left over that they need to put into dollar-denominated assets. So foreigners buy bonds and stocks, which they have been doing for decades ever since globalization exploded. The problem is: what begins to happen when my goods become exponentially cheaper to produce in the United States? I begin to invest in a manufacturing facility here and then begin producing here. In the past, this would mean more manufacturing jobs would get added to the United States, but the problem now is: what if I switch from importing goods to manufacturing them in the United States with robotics supercharged with AI? The foreigners will no longer have the surplus of dollars to funnel into US equities, and I’m not hiring new people who will get income and have part of their income go into passive flows.

So in many ways, the efficiency from AI is sowing the seed for a significant risk. This is why I think the recent clip by Friedberg was so good in touching on the meta behind this larger issue. If you are driving productivity, will we end up having way more stuff than we consume? And then if we shift to a new type of system, will this begin to change HOW capital flows through the system for the channels of macro liquidity and credit?

https://x.com/theallinpod/status/2028504746303054039?s=20

You can see that the presence of AI is in many ways sowing the seeds for dramatic change in a very fragile system. When you churn the entire labor market and shock the system of global trade with geopolitical events, as equities are at all-time highs, it brings into question: WHO is going to be the marginal buyer of equities moving forward?

If the United States is facing these risks, every other country is facing even GREATER risks, especially given how complacent foreigners have become with hedging their FX risk (see the report I wrote here on this risk: LINK)

My entire point here is NOT to say we are moving into an imminent market correction. On the contrary, I believe the fall in real rates will continue after Kevin Warsh becomes the next Fed chair, and the amount of complacency we are seeing in positioning is way too bearish for me to begin betting on the beginning of a bear market.

See the report I wrote on this, linked below

When you have volatility blown out this much in crude and the software sector (IGV) relative to the broad equal-weighted index of the market (orange), it shows how much risk premia exists in the market.

The current earnings yield of the software sector has made a massive deviation away from the earnings yield of the S&P 500 and is functionally pricing in the same level of risk that we saw in 2022 when everyone thought we were going to go into an imminent recession.

The best part about this is that people are only just beginning to realize that the data all these software companies have is going to become the new form of oil in the world we are moving into. Larry Ellison had a great clip on this where he talked about this fact:

https://x.com/Globalflows/status/2028505267810492898?s=20

It is literally insane that the market is pricing default risk HIGHER than 2022 in names like Oracle, which are positioning themselves to be the primary beneficiary of the disruption AI is causing. I firmly believe that in the same way consensus was wrong in 2022 that a recession would materialize and crash the stock market further, we will see people begin to realize the absurdity of “software” being dead and we will move into a new narrative where “data is the new oil.”

See my report on Oracle here:

I will leave you with this final point. Ever since we entered the new era of social media converging with markets in 2020, there has been an excessive and reductionistic focus on recession. The story count for “deflation” and “recession” is now at an elevated level relative to history. There is so much focus on fear, which only clouds people’s judgment.

During this period of excessive fear-mongering, we continued to see equities resume higher after any marginal stress occurred in credit spreads. The Covid crash, tariff shock, and 2022 bear market were the most aggressive drawdowns, but even those turned positive on a short-term horizon.

Focus on the disrupters in the market, because when dispersion and rotation occur, taking advantage of these opportunities is the primary way to generate exceptional returns.

I laid out all my current market views here:

Geopolitical Risk and AI Risk Converging

Capital Flows — Mon, 02 Mar 2026 04:00:01 GMT

Big Picture Summary:

I want to start by summarizing the views and resources I have laid out, and then I am going to jump right into the analysis for flows this week.

First, I laid out my initial macro view and update of the geopolitical situation here. I also showed the new AI tool I am using to map situations.

As a reminder, you can download and save all of the TradingView indicators here (full educational list: Link):

Here is the geopolitical risk assessment I find helpful:

Arena Brief 2026 03 01

88.7KB ∙ PDF file

Download

I put my broad views for this week here:

If we don’t get the tail scenario, there is a lot of premium in crude right now that could get unwound (more on this below)

Finally, my entire thesis on AI, Hyperliquid, and Oracle is all here:

Now let’s dig into the actual flows.

Geopolitical Risk and AI Risk Converging:

The AI Reflexivity Loop (this moment will define you)

Capital Flows — Sat, 21 Feb 2026 05:12:44 GMT

The AI Reflexivity Loop (Video Breakdown)

We are standing inside the biggest technological shift in human history. Not approaching it. Inside it.

Most people are watching from the sidelines, consuming headlines about AI without any framework for how the pieces fit together. They see the noise but can’t hear the signal. That gap is where fortunes are made and destroyed.

Today I’m closing that gap. I built a 79-slide presentation that maps the entire AI ecosystem from first principles. By the end, you will have:

A framework that organizes all of AI into 3 simple buckets and shows how each one feeds the others
A direct line from those buckets to GDP growth
A company-by-company map of who is winning, who is losing, and why
The specific signals to watch so you know when the regime is shifting

You are either going to be a disruptor or you are going to be disrupted. There is no middle ground. The only thing that separates those two outcomes is whether you choose to understand what’s actually happening.

Full Video Breakdown

I’d encourage you to watch this in full. The structure builds on itself deliberately, and the final sections are where the real edge lives.

The Slide Deck

For those who want to move through the material at your own pace, reference specific charts, or share sections with your team, the full 79-slide deck is linked below.

This is the same presentation from the video above. Use it as a companion resource or a standalone reference. Every chart, every framework, every company map is in here.

Ai Slide Deck

2.62MB ∙ PDF file

Download

The Four AI Trading and Business Playbooks

The video and slide deck give you the architecture. These four reports give you the depth.

Each one takes a specific layer of the AI ecosystem and maps it in granular detail: the supply chains, the unit economics, the competitive positioning, the inflection points most analysts are still missing.

If you’re serious about not just understanding this shift but positioning ahead of it, these are the resources that let you go from framework to execution.

The Complete Ai Value Chain A Trading Playbook For 2026 2027

722KB ∙ PDF file

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The Ai Disruption Map

568KB ∙ PDF file

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Global Ai Ecosystem

652KB ∙ PDF file

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The Complete Ai Ecosystem Supply Chain Matrix

935KB ∙ PDF file

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Monday Live: From Framework to Actionable Positioning

AI Livestream on Monday, February 23 at 1:30 PM ET

This Monday, I’m going live to break down the macro data points confirming or challenging the thesis in real time.

I’m also going to be releasing proprietary models I have never shared before that display the technical dynamics across this entire space, on both a macro and individual stock basis.

Only the people who show up to the livestream will get these models! Be there!

The livestream will be at this YouTube link (be sure to save this!)

Be the disruptor or be disrupted.

The Economy is Splitting in Two: How to Trade the Rotation

Capital Flows — Tue, 17 Feb 2026 21:41:30 GMT

The Economy is Splitting in Two: How to Trade the Rotation

The video below walks through the macro split that’s defining every market right now. Below, I break down the specific macro drivers and signals you want to be watching in order to understand WHY things are moving and WHERE we are likely to move:

Connected Slide deck from video:

The Economy Is Splitting In Two How To Trade The Rotation

2.19MB ∙ PDF file

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All of the educational resources and free models can be found here: LINK

Below is the in-depth report for paid subscribers, further breaking down the specifics in the macro regime, HOW to quantify them, the exact models to use for measuring the regime, and trading implications.

Major Macro Changes: Main Ideas

I Went Through Every Chart On The Credit Cycle – This Won’t End Well

Capital Flows — Mon, 26 Jan 2026 21:01:02 GMT

I Went Through Every Chart On The Credit Cycle – This Won’t End Well

The credit cycle is doing exactly what it always does at this stage: compressing a lot of future pain into a narrow window. In this video, I walk through every key chart so you can see why I don’t think this ends well, and what that means for anyone running real risk.

Subscribe now

If you want to study the charts at your own pace, here’s the full slide deck from the video. This is the same framework I use to map where we are in the credit cycle and how it bleeds into rates, spreads, and equities.

I Went Through Every Chart On The Credit Cycle And This Wont End Well

8.33MB ∙ PDF file

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On Wednesday at 11:00 a.m. ET, I’m doing a closed‑door livestream for paid Capital Flows Research subscribers, where I’ll update these charts with the latest data and walk through how I’m actually positioning into this part of the credit cycle.

If you want to see how I’m turning this into concrete rate, credit, and equity decisions in real time, that session is where I’ll lay it out.

CREDIT CYCLE LIVESTREAM DETAILS:

Macro Report: The Collapse

Capital Flows — Fri, 23 Jan 2026 00:29:37 GMT

Macro Report: The Collapse

I have been explaining the extreme imbalance taking place in Japan and HOW it is reverberating across global markets. If you plan to be actively taking risks in Q1, the changes in Japan will impact you.

If you are not up to speed on the context, you should read the in-depth reports as well as the connected videos I recorded. This is the framework for flows moving forward.

If you were a paid subscriber, then you received the message from me explaining the tangible implication, which was EURJPY rallying. This is a trade that is paying while equity rotations continue to chop and crude is figuring out which direction it’s going to take next.

What you need to realize is that when we have currency pairs like AUDJPY and MXNJPY rallying, it is a massive signal about risk-on behavior:

This is why, when we were at the lows in equities earlier this week, I published the equity strategy report explaining that I remained bullish (again, all of the time-sensitive information is sent out exclusively for paid subscribers)

The FX moves are one of the representations we see with liquidity in the system, which is why these pairs against the Yen were leading ES futures multiple times in the session over the last 48 hours.

All of these moves are setting the stage for something much MUCH bigger, though.

The Larger Misconception:

Regime Shift In Japan: The Melt Up Before The Crash

Capital Flows — Fri, 09 Jan 2026 19:48:01 GMT

Regime Shift In Japan: The Melt Up Before The Crash

Everyone got so laser focused on the NFP labor market print this morning that they have completely missed the real driver in markets.

While the NFP print came in below expectations, it only moved hedges around marginally.

The BIGGER piece of news was out of Japan, and it is literally moving global markets and the risk curve across equities in the United States. Over the last 6 months, the situation in Japan has changed dramatically so that it is actually impating global liquidity and risk flows. Today, the news out of Japan is accelerating the entire fiscal impulse.

To give you an idea of HOW LARGE the change has been, here is the budget deficit in Japan right now. When it turns negative, it represents the Japanese government spending MORE than they take in.

As a result, we saw the Nikkei lead the way and outperform the most as ES, CL, and GC all followed. Why is this happening? Because the liquidity changes in Japan impact the entire world.

Japan is the largest foreign holder of US treasuries, which means changes in its country directly impact dollar liquidity in US markets.

A Deeper Look At Liquidity Drivers:

If you want to understand WHY these global changes are taking place and HOW the underlying mechanics inform managing risk, you can watch the recording that I just made for paid subscribers. In the recording, I’ll lay out my full playbook for trading these risks: a deeper breakdown of the underlying drivers, how foreign flows interact with BoJ policy, the key scenarios I’m running, and the concrete ways I’m looking to express these views as the current regime comes under pressure.

The video and connected slide deck are linked below:

Macro Report: Japan’s Policy Is Setting The Stage For The Next Crash

Capital Flows — Thu, 08 Jan 2026 02:33:20 GMT

Macro Report: Japan’s Policy Is Setting The Stage For The Next Crash

I think Japan is sliding into a macro setup that is no longer sustainable. In this note, I lay out the pressures building under the surface and what I’m watching for. If these imbalances start to unwind, I plan to run substantially more risk in Japan this year.

The Coming Storm in Global Carry: Japan’s Pivot and the Flows No One Is Watching

Capital Flows — Fri, 05 Dec 2025 21:14:13 GMT

The Coming Storm in Global Carry: Japan’s Pivot and the Flows No One Is Watching

The global system of trade, capital flows, and crossborder debt has fused into a single, tightly interlocked structure. Over the past two decades, institutions and governments have not only financed each other but have effectively cross-collateralized their balance sheets through currency exposure, offshore dollar borrowing, derivatives, and implicit guarantees.

The result is a world where leverage is shared across borders, where liquidity conditions in one jurisdiction cascade instantly into another, and where the margin of error has narrowed dramatically. Think of a massive ship operated by multiple captains who each have different incentives, different maps, and different agendas. They have taken out debt from one another, stacked cargo far above safe levels, and pushed the vessel into waters that are about to turn violent. When the storm hits, the ship’s stability is determined not by any single captain but by the structural imbalances baked into the vessel itself.

This level of integration means that understanding the global picture is no longer optional. Local shocks now transmit globally through exchange rates, interest rate differentials, offshore funding markets, and derivative exposures. What matters is not just WHO is levered but HOW that leverage is interconnected. Nowhere is this more evident than in Japan, one of the most systemically important players in global finance. Japanese government bonds and the yen sit at the center of an enormous web of carry trades, collateral chains, and duration mismatches. For years, investors have treated Japan as the stable anchor in global markets. In reality, the scale of leverage tied to JGBs and the yen means any structural shift in Japan’s policy stance has the potential to reverberate across every major asset class.

This report will map these risks with clarity and precision. It will explain HOW global flows are shifting, WHY consensus is misreading the signals from JGB yields and the yen, and WHERE some of the largest opportunities are emerging as this misinterpretation widens.

The storm is forming. The objective is to understand the architecture of the ship before the waves hit.

The Structural Flow:

This entire system of global trade is distributed across countries that are either net importers or net exporters. The United States is the largest net IMPORTER in the world (the most red in the map below) while China is the largest net EXPORTER. Every other country falls in between these two countries.

Japan is a net exporter compared to the United States who is a net importer of goods and services. In simple terms, Japan produces more than it consumes, so it ships the surplus (white line moving up) to the United States, which consumes more than it produces (blue line moving down).

Two critical things in the structure of Japan frame HOW it fits into the global system (this will be important to understand for yields and the carry trade):

Japan is the largest foreign holder of US Treasuries. The implication of this is that Japanese financial markets are HIGHLY cross-collateralized with the US Treasury market.

Japan is running a trade deficit with commodity-producing countries because it can’t produce them domestically. In simple terms, it is short commodities.

You will notice that Japan is a net importer of food (blue) and energy (tan)

The net result is that Japan is massively short food and energy. The implication of this is that changes in the currency have a much greater impact on domestic inflation than on countries like the US or China:

This structure of global trade and how Japan fits into it frames the reflexive feedback loop we are seeing taking place between yields, the yen, and domestic inflation.

Reflexivity In Japan:

If you understand Japan’s structural regime along with the current reflexive dynamics in markets, you can see the risks that are accumulating and why consensus is fundamentally misreading the carry trade.

Notice that JGB yields have been rising all year, but only recently have people begun to worry about the Yen carry trade as if the rise in JGB yields creates an imminent risk for the entire system to blow up. The problem with this fear-mongering is that it misinterprets what is actually happening and doesn’t see the opportunity that is actually building.

Main Idea: Japan’s inflation is running well above target, creating upward pressure on long-end yields (notice how large food inflation is). A reflexive loop has formed where a weaker yen is importing more inflation, pushing yields higher and driving the currency even lower.

The idea here is that ever since the BoJ stopped doing yield curve control, the inflation from a weaker currency is GREATER than any pressure that higher yields could put on the economy.

The phrase, “the cure for higher prices is higher prices,” is being felt in real time, and this is where we can connect the import prices vs real imports to the fixed income complex. In the chart below you can see that the 10s30s curve has begun to flatten marginally becuse the higher nominal imports (white) are outpacing real imports (blue). In simple terms, the impulse causing higher yields is fading marginally, which is why 10s30s is flattening. In the pass through mechanism, there is a marginal degree of stagflation as nominal imports run above real imports.

Once 10s30s and 2s10s in JGB yields begin to flatten more, this will likely be an indication that the impulse driving yields higher and the currency lower is beginning to fade.

The biggest misconception about the Yen right now is that the higher yields in Japan are going to push US yields higher but the OPPOSITE is actually taking place as US yields fall against JGB yields (white) and the Yen falls against the dollar. In simple terms, this idea that the Yen is going to blow up and cause US rates to explode higher is misguided.

The key insight and opportunity that exists is HOW this is falling into the larger framework about macro risks that are building.

Macro Risks:

I have been mapping the larger macro risks in the system and how they are all culminating in the endgame with the dollar and geopolitics. You can find the report and the connected video providing an overview here:

You can find the allocation playbook where I map the following here:

Mapping portfolio exposures and where they can actually break
Building a path‑dependent decision tree instead of guessing in real time
Setting concrete signals, models, and a framework for action

And the factor models that will provide a clear view into HOW equities are converging in alignment with macro flows here:

All of this is falling into the much larger geopolitical endgame framework I laid out here:

So how does Japan connect to this? We are seeing the weaker Yen bring in inflation AND more liquidity as the Nikkei earnings yield compresses. In simple terms, liquidity is driving the Nikkei higher, not domestic growth. As the quantity of money in the market and inflation in the economy rise, real yields are rising, but it’s clear that it is nowhere near enough for equities to fall.

The entire reflexive feedback loop taking place is that higher yields and higher equities are a result of a weaker currency. The problem is that the weaker currency is pushing equities and yields higher. How long can this go on for? Functionally, until we see a significant crack in the Japanese economy that causes lower yields and lower equities. The problem is that if this overlaps with a deleveraging in the US, the amount of volatility injected into markets is going to amplify in a MASSIVE way.

In my view, the yield differential between the US and Japan (white line showing US yields falling against JGBs) is moving in lockstep with gold and silver prices because investors are aware that the current liquidity in markets is highly unsustainable, so they are trying to allocate to the release valves of macro liquidity. This is why there is an almost perfect relationship between the yield differential (white) and the metals.

In simple terms, there is too much liquidity and inflation in Japan, which is resulting in higher yields, higher equity prices, and a weaker currency. On the US side, we are seeing too much liquidity in markets, but it isn’t materializing into inflation yet because of the weaker labor market and the fact that the US is not short food and energy prices like Japan.

This is why it will be very important to watch the yield curve differentials as we move into this period of time where macro risk is accelerating.

Pulling Views Together:

The bottom line is that the reflexive feedback loop we are seeing in Japan is unsustainable, but the popular narrative that the Japanese carry trade will crash US equities and send yields higher misinterprets the actual drivers.

It is my belief that macro liquidity is pushing the underlying system to a point where it is unsustainable. The question is all about HOW this links to positioning and the real-time signals in Japanese markets? How does the Japanese yield curve connect with WHERE gold and silver could go from here?

To go deeper and make this as practical as possible, I’m hosting a live, closed‑door webinar for Capital Flows Community Members on Monday, December 8th at 9:00 am EST.

In that session, I’ll walk through the full implementation playbook:

How I’m thinking about allocation decisions as it relates to the Japanese Yen, JGB yields, and the signals for WHEN risks are building.
How to map the scenario analysis and quantify the drivers, so you’re not guessing in real time.
How these connect to the new TradingView models we launched, so that you have the proper modoels to map things in real time. (See Tradingview models here: LINK)

This is a really good moment to step inside the Capital Flows community: become a paid member for a month, get the live webinar plus everything behind the paywall, and if it doesn’t feel like a clear upgrade in clarity and conviction, just cancel after the month and keep what you learned.

Livestream link is below for the Capital Flows Community:

AI Risks and Equity Factors As Macro Volatility Rises

Capital Flows — Wed, 03 Dec 2025 18:51:05 GMT

AI Risks and Equity Factors As Macro Volatility Rises

I recorded a new conversation with my friend Jared Kubin on something most people are ignoring right now

How AI actually changes risk, factor moves, and how to quantify it instead of guessing.

In the interview, we cover:

The real AI risks that matter for portfolio construction (and what’s noise)
How to think about factor moves in a regime where AI is driving dispersion
The exact tool to use in order to quantify these moves, and why I trust it
- Follow Jared here: LINK and map all the most important factors here: LINK

All of these points connect to the larger risks building under the surface that I covered in the livestream yesterday. You can find the recording and the entire playbook below.

Macro Risks Are Building:

Yesterday, I did a longer livestream walking through my broader interest rate framework and how I’m positioning around current dollar liquidity risks that building. Linked here:

Next livestream: from playbook → live Tradingview/Python models

The next livestream will build on that session and focus on the actual TradingView models and processes I use day‑to‑day:

TradingView model stack walkthrough
- How I structure the models that map the macro regime and capital flows
- How each one is used in practice for sizing, timing, and risk
- How to assemble them into a comprehensive, plug‑and‑play process aligned with your own portfolio
Live build with my quant
- You’ll see how he specifies and codes the indicators and dashboards we actually rely on
- You can propose ideas in the chat; we’ll select some and code them live so you see the full pipeline: idea → spec → code → model
Growing the shared tool library
- Every useful model we build becomes part of the Capital Flows toolkit
- Over time, that gives the community an expanding set of tools to map the macro regime and flows, instead of everyone reinventing them in isolation
By the end of this next session, Capital Flows Community members will walk away with an exclusive suite of TradingView models that I actually use to track the macro regime and capital flows.
You’ll have a coherent set of tools you can plug into your own charts to:
- Map the current regime in real time
- See how flows, rates, and FX are shifting
- Tie those signals directly back into the risk and decision framework we built in the first webinar

Tomorrow’s webinar link is on the bottom page of this report (Thursday, December 4th, at 1 pm EST):

My commitment: I’ll keep updating the research, models, and tools in real time as the regime evolves.
Your side: stay plugged in, show up to these sessions, and actually run the process with your own constraints in mind.

The Coming Storm Playbook: Replay, Resources, and Next Livestream

Capital Flows — Tue, 02 Dec 2025 18:54:45 GMT

The Coming Storm Playbook: Replay, Resources, and Next Livestream

Hey everyone,

Thanks again to everyone who joined the livestream. This note will point you to the key resources from the “Preparing for the Storm” session and set expectations for what’s coming next.

If you want to revisit the core thesis and setup, start here:

Macro Report: “A Storm Is Coming”
Full write‑up of the structural liquidity risks from cross‑border flows and what can break under the surface.
Video breakdown of the report
Walkthrough of the logic, the mechanics, and why this risk window matters for actual portfolios.

From there, the “Preparing for the Storm” livestream (recording is linked below) focused on implementation:

Mapping portfolio exposures and where they can actually break
Building a path‑dependent decision tree instead of guessing in real time
Setting concrete signals, models, and a framework for action

Next livestream: from playbook → live Tradingview/Python models

The next livestream will build on that session and focus on the actual TradingView models and processes I use day‑to‑day:

TradingView model stack walkthrough
- How I structure the models that map the macro regime and capital flows
- How each one is used in practice for sizing, timing, and risk
- How to assemble them into a comprehensive, plug‑and‑play process aligned with your own portfolio
Live build with my quant
- You’ll see how he specifies and codes the indicators and dashboards we actually rely on
- You can propose ideas in the chat; we’ll select some and code them live so you see the full pipeline: idea → spec → code → model
Growing the shared tool library
- Every useful model we build becomes part of the Capital Flows toolkit
- Over time, that gives the community an expanding set of tools to map the macro regime and flows, instead of everyone reinventing them in isolation
By the end of this next session, Capital Flows Community members will walk away with an exclusive suite of TradingView models that I actually use to track the macro regime and capital flows.
You’ll have a coherent set of tools you can plug into your own charts to:
- Map the current regime in real time
- See how flows, rates, and FX are shifting
- Tie those signals directly back into the risk and decision framework we built in the first webinar

Replay links and the next livestream details are posted in the Capital Flows Community area below.

REMINDER: 24 hours Until Preparing For The Storm: Livestream Playbook

Capital Flows — Mon, 01 Dec 2025 15:38:51 GMT

Preparing For The Storm: Livestream Playbook - In 24 Hours

Over the last week, I have shared the Macro Report explaining the liquidity risks in US markets from cross-border flows and a connected video breakdown. Together, they outlined the structural risks building under the surface: risk of foreigners selling US equities, why the Fed can’t stop it, and the very real possibility of a bear market in equities. (linked below)

If you took those seriously, the logical next question is not “What happens?” but “What do I do with my portfolio if any of this happens?”

Playbook For The Coming Storm:

We are now shifting from prediction to preparation. Rather than betting the farm on a single macro view, the goal is to build a playbook that lets you navigate this entire window of risk with intention: how to size and sequence allocation changes, how to build redundancy into your system (across assets, liquidity, and income streams), and how to operate from a risk‑first, probabilistic mindset instead of a deterministic one.

To go deeper and make this as practical as possible, I’m hosting a live, closed‑door webinar for Capital Flows Community Members on Tuesday at 11:00am EST.

In that session, I’ll walk through the full implementation playbook:

How I’m thinking about allocation decisions through this period (what can break, in what order, and what that implies for sizing and timing).
How to map “path dependency” into a simple decision tree, so you’re not guessing in real time.
How to build redundancy and risk buffers into your structure without blowing up long‑term return potential.
How to install a risk management framework and mindset you can reuse, rather than a one‑off “macro trade.”

Bonus: The Interest Rate & FX Strategy Guide

To make this report and the webinar more actionable, I’ve also pulled together a compact starter pack so you can quickly build intuition around rate cycles, curves, and FX differentials. I will cover:

The core interest rate cycle frameworks I use to read curves, term premia, and policy cycles full system.
One-page primers on yield curves, policy paths, and how front-end vs back-end moves actually transmit into asset prices.
Historical case studies of past tightening/easing cycles and what actually worked across major asset classes.
A simple FX mapping template to line up rate, inflation, and policy differentials across currencies so you can see relative pressure clearly.
Example scenarios showing how shifts in rate differentials have played out in key FX pairs, and how to think about them as both risk and hedge inside your broader portfolio.

Livestream Details: Starts in 24 hours!

The closed‑door webinar for Capital Flows Community Members will be on Tuesday at 11:00 am EST. Link is here:

Preparing For The Storm: Livestream Playbook

Capital Flows — Sun, 30 Nov 2025 22:24:07 GMT

Preparing For The Storm: Livestream Playbook

If you took those seriously, the logical next question is not “What happens?” but “What do I do with my portfolio if any of this happens?”

Playbook For The Coming Storm:

To go deeper and make this as practical as possible, I’m hosting a live, closed‑door webinar for Capital Flows Community Members on Tuesday at 11:00am EST.

In that session, I’ll walk through the full implementation playbook:

How I’m thinking about allocation decisions through this period (what can break, in what order, and what that implies for sizing and timing).
How to map “path dependency” into a simple decision tree, so you’re not guessing in real time.
How to build redundancy and risk buffers into your structure without blowing up long‑term return potential.
How to install a risk management framework and mindset you can reuse, rather than a one‑off “macro trade.”

Bonus: The Interest Rate & FX Strategy Guide

The core interest rate cycle frameworks I use to read curves, term premia, and policy cycles full system.
One-page primers on yield curves, policy paths, and how front-end vs back-end moves actually transmit into asset prices.
Historical case studies of past tightening/easing cycles and what actually worked across major asset classes.
A simple FX mapping template to line up rate, inflation, and policy differentials across currencies so you can see relative pressure clearly.
Example scenarios showing how shifts in rate differentials have played out in key FX pairs, and how to think about them as both risk and hedge inside your broader portfolio.

Livestream Details:

The closed‑door webinar for Capital Flows Community Members will be on Tuesday at 11:00 am EST. Link is here:

Macro Report: A Storm Is Coming (VIDEO BREAKDOWN)

Capital Flows — Sat, 29 Nov 2025 18:14:46 GMT

I published THE most important macro report I have written this year, explaining HOW risks are forming and WHEN they are likely to materialize:

Today, I recorded a video breakdown explaining this report further so you can understand the causal mechanics as well as the implications for markets:

Additionally, linked below is a pared-down version of the models I will be sending out on a weekly basis, so you can have clarity about WHERE we are in the macro regime.

Macro Tear Sheets: Equities, Stock/Bond Correlation, Fixed Income, FX, Crypto, and Commodities

Tearsheet Stockbond 20251128

557KB ∙ PDF file

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Tearsheet Crypto 20251128

4.68MB ∙ PDF file

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Tearsheet Fi 20251128

16.6MB ∙ PDF file

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Tearsheet Eq 202511128

21.3MB ∙ PDF file

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Tearsheet Fx 20251128

17.3MB ∙ PDF file

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Tearsheet Comd 20251128

35.3MB ∙ PDF file

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Macro Regime Dashboard: Excel spreadsheet for economic data,

Real Estate Spreadsheet V1

4.23MB ∙ XLSX file

Download

Fred Dashboard V2

8.38MB ∙ XLSX file

Download

Growth, Inflation, Fixed Income, Credit, and Equities Regime Tracker

Macro Regime Tracker 20251128

5.12MB ∙ PDF file

Download

Mag7 Model:

See the intro published for how to use the Mag7 models here: Link

Mag7 Tear Sheet

12.5MB ∙ PDF file

Download

Capital Flows Interest Rate Sensitivity Model:

Launch video for these models is here: LINK

Equity Indexes:

Irsm Nky 20251128

1.44MB ∙ PDF file

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Irsm Rty 20251128

1.45MB ∙ PDF file

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Irsm Indu 20251128

1.67MB ∙ PDF file

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Irsm Ndx 20251128

1.59MB ∙ PDF file

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Irsm Spx 20251128

1.41MB ∙ PDF file

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Equity Sectors:

Irsm Xlf 20251128

1.72MB ∙ PDF file

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Irsm Xlre 20251128

1.85MB ∙ PDF file

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Irsm Xlp 20251128

1.8MB ∙ PDF file

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Irsm Xlv 20251128

1.62MB ∙ PDF file

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Irsm Itb 20251128

1.67MB ∙ PDF file

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Irsm Xli 20251128

1.64MB ∙ PDF file

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Irsm Xlk 20251128

1.54MB ∙ PDF file

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Irsm Xlb 20251128

1.79MB ∙ PDF file

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Irsm Xlc 20251128

1.59MB ∙ PDF file

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Irsm Xly 20251128

1.68MB ∙ PDF file

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Irsm Xlu 20251128

1.64MB ∙ PDF file

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Irsm Xle 20251128

1.77MB ∙ PDF file

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Bitcoin:

Irsm Btc 20251128

1.66MB ∙ PDF file

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Gold, Silver, and Crude:

Irsm Si 20251128

1.57MB ∙ PDF file

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Irsm Gc 20251128

1.54MB ∙ PDF file

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Irsm Cl 20251128

1.7MB ∙ PDF file

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Macro Report: A Storm Is Coming

Capital Flows — Wed, 26 Nov 2025 19:44:27 GMT

Macro Report: A Storm Is Coming

“What important truths do very few people agree with you on?”

This is the question that I ask myself every single day when I approach markets.

I have models for growth, inflation, liquidity, positioning, and price, but the final frontier in macro is the quality of ideas. Quant funds and new AI tools are stripping out every statistical inefficiency in markets, compressing the edge that used to exist. What remains is macro volatility expressed over higher timeframes.

The Truth:

So let me share with you the truth that very few people agree with me on: I believe we are going to see an increase in macro volatility in the next 12 months that will dwarf 2022, COVID, and potentially 2008, but the SOURCE of volatility will be from an orchestrated devaluation in the dollar against major currencies. Most people think that a fall in the dollar or “dollar devaluation” will cause risk assets to rally but this couldn’t be further from the truth. I believe this is the biggest risk in markets today.

Most investors once assumed mortgages were too safe to trigger systemic panic and dismissed credit default swaps as too complex to matter. The same complacency exists today around the source of potential dollar devaluation. Almost no one is examining the specific mechanism of devaluation that could shift from being a tailwind to a genuine risk for asset prices. You can see this blind spot when you ask people about it. They insist dollar weakness is always bullish for risk assets and assume the Fed would intervene if anything serious occurred. That mindset is precisely why a deliberate, engineered devaluation would likely drive risk assets lower rather than higher.

The Path Forward:

What I am going to do in this article is lay out the full details of how this functions, how to understand the signals for WHEN this risk materialises, and WHAT assets will be impacted the most (positively and negatively).

All of this comes down to 3 things that have converged and are escalating as we approach 2026.

The global liquidity imbalance from cross-border flows creating fragility
The Trump administration’s stance on the currency, geopolitics, and trade
The transition to a new Federal Reserve Chair who will align monetary policy with Trump’s negotiating leverage

The Imbalance:

A structural liquidity imbalance has formed through years of uneven cross-border flows. The issue is not the size of global debt but the way these flows have shaped balance sheets into something inherently fragile. It mirrors the dynamic behind adjustable-rate mortgages before the GFC. Once the unwind starts, the structure itself accelerates the correction, liquidity evaporates, and the process becomes difficult to stop. It is a mechanical vulnerability embedded in the system.

All of this starts with how the US is the single place in the world that buys everyone else’s stuff. And it’s easy because the dollar as the reserve currency is so strong that it allows us to import everything at a fraction of what we could make it for here. Every time the US buys stuff from the rest of the world, we give them dollars in return. The majority of the time, foreigners take these dollars and put them into US assets in order to maintain its trade relationship and because it’s the only game in town. Where else are you going to bet on the AI revolution, robotics, or people like Elon Musk?

This cycle takes place over and over: The US buys stuff →gives foreigners dollars→foreigners buy US assets→US gets to buy more cheap stuff because foreigners keep holding US dollars/assets.

This cycle has created a massive imbalance where the US current account (imports vs exports: white line) is at an extreme. The flip side of this coin is that investment by foreigners in US assets (blue) is at its highest in history:

When foreigners continue to buy US assets indiscriminately so that they can continue exporting their goods and services to the US, this is WHY we are seeing S&P500 valuations (price to sales ratios) at all-time highs:

Traditional equity valuation frameworks come from the value-investing world shaped by Warren Buffett. That approach worked well in a period with limited global trade and far less liquidity across the system. What people overlook is that global trade itself expands liquidity. The current account on one side is the capital account on the other. In practical terms, when two countries trade, their balance sheets become cross-collateralized, and those cross-border flows exert a powerful influence on asset prices.

For the US, as the largest importer of goods, capital flows to the US, which is WHY the market cap to GDP ratio is significantly higher than the 1980s when all of the value investing frameworks were formed by Graham and Dodd in Security Analysis. This is not to say valuations don’t matter, but that on a total market cap basis, it is due to changes in macro liquidity instead of “Mr Market acting irrationally.”

One of the primary sources that fueled the fragile capital structure in the mortgage market during the run-up to the GFC was foreign investors buying US private sector debt:

big short in the GFC was the fragile capital structure, and the liquidity was the repricing that changed as domestic and crossborder flows shifted. This is why I find the analysis very interesting right now in connection with the cross-border/liquidity analysis I am doing:

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Foreign investors are sending increasing amounts of capital into the United States, and both foreign flows and passive flows are becoming ever more concentrated in the top seven stocks.

The important thing to note here is the TYPE of imbalance taking place. Brad Setser does an excellent job explaining how the carry trade dynamic taking place with cross-border flows is creating a massive amount of complacency in markets on a structural basis:

Why does all this matter? Well because a lot of financial models now assume, incorrectly I think, that the dollar will rally in the event of future financial instability—say, a selloff in U.S. equities or credit. That makes it easier for investors to continue to hold dollar assets unhedged.

The logic of the argument goes a bit like this—sure, my fund is very overweight U.S. financial assets because of the “dominance” of the U.S. in global equity indexes right now, but that risk is partially offset by the natural hedge provided by the dollar, as the dollar often rallies into bad news. The dollar thus will likely rally in the event of a significant equity market correction (as it did in ‘08 or, for very different reasons, 2020), and hedging dollar risk effectively means undoing a natural hedge.

Conveniently the expectation that the dollar serves as an equity (or credit) market hedge based on past correlations also increases current returns, because it provides a reason not to hedge U.S. market exposure at a time when hedging is expensive.**

There is risk, however, that past correlations won’t hold.

If the dollar rallied in 2008 not thanks to its reserve currency status but rather because the funding currencies in a carry trade tend to rally in a carry unwind (and that destination currencies in carry trades tend to selloff), investors should not assume that the dollar will rally in future instability.

One thing is absolutely clear: the U.S. is currently on the receiving side of most carry trades.

https://www.cfr.org/article/foreign-money-flowed-out-us-not-during-global-financial-crisis

This is the critical thing that makes today’s world so different: A foreigner’s return on the S&P500 is determined by the return in the index AND the return in the currency. If the S&P500 rallies 10% in a year, this doesn’t imply a positive return for the foreign holder if the dollar drops a compensurate amount against their local currency.

Here is a chart of the S&P500 (blue) and S&P500 hedged. You can see that if you’re taking into account the currency change, this can dramatically change your returns over the years. Now, think about what happens when you compress all of these years into a short period of time. You can create massive risks driven by cross-border flows.

This brings us to the acceleration toward the catalyst that is putting this global carry trade at risk: The Trump administration’s stance on the currency, geopolitics, and trade.

Trump, FX, and Economic Warfare:

When we entered this year, two very specific macro changes took place that accelerated HOW MUCH risk exists in the global balance of payments system.

We saw the dollar sell off AT THE SAME TIME that US equities sold off because it was driven by tariffs and cross-border flows as opposed to domestic delinquencies. This is exactly the TYPE of risk that stems from the imbalance I noted above. The real problem is that if the dollar is selling off at the same time as equities, any intervention by the Fed will push down the dollar even more, which would almost certainly further amplify the downside in equities (the opposite of conventional wisdom around the Fed put). When the source of selling is external and based on the currency, the Fed is in a much more difficult position. This shows that we have already entered the “macro end game” where the currency is becoming the asymmetrical linchpin for everything.

Trump and Bessent are openly pursuing a weaker dollar and using tariffs as leverage to gain the upper hand in the economic conflict with China. If you have not followed the research I have published on China and its deliberate use of economic warfare against the United States, you can watch the YouTube video I recorded titled The Geopolitical End Game. The essential point is that China is intentionally hollowing out the industrial bases of other countries, creating dependence and giving itself the leverage it needs to execute its broader strategic objectives.

The moment that Trump takes office (red arrow), the DXY begins to fall, and this is only the beginning.

Notice that short-end real rates have been one of the primary drivers of the DXY, which means monetary policy is one of the key inputs into this, along with the tariffs by Trump.

Trump needs the Fed to be more accommodative in monetary policy because it helps weaken the dollar, not just because he wants to pump the economy. This is exactly why he put Steven Miran onto the board of the Fed, an individual who intricately understands how global trade functions.

What is the first thing that Miran does? He puts his dotplot projections 100bps BELOW all other FOMC members because he is sending a signal that he is extremely dovish and trying to pull other members more dovish as well.

MAIN IDEA: Here is the core dilemma. The United States is in a real economic conflict with China, and it must actively engage or risk losing strategic dominance. Yet a weaker-dollar policy achieved through significantly looser monetary policy and aggressive trade negotiations cuts both ways. It can boost domestic liquidity in the short term, but it also suppresses cross-border flows. A weaker dollar can trigger foreign investors to reduce exposure to U.S. equities at the very moment the currency weakens, as they adjust to new trade terms and a shifting FX regime. It places the United States on a cliff: one path requires confronting China’s economic aggression, while the other risks a broad repricing of U.S. equities driven by a weaker dollar against major currencies.

New Fed Chair, Midterms, and Trump’s Big Play:

We are watching a global imbalance develop that is directly tied to cross-border flows and the currency. This has accelerated since Trump took office and began confronting the largest structural distortions in the system, including the economic conflict with China. These dynamics are not theoretical. They are already reshaping markets and global trade. All of this is building toward the catalysts coming next year, when a new Fed chair steps in during the midterms and Trump enters the final two years of his term, determined to leave a defining mark on American history.

I believe Trump will push for the most aggressively dovish monetary stance possible to drive a weaker-dollar policy until inflation risk forces a reversal. Most investors assume a dovish Fed is always bullish for equities, but that only holds in a resilient economy. It breaks down when dovish policy triggers an unwind in cross-border positioning.

If you have followed my research, you know that long-end rates always price central bank policy errors. When the Fed cuts too aggressively, long-end yields rise and the curve bear steepens to counter the mistake. The Fed’s advantage right now is that inflation expectations (chart: 2 year inflation swaps) have been collapsing for a month, which shifts the balance of risks and gives them room to be dovish in the short term without igniting meaningful inflation pressure.

As inflation expectations are falling, we are getting news about a new Fed chair who will come in next year and likely be more aligned with Miran than the rest of the other governors:

If the Fed brings the terminal rate (currently sitting at the 8th SOFR contract) more in line with the change in inflation expectations, this would begin to bring real interest rates LOWER and weaken the dollar: (since inflation risk just fell, the Fed has room to do this)

We have seen the recent rise in real interest rates (white) cause the dollar (blue) to slow its downward momentum, but this is creating a larger imbalance that is setting the stage for further cuts, which will likely push the dollar lower.

If Trump wants to reverse global trade imbalances and confront China in the economic conflict and the AI race, he needs a materially weaker dollar. Tariffs give him the negotiating leverage to secure trade deals that align with a weaker-dollar strategy and preserve U.S. dominance.

Here is the problem. Trump and Bessent have to thread the needle: avoid a politically damaging outcome going into the midterms, manage a Fed with several governors who are far less dovish, and hope that a weaker-dollar strategy does not trigger an equity selloff by foreigners that widens credit spreads into a vulnerable labor market. That combination could easily tip the economy into a recession.

The biggest risk is that valuations are at historic extremes, which makes equities more sensitive to liquidity shifts than ever before. This is why I believe we are approaching a major inflection point over the next 12 months. The number of potential catalysts that could trigger an equity selloff is rising sharply.

“What important truths do very few people agree with you on?”

The market is sleepwalking into a structural risk that almost no one is pricing: an engineered dollar devaluation that turns what investors assume is a tailwind into the primary source of volatility over the next year. The complacency around a weaker dollar is the same complacency that surrounded mortgages before 2008, and it is precisely why a deliberate devaluation would hit risk assets far harder than investors expect.

I firmly believe that this is the most overlooked and misunderstood risk in global markets. I have been actively building models and strategies around this single tail event so that I can be short the market with size when a real capitulation occurs on a structural basis.

Timing The Macro Inflection Point:

What I want to do now is tie these ideas directly to the tangible signals that reveal when this specific risk is rising, as cross-border flows begin to shift the structure of macro liquidity.

Positioning unwinds happen often in U.S. equities, but understanding the driver behind them determines how severe the selling pressure can become. If the unwind is driven by cross-border flows, the fragility is far greater, and the level of caution required is significantly higher.

The chart below shows the primary periods of time when cross-border positioning is beginning to create more selling pressure in US equities. Monitoring this will be critical:

Notice that since the EURUSD rally during the March selloff, when call skew surged, the market has held a higher baseline level of call skew. That elevated base is almost certainly tied to the underlying structural positioning risk in cross-border flows.

Anytime cross-border flows are the source of liquidity expansion or contraction, it is linked to the net flows through FX. Understanding WHERE foreigners are putting up and taking down exposure in US equities is critical because it will function as a signal about risk beginning to increase. The primary way I suggest people track this is through the factor models at https://www.liquidationnation.ai/. The underlying performance of factors, sectors, and themes is a critical signal in understanding HOW AGGRESSIVE flows of capital are functioning in the system.

This will be especially important for the AI theme, as more and more capital gets concentrated disproportionately:

In order to explain HOW these flows connect further, I will be publishing an interview for subscribers the first week of December with Jared Kubin (you should follow him on twitter: LINK), the founder of https://www.liquidationnation.ai/, who has been an invaluable resource in my own learning journey.

Subscribe now

The primary signals for WHEN cross-border selling occurs are:

The dollar is selling off against major pairs as cross-asset implied volatility rises. Watching skew on major pairs will be a critical signal for confirmation (you can do this on the CVOL tool: LINK)
Equities sell off as the dollar falls. Downside in equities will likely be led by the highest beta names/themes underperforming as low-quality stocks get crushed (this is why you want to follow https://www.liquidationnation.ai/)
Cross-asset AND cross-border correlations are likely to go to 1 as the largest global imbalance has even a small unwind. Watching equities and factors in other countries will be critical.
The ultimate signal will be if the Fed tries to make some type of liquidity injection that actually causes the dollar to sell off even further and amplify equity selling pressure. This would be even more dangerous if stagflationary pressures were occurring domestically due to an orchestrated dollar devaluation from policy. (see Brad Setser’s article on this: https://www.cfr.org/article/foreign-money-flowed-out-us-not-during-global-financial-crisis )

Even though gold and silver rallied marginally during the cross-border selling earlier this year, they still sold off when a true capitulation took place because they are cross-collateralized with the entire system. While holding gold and silver likely has upside, they will not provide diversification benefit during a real blowout in the VIX. The only way to benefit will be from actively trading, owning hedges, being short the dollar, and being long volatility.

Here is the biggest problem, though: We are in a period of the cycle where holding cash has a lower and lower real return. This is systematically forcing capital out the risk curve to get positioning net long before liquidity shifts. Timing this shift will be key because not being long equities during a credit cycle has risks just as significant as not being hedged or in cash during a bear market.

(I am long gold, silver, and equities right now because we still have upside in liquidity forces, which I laid out for paid subscribers: LINK)

The Macro End Game:

The core message is straightforward: global markets are overlooking the single most important risk of this cycle. A deliberate weakening of the dollar, colliding with extreme cross-border imbalances and stretched valuations, is setting up a volatility event that echoes the same complacency we saw before 2008. You cannot know the future with certainty, but you can analyze the present correctly. And the present is already signaling that pressure is building beneath the surface.

Understanding these mechanics is essential because it tells you exactly which signals to monitor as this risk moves closer. Awareness itself is an edge. Most investors still assume dollar weakness is automatically bullish. That assumption is as dangerously misplaced today as the belief that mortgages were “too safe” in 2007. This is the quiet beginning of the macro endgame, where the structure of global liquidity and currency dynamics becomes the decisive driver of every major asset.

For now, I remain bullish equities, gold, and silver. But the storm is forming. And when my models begin to show incremental increases in this risk, I will shift bearish on equities and publish that shift immediately for subscribers.

If 2008 taught us anything, it is that the warning signs are always visible if you know where to look. Monitor the right signals, understand the dynamics, and you will be prepared when the tide turns.

How To Navigate The Macro Uncertainty

Capital Flows — Sat, 22 Nov 2025 22:03:24 GMT

How To Navigate The Macro Uncertainty

We’ve entered a phase of the cycle where credit is slowing relative to 2 months ago, equity breadth is narrowing, and currency volatility is picking up on the back of geopolitical risk (I laid all of this out in the recent macro video). In this kind of environment, the single most important starting point is how you frame the uncertainty.

One thing about markets: information is never evenly distributed. Central banks, governments, asset managers, and hedge funds often get access to, or share, key information with each other long before it hits the headlines. By the time it reaches the public tape, chasing it is a loser’s game.

That brings me to a tweet I posted recently, and to what I believe is the most important factor for anyone trying to succeed as an active risk taker in markets without the benefit of insider edges.

The Deck Is Stacked Against You In Short-Term Games:

When you look at markets through that lens – constraints and incentives – something uncomfortable becomes obvious very quickly: in the short term, almost every constraint and incentive is working against you. The people setting prices, moving size, and seeing flows are paid to live inside the noise. They have better information, faster algos, and balance sheets they can use to lean on you.

If you insist on playing their game on their time horizon, the odds are structurally tilted in their favor. The deck is stacked against you in short-term games.

For example, there is intense attention on social media regarding U.S. Treasury issuance, its interaction with the Federal Reserve’s balance sheet, and the way both influence macro liquidity. If you ever look at WHO all of the advisors to the treasury are, it is literally every major CIO of every major investment bank or asset manager. Think about that for a minute, the guys who are trading the market are also giving input to one of the largest players in the market, the US treasury.

The Treasury Secretary (currently Scott Bessent) and Federal Reserve Chair (currently Mac Daddy Powell) are in constant communication in order to operate in short end markets, which is why Powell said the Treasury Secretary and Fed Chair have shared a weekly meal for 75 years.

At the end of the day, information flows very freely amongst the top players of Wall Street for short-term decisions. The same dynamic exists in the asset management and hedge fund space, where they actively take views on assets and float different narratives to Main Street. The clearest example of this is the “evolution” of views that Larry Fink has had on Bitcoin. And don’t forget Blackrock (the firm Fink is the CEO of) is the largest asset manager in the WORLD, managing over $10T.

The CEO of the largest asset manager in the world somehow has an uninformed view of Bitcoin, actively takes a negative stance toward it, and then suddenly flips when it presents an opportunity to gather assets?

Right……

My point is straightforward. Financial markets do not operate the way so-called experts portray them. This is why the incentives and constraints of the major players are the single most important starting point for understanding how markets really function.

How can anyone expect to compete when the largest institutions receive real-time information you will never see and routinely publish statements that are misleading or outright incorrect?

This is precisely why a macro framework is essential. No CIO, hedge fund, or central bank has any special insight into macro flows beyond a very short horizon. At best, they get certain data slightly earlier, but they are still operating under the same macro uncertainty as everyone else. This means that once you look beyond the next month, even the biggest players are navigating the same fog you are. On any horizon longer than that, you are competing on level terms. (THIS IS WHERE YOU WANT TO LIVE!)

Here is the key takeaway: when a large player is on the wrong side of macro, they have to move the market to get out of the way. This is WHY there is oppurtunities for individauls who understand macro flows, macro constraints, and HOW information is developing in real time. This is why I have written educational primers on every aspect of macro and publish reports every day on it.

If you want to dig into my current macro views further, the recording of the macro breakdown and following Q&A can be found here:

Welcome to global macro