Capital Flows: Alpha Reports

Positioning Risk And The Set Up For Equities

Capital Flows — Wed, 05 Nov 2025 03:52:43 GMT

Positioning Risk And The Set Up For Equities

My goal for this report is to explain the current drivers of the sell-off in ES over the last 48 hour, WHY it has taken place, and WHERE we are likely to go.

Is Bitcoin Signaling The End Of The Credit Cycle?

Capital Flows — Tue, 04 Nov 2025 01:48:21 GMT

Is Bitcoin Signaling The End Of The Credit Cycle?

Is Bitcoin Signaling The End Of The Credit Cycle

2.5MB ∙ PDF file

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Macro Liquidity Breakdown:

Main Ideas:

The short-end plumbing is NOT impacting broad beta flows
We are seeing dispersion and rotation as opposed to a macro inflection point
The unrealistic expectations of Bitcoin’s returns stem from narratives as opposed to a rigorous analysis of the price action and macro flows
The signals for WHEN Bitcoin will rally and outperform can only be derived when viewing it in its place on the risk curve relative to equity beta.

The Macro Watchlist - Everything I Watch

Capital Flows — Thu, 30 Oct 2025 13:02:36 GMT

The Macro Watchlist - Everything I Watch

Macro Watchlist: LINK

All the educational primers are here:

Post FOMC analysis is here:

As always, a Pepe for the culture:

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Interest Rate Strategy: POST FOMC Breakdown

Capital Flows — Wed, 29 Oct 2025 21:07:24 GMT

Interest Rate Strategy: POST FOMC Breakdown

The global backdrop continues to sit firmly in a Goldilocks configuration, growth remains positive (panel 1), inflation continues to slow (panel 2), and financial conditions (panel 3) remain at cycle lows.

It’s a combination that markets have grown comfortable with, even as the rate-cutting cycle remains sticky and forward pricing has barely shifted over recent weeks.

Growth has proven resilient. Activity data, earnings, all point to an economy that continues to expand without overheating. There’s little evidence yet of a loss in momentum seen in the breadth below. In other words, growth is positive and holding its ground.

Inflation swaps have slowed materially and continue to decelerate at an accelerating pace. With both headline and core measures recently printing softer than expected numbers. These market-based gauges like the below inflation swaps (or breakevens) confirm that disinflation is broad and, importantly, expectations are anchored (see 5yr and 10yr measures. The market’s conviction that the inflation fight is largely won has strengthened.

Liquidity remains ample. Credit conditions are easy, high-yield spreads are exceptionally tight, and issuance flows remain healthy. Spreads continue to grind tighter relative to the past four years, clear evidence that the current easing impulse is still being transmitted through financial channels.

KEY IDEA: Policy has not been restrictive enough to impair credit creation or demand. Liquidity is circulating through the system rather than being trapped in the banking sector or the very front end of the risk curve. As a result, growth momentum remains positive (across the risk curve), supported by resilient credit transmission and strong buying pressure for risk assets.

Reflexivity is reinforcing the cycle. Easier financial conditions are feeding back into stronger growth and tighter spreads, which in turn validates the macro mix between growth, inflation and liquidity.

Trading Implications:

Inflation remains under pressure, and recent progress in trade negotiations with China reinforces the disinflation trend. Over the past week, 1-year inflation swaps have fallen 21 bps while 10-year swaps are down just 0.4 bps, near-term inflation expectations continue to ease, but long-term anchors remain stable.

Markets, however, have likely priced excessive policy support for labor weakness that has yet to appear. With growth still resilient and inflation rolling over, the Fed can cut, but without the urgency. This keeps 2-year real yields rising while 10-year reals stay flat to slightly lower, producing a bear-flattening bias, liquidity tightening even as nominal activity remains solid.

Institutional funding costs are creeping higher via the repo market, and reserves are edging lower. In the below we can see we are at the highest SOFR fixing in 5 years, but a far cry from ‘stress’ as seen in 2019. Liquidity remains ample but the marginal impulse is fading, suggesting a transition from the current regime to the next.

As all the above continue to play out while growth holds firm and policy remains cautious. My view is a bear-flattening bias as liquidity tightens at the margin.

The core trade bias is to short 2yr and be long the 10yr, best expressed as 2s10s flattener. The move from the FOMC has confirmed the flattening. As a result, I will scale into a flattener throughout a pullback.

Continued flattening depends on the terminal rate holding above ~3.05%; if it reprices lower, the curve will re-steepen.

Pulling Things Together:

The comments by Powell today caused a marginal repricing in the probability of a cut in December, but the broader macro regime and constraints of the credit cycle remain intact. My view is that there is going to be a moment to get short equities and long bonds as the liquidity in the financial system becomes unsustainable. We are NOT at this point yet, and my view is equities remain skewed to the upside on a cyclical basis.

As I have told paid subscribers, when the regime shift occurs, I will be covering how my strategy is dynamically updating to in real time. Until then, short-term pullbacks remain buying opportunities in equities, and there are opportunities to trade bonds tactically.

Thanks

As always, a Pepe for the culture:

Short End Interest Rate Strategy

Capital Flows — Tue, 28 Oct 2025 02:42:18 GMT

ZT – Anchored in Goldilocks: Growth Solid, Front-End Range Intact

The front end remains remarkably stable post-CPI, with 2-year yields effectively locked in a 20–25 bp range and currently sitting in the middle. Despite a softer inflation print, the front end refused to break lower, confirming that the market’s conviction now rests on the labor side of the mandate, and less so for the inflation side.

The message from price action is clear: inflation is moving into the background; the next move likely belongs to labor.

See big picture macro views here:

Growth, Inflation, and Liquidity Context

We’re Watching the Fed Push the Dollar to Its Breaking Point

Capital Flows — Mon, 27 Oct 2025 20:24:01 GMT

We’re Watching the Fed Push the Dollar to Its Breaking Point

Educational Primers:

International Risks Report:

Macro Charts From Video:

Were Watching The Fed Push The Dollar To Its Breaking Point

2.62MB ∙ PDF file

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Risks, Redundancy Planning, and Signals:

Macro Positioning Report: Equities, Gold, Crude, and Bonds

Capital Flows — Mon, 20 Oct 2025 02:20:47 GMT

Macro Positioning Report: Equities, Gold, Crude, and Bonds

One of the core theses I have been laying out over the last 6 months is that inflation risk is higher than recession risk. This still remains true on a structural basis, where we have a higher level of nominal GDP compared to the 2010s. However, we are seeing an incremental shift in the probabilities of the market I want to cover. Probabilities ALWAYS shift incrementally, so understanding and mapping them in real time is the key.

What I want to do in this report is explain HOW these probabilities are shifting and WHY it matters for positioning across equities, gold, crude, and bonds.

Why Is Bitcoin Underperforming And When Will It Change?

Capital Flows — Wed, 15 Oct 2025 23:00:44 GMT

Why Is Bitcoin Underperforming And When Will It Change?

Bitcoin has been functionally range-bound since July, creating frustration among investors who hold an outsized position in the asset. The central question now is whether this sideways movement will persist, break lower, or finally surge toward 150k. These are not questions about Bitcoin’s long-term trajectory but about the path it takes to get there. Saying that Bitcoin will rise over the long term may well be true, with the burden of proof resting on Bitcoin itself, not its critics, but that view offers little value in interpreting real-time developments. To understand the path and short-term movements, one must grasp the underlying drivers behind why Bitcoin is rising or falling.

I have laid out the Bitcoin playbook and connected TradingView indicator for everyone here. You can reference this for a deeper dive on how these drivers work:

Bitcoin As A Macro Liquidity Release Valve (8) (1) (4)

420KB ∙ PDF file

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Bitcoin Indicator From Tradingview: LINK

Important Announcement:

Quick reminder, starting Friday at market close, there will be a price increase on the Capital Flows Substack. When you subscribe before then, you get to lock in the lower rate for all of the future upside on the Substack and the comprehensive macro analysis covering Bitcoin and every other major asset. (There are also two bonuses in the report linked below if you subscribe before Friday):

Bitcoin And Macro Liquidity:

Most Bitcoin maxis display extreme confirmation bias when analyzing Bitcoin’s price action. When predicting its price, the key point to understand is that Bitcoin operates along the same risk curve as other assets. It correlates with equities because it is a risk asset. There is a clear reason gold has rallied so much year-to-date while Bitcoin has not. People can ignore it if they wish, but central banks are using gold as a reserve asset, not Bitcoin. If Bitcoin were being used as a genuine hedge in this kind of balance sheet capacity, it would be rallying as equities sell off, just as gold did in Q1 and during the recent tariff-driven equity declines.

So let me walk you through how to think about Bitcoin here:

First, Bitcoin outperformed ES (S&P500 futures contract), rallying off the April lowsbut then began to underperform in July, which was the beginning of its neutral range. The chart below has the TradingView Script I linked above, where green shows BTC outperforming ES, and red shows Bitcoin underperforming ES. Most people will just adjust their timehorizon or look back to say Bitcoin always outperforms, which is literally the opposite thing you want to be doing. The way you can know WHY Bitcoin is rallying is by mapping all these incremental changes.

The other thing to note is that Bitcoin is also underperforming the Russell. The Russell has a lot more cyclical components in it, so it rallies when the economy is actually doing well and capital is moving out the risk curve. So think about it like this, macro liquidity in the system is expanding but its just not going to Bitcoin.

As I explained at Friday lows in equities, this is not a period of time where the economy is collapsing or macro liquidity is deteriorating. The credit cycle is still in full swing.

Capital is moving out the risk curve into things like ARKQ (tech and robotics ETF by Cathie Wood).

There is a lot more expected returns building in robotics and AI vs Bitcoin. This is something has done a great job covering:

Citrini Research

Macro Memo: Red October

The Upshot…

7 months ago · 148 likes · Citrini

So what has happened?

There are two major reasons in my view:

Macro liquidity is expanding, but it is clearly moving into things like gold/silver as real rates fall and into robotics, AI, and Semis as equity beta expressions. This has almost certainly contributed to the underperformance of Bitcoin.
The entire outperformance of Bitcoin off the April lows were linked to the wave of treasury companies trying to replicate Michael Saylor in .

We know that regulators are already investigating front-running during this period of time, which is a major red flag.

The treasury companies and expectations around them are fuctionally positioning being net long into a sell the news event. This positioning risk, overlapping with all of the capital chasing other assets, has created a perfect storm for Bitcoin to underperform as positioning unwinds.

WHERE Are we going?

I laid out my framework for HOW macro liquidity is likely to develop in these recent reports: (This is important to understand, given where we are in the credit cycle)

My view is that we are currently in a positive liquidity regime, and the warning signals I laid out in the reports above are not flashing red yet. I continue to run longs aggressively in equities.

The underperformance of Bitcoin has caused me to be less aggressive in my long positioning. What I am looking for to get more aggressively long Bitcoin (assuming macro liquidity remains abundant) is Bitcoin showing positive momentum on an outright basis and relative to other assets. So we remain range-bounded in Bitcoin on an outright basis, and we are approaching the bottom end of the range of Bitcoin vs ES, RTY, GC, SI, SMH (AI exposure), and ARKQ (bottom panel).

The next macro catalyst we have is FOMC at the end of this month, so I’m watching for any outright and cross sectional momentum shifts into and through that event. I would want to see a clear shift on an outright and/or cross-sectional basis on the hourly timeframe (chart below) to aggressively run a lot more leverage in my longs.

Simply based on the macro regime and how much liquidity we see in the system, I am looking for longs, but the positioning risk in Bitcoin is still clear in its underperformance and some other proprietary models I am running. I believe we will remain above these 107k levels but I think trading through FOMC will be a clearer test for a potential move to outperformance in Bitcoin. For now, I am watching the hourly timeframe for the signals I noted above.

The Looming Macro Risks:

I want to end by reminding everyone that macro risks are building in the underlying system. The largest risk to the system is from cross-border flows, and I laid out the signals and logic in this report below:

The implication is that we don’t know WHEN the amount of liquidity we have in the system will become unsustainable. We have support in equities into FOMC in my view in the absense of tariffs, but the situation is incredibly fluid.

I will keep paid subscribers updated on how my strategies and models are mapping these flows.

Thanks

As always, a Pepe for the culture:

How Much Risks Exist? Macro Video Breakdown

Capital Flows — Wed, 15 Oct 2025 01:09:10 GMT

How Much Risks Exist? Macro Video Breakdown

Here is a full video breakdown of all the macro views right now:

The Impact Of Tariffs On Macro Liquidity

Capital Flows — Sun, 12 Oct 2025 03:17:11 GMT

The Impact Of Tariffs On Macro Liquidity

One of the fundamental beliefs I have about markets right now is that everyone has become overly focused on the Fed and completely forgotten about cross-border liquidity.

Since 2018, when the Fed kept real rates too high and triggered a major equity selloff, market participants have been fixated on every move the Fed makes. The story count alone has increased exponentially:

During the 2010s, few people paid close attention to the Fed chair. But by 2021, that changed. Social media began distorting and amplifying expectations in ways never seen before. Today, the consensus among economists, analysts, and sell-side research is being driven less by original risk research and real risk-taking, and more by social media narratives.

This collective obsession is distracting from the most significant risk in the global system: cross-border flows. Tariffs are tied not only to trade relationships and geopolitics, but also to HOW MUCH capital foreign investors can allocate to US equities. This core misunderstanding explains WHY tariff headlines trigger equity selloffs and HOW they reshape global liquidity flows. (Chart below shows foreign direct investment into the United States)

All of this is setting the stage for much larger shifts in the global system, but the key questions are HOW and WHEN this will unfold. I’ve already outlined my equity views, but I want to go deeper into the causal mechanics driving short-term, day-to-day movements.

Tariffs and Macro Liquidity:

I want to explain HOW the mechanics of flows work here and then connect this to WHERE we are in equities.

How Far Can Equities Sell Off?

Capital Flows — Fri, 10 Oct 2025 23:42:51 GMT

How Far Can Equities Sell Off?

I want to take a moment and break down the drivers behind the equity sell-off today and explain HOW this sets up the risk reward for next week.

One of the key things to note about the price action over the last 2 weeks is that volatility was compressing as equities drifted to the upside. When this happens, it allows people to use more leverage and tighter stops in their exposure. This is why when you have volatility expand, it can amplify the move since positioning needs to readjust to the higher volatility. As this lower volatile period occurred, we had TWO pieces of news by Trump functionally saying China isn’t playing ball in trade, and he’s bringing tariffs back on the table. Trump announced this at the beginning of the trading day, which caused the initial move, and then a second time after cash equity close, which caused futures to push down even further in their after-market session.

Are We In A Bubble? AI and Macro Liquidity: Setting the Stage

Capital Flows — Wed, 08 Oct 2025 22:14:22 GMT

Are We In A Bubble? AI and Macro Liquidity: Setting the Stage

There is no accepted definition of a “bubble.” No formal rulebook exists to declare when an asset class has detached from fundamentals or when collective belief has crossed into “mania.” That is why every cycle produces disagreement, because calling something a “bubble” is often an admission that one cannot model or measure it. The real task is not to label the market but to dissect the causal mechanics driving it. A well-formed hypothesis must be both quantifiable and testable; otherwise, it is narrative, not analysis. Those who default to calling the market a bubble often do so to avoid the harder work of identifying the underlying flows, constraints, and feedback loops that actually determine whether to get long or short.

In this report, the focus is on deconstructing the structure of the current equity rally and quantifying how it connects to the broader credit cycle I have outlined. By establishing this framework, we can move beyond vague narratives and begin identifying specific, quantifiable opportunities grounded in the mechanics of capital flows and credit dynamics.

First, please review ALL the reports I have written thus far, explaining the mechanics of the credit cycle and macro regime:

Additionally, you can find all of the educational primers, book recommendations, and cycle playbooks here:

How Equities Work:

Fundamentally, every risk asset has a credit risk component and a duration component. In the S&P500, we quantify this by looking at earnings and valuations. Earnings are driven by nominal growth in the economy, and valuations are driven by liquidity (in all its various sources). You can see the S&P500 playbook here:

The S&p 500 Macro Regime Playbook By Capital Flows (4) (2) (2)

660KB ∙ PDF file

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This is an important starting point because every dollar that exists originates from somewhere. Money can be created, but it always operates within an asset–liability relationship that links the real economy to financial markets, both in nominal and real terms.

The problem with saying “it’s a bubble” is that the statement has no quantifiability or testability. What exactly defines a bubble? Is it excessive valuations? Rapid price acceleration? Extreme sentiment or speculative positioning? Is it when retail participation surges, or when institutional allocation peaks? And if any of these are true, have they historically provided predictive value? Without measurable parameters, “bubble” becomes a label for reductionism rather than a framework for understanding.

WHAT is actually happening?

If you understand how earnings and valuations function across equity markets and within their individual components, you can begin to frame why the rally is occurring in the first place.

So let’s break these down:

Earnings in the S&P500 continue to rise on a consistent basis as nominal and real growth accelerate:

Earnings expectations remain ABOVE realized earnings, but we are seeing a consistent expansion in both:

As long as growth continues to rise, it supports the earnings function of equities. Given current conditions in interest rates, growth, and inflation, the probability of a recession by year-end that would materially erode corporate cash flows is LOW.

The question from here is WHERE are valuations? If cash flows remain constant through the end of the year, the primary factor that would cause valuations to expand and push the index UP would be macro liquidity. Right now, valuations on every metric are at historic levels due to the unprecedented convergence of liquidity factors all aligned in the same direction (I laid out all of the liquidity factors in the reports linked above).

A Side Note:

When I analyze macro flows, I start by running an attribution analysis on each asset to understand what truly drives its performance. From there, I break the process into scenario analysis. In practical terms, my view on the S&P 500 is a function of my outlook on nominal growth—whether it is rising or falling—and liquidity—whether it is expanding or contracting.

On top of this, each attribution for the S&P500 can have varying degrees of strength (represented by stdv σ below), which results in varying degrees of performance in the index:

Growth Rising / Liquidity Expanding
−3σ −2σ −1σ 0σ +1σ +2σ +3σ

Growth Rising / Liquidity Contracting
−3σ −2σ −1σ 0σ +1σ +2σ +3σ

Growth Falling / Liquidity Expanding
−3σ −2σ −1σ 0σ +1σ +2σ +3σ

Growth Falling / Liquidity Contracting
−3σ −2σ −1σ 0σ +1σ +2σ +3σ

When we pull these fundamental principles together, we can begin to understand WHERE we are going in the S&P500 in both the parts and whole. What I want to do in the remainder of this report is explain the specific factors we are seeing driving earnings and valuations to properly understand the risk-reward and probable outcome of the S&P500 into the end of the year.

Macro Liquidity, AI, and The Coming Cliff:

Why the US Economy Can Withstand Much Higher Interest Rates - The AI BID

Capital Flows — Mon, 06 Oct 2025 18:36:16 GMT

Why the US Economy Can Withstand Much Higher Interest Rates - The AI BID

All The Playbooks, Educational Resources, and Book Recommendations:

Macro Slide Deck:

Macro Slide Deck On Interest Rates

2.94MB ∙ PDF file

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Credit Cycle Breakdown: Signals and Managing Risk

MAIN IDEA: We are in a macro environment where resilient growth, procyclical fiscal and monetary policy, and expanding liquidity are aligning to create conditions for a melt-up in risk assets. Equities are broadly outperforming bonds as capital flows further out the risk curve, supported by a labor market that remains stable and corporate earnings that continue to expand. At the same time, inflation is still sitting above the Federal Reserve’s target, which complicates the policy response and raises the probability of asymmetric outcomes depending on how the next catalysts unfold. This backdrop creates opportunity but also demands precision in measuring the extent of the cycle’s continuation rather than assuming it will persist indefinitely.

The recent reports where I laid out all of the structural and cyclical factors:

Watch this before moving forward:

3 Signals To Watch For Mapping The Credit Cycle:

The credit cycle is being driven by a surplus of liquidity in financial markets, matched with an increase in credit issuance in the underlying economy. If these shift, it will begin to increase the probability of downside in equities. We are NOT seeing this take place yet.

As long as 1y inflation swaps are pricing ABOVE 3% and the forward curve is pricing more than 40bps of cuts for this year, it is a very accommodative environment for risk assets to rally.

If the Fed continues to make the policy error of being overly accommodative at this high level of nominal GDP, the long end of the curve will price this. Simply put, if the Fed is to lose, long-end interest rates can move up to price the difference, which could ultimately pull risk assets down. We have not seen this yet because the last 2 inflation prints came in flat, but I expect these to come in higher over the next 6 months. This means watching long end rates and their potential drag on equities will be critical. We are not seeing this yet as the Russell is sitting at all time highs and capital continues to move into low quality factors.

When FX and Bond volatility rise on a shift in correlations and a change in the underlying information, it will signal more potential downside in equities. We are not there yet as implied volatility in FX and bonds continues to compress:

If we see the collocation of these factors simaltanously shift, it will begin to exptoentially increase the probability of a regime shift and indicate the credit cycle is losing momentum. WE ARE NOT THERE YET

Once we begin to shift, I will publish a report on it and explain everything in detail. Until then, I remain bullish.

As always, a pepe for the culture:

Interest Rates, Equity Sectors, and Macro Positioning

Capital Flows — Wed, 01 Oct 2025 01:28:03 GMT

Interest Rates, Equity Sectors, and Macro Positioning

In this report, I want to cover my views on interest rates, equity sectors, and what we are seeing for macro positioning. Please review the macro report here for a full breakdown of the structural and cyclical regime we are in so that you have the full context:

Main Idea: We are in a regime characterized by resilient growth and a neutral-to-positive inflation trend. The Federal Reserve is cutting rates into this environment, while government expenditures are rising. Together, this creates both procyclical monetary policy and procyclical fiscal policy.

To navigate markets correctly, we must answer two fundamental questions:

How does the current regime set the preconditions for the future or unseen regime?
How much of the current regime is already priced in, thereby reducing the risk-reward of betting on its continuation?

If we can correctly answer these questions, we can understand WHY markets are moving, establish the respective scenario analysis, and define the risk-reward for trading opportunities.

Macro Picture:

I want to start with a quick summary of WHERE we are and WHY procyclical policy is such a massive driver of risk flows right now. There are 4 major forces that I am watching right now for this.

First, on a quarterly basis, we are seeing net government outlays rise in the level AND rate of change (the chart below shows net outlays with the bars showing rate of change):

Second, the investment line item of GDP and goods spending, both of which have higher sensitivity to interest rates, are accelerating right now. The implication is that we are NOT seeing interest rates have a restrictive impact on economic growth or inflationary pressure.

If the economy were highly sensitive to interest rates and corporations were cutting back investment, the industrial sector would be underperforming significantly, but instead we are seeing the opposite, with industrials in the Russell and S&P 500 emerging as clear leaders just behind tech and telecom.

Third, the labor market is not collapsing because it is the flip side of GDP. You can’t have the labor market collapse if GDP is expanding. I explained the consumer in the July piece:

Let me put this simply: GDP is the flip side of the labor market. GDP functionally moves in lockstep with earnings in sectors. Earnings for companies are priced with a very high degree of efficiency in today’s world due to all the L/S funds running alternative data models to get almost real-time estimates of all major line items in the income statement of a company. The MoM and 3-month trend (white line in chart) in NFP data is likely to remain in expansionary territory. We are likely to see breadth in the index remain squarely positive, especially as the Russell is pushing higher. If the labor market actually began to unwind, we would begin to see significant underlying rotations in the underlying index to price the marginal probability of this before it even hit the lagging headlines in the media.

Fourth, the Fed’s stance is clearly pushing short-end real rates lower as credit spreads continue to fall, a trend that has persisted since the spike during the Q1 drawdown, leaving both real rates and credit spreads lower and creating a net benefit for companies that gain from strong top-line nominal GDP and reduced real financing costs.

This wouldn’t be an issue, and we would have already transitioned into a Goldilocks regime if inflation weren’t sitting at 3% in core:

This is WHY ES has outperformed bonds on a cross-sectional basis recently. Simply put, stocks are outperforming bonds (green box) because the net liquidity impulse, combined with accelerating growth, is pushing equities HIGHER while creating headwinds for bonds, as long-term bonds are NEGATIVE BENEFICIARIES of rising long-term nominal GDP and expanding macro liquidity:

The specific level that functions as a signal for WHERE we are in the macro regime is the FOMC level in equities and bonds. As I explained in the positioning report, we are likely to remain BELOW the FOMC level in bonds and ABOVE it in equities. Following the stronger-than-expected JOLTS data this morning, equities moved higher while long-duration bonds ended marginally lower.

Summary of WHERE We Are:

Now that we understand the current regime, it becomes clear how critical this period is: all major macro forces are aligning to create a melt-up and an acceleration in the credit cycle. We know what is happening with resilient growth, procyclical policy, and liquidity tailwinds, but the real challenge is answering the second question: how high can this run go? The opportunity and the risk-reward from here depend on moving beyond describing the regime to measuring the extent of its continuation.

This brings us back to the two questions I started with:

How does the current regime set the preconditions for the future or unseen regime?
How much of the current regime is already priced in, thereby reducing the risk-reward of betting on its continuation?

Answering The Most Important Questions In Macro:

Alpha Report: WHY is the Fed forcing real interest rates down?

Capital Flows — Mon, 29 Sep 2025 19:02:48 GMT

Alpha Report: WHY is the Fed forcing real interest rates down?

Educational Primers and Credit Cycle Playbooks:

Macro Report Comprehensively Mapping WHERE we are and WHAT the risks are:

Slidedeck From Video:

Alpha Report Why Is The Fed Forcing Real Interest Rates Down

2.67MB ∙ PDF file

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As always, a Pepe for the culture:

Alpha Report: Positioning Into Labor Market Data

Capital Flows — Mon, 29 Sep 2025 13:55:48 GMT

Alpha Report: Positioning Into Labor Market Data

Over the last two weeks, CPI and PCE data showed inflation coming in flat but still holding above the 2% level. This matters because we are not accelerating like in 2022, nor are we decelerating like in 2023. Inflation is functionally flat. At the same time, it remains above the Fed’s 2% target. Just as we reach this stage of resilient inflation above 2%, the Fed has chosen to cut rates and lean heavily on growth rhetoric in its forward guidance to justify the move.

This is WHY the labor market data is important this week. When the Fed shifted its emphasis at Jackson Hole to supporting growth instead of making progress on inflation, it began to increase the amount of money in the system as real rates fell.

If the Fed allows real rates to fall into positive growth, it systematically pushes capital out the risk curve: (chart is 2-year real rates):

The main idea is that we continue to be in an accommodative territory for equities to rally. My view for this week is we are likely to push higher and remain ABOVE the FOMC levels/intraweek lows from last week:

This is why I ran the ES long for paid subscribers last week when we were at the 6670 level:

The macro regime for these labor market prints is directly linked with the global imbalances I laid out in this report:

Bond Positioning:

As we progress through the labor market prints this week, I believe we are going to remain below the FOMC highs in bonds. Why? Because the Fed is cutting into resilient growth. The only reason bonds aren’t even lower is that inflation has come in flat instead of above expectations. This level is something I noted before we had FOMC: LINK

FX and bond volatility continue to compress as the Fed is cutting rates but I believe there will be a moment where the excess liquidity in the system creates larger problems in the currency or in long term interest rates:

Gold and silver are the clearest outperformers in this context as the Fed is overly accommodative into low credit spreads and the global system is on edge due to all of the international changes Trump and Bessent are attempting right now. I believe we are going to remain above the FOMC levels in the metals:

The same is true for copper. We continue to print in the risk reward I shared:

Pulling Things Together:

The regime I have been laying out in the macro reports continues to be confirmed by the flows and progression of economic data. I think the labor market prints will come in line or maybe marginally above expectations this week to show resilience in the US economy.

I would encourage people to review the recent macro reports because they frame everything: LINK

Thanks

As always, a Pepe for the culture:

Q&A For Paid Subscribers: Macro

Capital Flows — Fri, 19 Sep 2025 00:20:27 GMT

Q&A For Paid Subscribers: Macro

The Largest Risk To The Credit Cycle

Capital Flows — Thu, 18 Sep 2025 00:23:57 GMT

The Largest Risk To The Credit Cycle

Macroeconomic Playbook: From Jackson Hole 2025 to the September FOMC:

Macroeconomic Playbook From Jackson Hole 2025 To The September Fomc

308KB ∙ PDF file

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Educational Primer and Credit Cycle Playbooks:

Slide Deck From Video:

Slide Deck For Credit Cycle

3.34MB ∙ PDF file

Download

Capital Flows Analysis And Trades:

Macro Liquidity and Positioning In Bitcoin/MSTR

Capital Flows — Mon, 08 Sep 2025 19:46:42 GMT

Macro Liquidity and Positioning In Bitcoin/MSTR

Charts From Video:

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Bitcoin As A Macro Liquidity Release Valve (8) (1)

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Positioning and Flows Analysis In The Macro Regime:

I already laid out my views on interest rates, macro liquidity, and the cycle here:

As I noted in the report, if you understand HOW interest rates contextualize everything, then you will know that it is the price of money. All goods, services, and assets are priced in MONEY. Bitcoin specifically is a release valve for macro liquidity, which means its sensitivity to interest rates is THE most critical thing to know when predicting the price.

Macro Flows:

The interest rate sensitivity model for Bitcoin shows that over the past three weeks, its price has had a negative response to interest rates, underperforming ES. This is critical because real rates have declined, yet Bitcoin has not rallied. The key question now is whether Bitcoin shifts into a phase of outperformance—and how that will flow through to MSTR, especially given the recent news that it will not be included in the S&P 500.

I am going to lay out these flows, positioning, and trade implications below.

2025 Guide to Interest Rates: Navigating the Price of Money

Capital Flows — Mon, 08 Sep 2025 02:35:24 GMT

2025 Guide to Interest Rates: Navigating the Price of Money

Recent labor market prints point to normalizing growth, yet inflation remains stubbornly above the Fed’s 2% target. Markets are now pricing in significant rate cuts, raising the question: how do you navigate a world where growth is normalizing but money is still expensive? Interest rates are not an abstract policy lever—they define the cost of credit and touch every part of the economy. From homeowners facing higher mortgage payments to corporations refinancing debt, the ripple effects are everywhere.

The Everyday Impact of the Price of Money

There is ALWAYS a tangible impact on the changes of interest rates across every person in the economy and financial system:

Homeowners — Mortgage costs rise and fall with rates, directly changing affordability.
Renters — Landlord borrowing costs pass through as higher rents.
Corporations — Debt refinancing and capital investment depend on the cost of credit.
Small Business Owners — Access to working capital tightens when rates climb.
Investors — Rates drive bond pricing, equity valuations, and cross-asset flows.
Governments — Servicing sovereign debt gets more expensive as rates rise.
Consumers — Credit cards, auto loans, and student debt all move with policy shifts.
Housing Market Participants — Construction and sales volumes hinge on mortgage affordability.
Retirees / Pension Funds — Rates shape income generation and portfolio stability.

Strategy and Why Interest Rate Regimes Matter

If you are reading this, it is likely because you fall into one of these categories or because you are helping someone manage their interest rate risk within them.

Homeowners
- Strategy: Lock mortgages when spreads compress, refinance strategically, and avoid floating-rate loans in tightening cycles.
- Why the regime matters: In a falling-rate environment, refinancing can reduce payments substantially. In a rising-rate regime, understanding forward guidance helps avoid unaffordable exposure.
Renters
- Strategy: Negotiate longer leases during easing cycles, and time moves when financing costs decline for landlords.
- Why the regime matters: Anticipating rate shifts lets renters position ahead of rising rental costs rather than reacting after increases hit.
Corporations (CFOs, Treasurers)
- Strategy: Extend maturities in low-rate regimes, hedge exposure to volatility, and delay large borrowing when rates are elevated.
- Why the regime matters: Knowing whether rates are peaking or cutting guides whether to lock financing now or wait, directly influencing earnings and shareholder value.
Small Business Owners
- Strategy: Maintain liquidity buffers, secure fixed-rate credit during easing, and stagger debt maturity to weather volatility.
- Why the regime matters: Rate cycles dictate whether capital access expands or contracts, shaping survival odds in downturns.
Investors
- Strategy: Shift allocation between bonds, equities, and alternatives depending on curve shape and rate direction; exploit relative-value opportunities.
- Why the regime matters: Rates set the discount rate on all future cash flows—knowing the regime prevents being caught on the wrong side of valuation compressions or expansions.
Governments
- Strategy: Smooth debt issuance across maturities, lock funding in low-rate environments, and manage rollover risk during tightening.
- Why the regime matters: The interest rate regime dictates fiscal sustainability—misjudging it leads to spiraling deficits.
Consumers
- Strategy: Pay down floating-rate debt quickly in rising cycles, refinance fixed obligations in easing cycles, and adjust consumption timing to financing conditions.
- Why the regime matters: Understanding where policy rates are headed avoids locking into unfavorable debt structures and maximizes disposable income.
Housing Market Participants (Builders, Realtors)
- Strategy: Align construction pipelines with periods of rate easing, offer financing incentives when rates are high, and time sales cycles to affordability trends.
- Why the regime matters: Housing demand is hyper-sensitive to mortgage rates; anticipating policy direction avoids misaligned inventory and cash flow crises.
Retirees / Pension Funds
- Strategy: Rebalance toward higher-yielding instruments in rising cycles, ladder maturities to smooth returns, and hedge volatility in transition periods.
- Why the regime matters: Pension solvency and retirement income streams depend on forward rate paths—misjudging them risks underfunding or eroded purchasing power.

Clarity In The Cycle

If you can understand where we are in the interest rate cycle, you can understand how to adjust exposure. Even if the future cannot be known with certainty, the present can be mapped with precision and that clarity provides the strategy for what to do right now.

MAIN IDEA:

Growth in the U.S. economy remains resilient, with little evidence of significant deterioration in the data. This resilience provides structural support for long-end interest rates, anchoring them at higher levels than in previous cycles. At the same time, inflation risk is not elevated enough to push yields to new highs, keeping upward pressure contained.
The Fed’s willingness to let significant cuts be priced into the forward curve, combined with capital flowing out the risk curve, signals that policy is shifting within a broader regime of structurally higher rates. This means the key question for markets is not whether rates are high, but how the path unfolds in the interim.
If we can establish a clear understanding of that path, we can design a clear strategy for how to adjust exposures and take action as we move into the end of 2025.

This structural reality is tangibly reflected in the longer term ranges we have seen in long end rates

10 year interest structural range:

30 year interest rate structural range:

When long-term interest rates push toward the top of their structural range, it reflects temporary inflation risks that fail to develop into a sustained inflationary cycle. Conversely, when rates move toward the bottom of the range, it reflects recession risks that ultimately do not materialize into a full downturn.

Within that backdrop, the path of rates is shaped by short-term catalysts that act as intertemporal markers. These events are not just data releases—they are checkpoints where the market tests whether the current regime is holding or shifting. By mapping these catalysts, we can track how inflation risk and recession risk express themselves inside the broader structural ranges of long-term rates.

September 2025

2025-09-10: PPI Inflation Print
2025-09-11: CPI Inflation Print
2025-09-17: FOMC Rate Decision and Forecasts
2025-09-25: PCE Inflation Print
2025-09-30: JOLTS Labor Report

October 2025

2025-10-01: ADP Employment Report
2025-10-03: Nonfarm Payrolls (NFP)
2025-10-08: FOMC Rate Decision and Forecasts
2025-10-15: CPI Inflation Print
2025-10-16: PPI Inflation Print
2025-10-30: PCE Inflation Print

November 2025

2025-11-04: JOLTS Labor Report
2025-11-05: ADP Employment Report
2025-11-07: Nonfarm Payrolls (NFP)
2025-11-13: CPI Inflation Print
2025-11-14: PPI Inflation Print
2025-11-19: FOMC Rate Decision and Forecasts
2025-11-26: PCE Inflation Print

December 2025

2025-12-02: JOLTS Labor Report
2025-12-03: ADP Employment Report
2025-12-05: Nonfarm Payrolls (NFP)
2025-12-10: CPI Inflation Print
2025-12-10: FOMC Rate Decision and Forecasts
2025-12-11: PPI Inflation Print
2025-12-19: PCE Inflation Print

The Trading Tactical Playbook for actively trading through these types of catalysts is here (all of the other playbooks are linked in the educational primer section below):

Us Interest Rates Trading Tactical Playbook (5)

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Interest Rate Views, Risk Reward, and September FOMC Meeting:

My macro view remains that the credit cycle is in full swing: inflation risk is elevated, real rates are falling, and capital is moving out the risk curve into higher-risk equity sectors. This dynamic will likely continue until the surplus of liquidity becomes unsustainable. The most probable trigger for unsustainability will be either long-end rates blowing out to the upside or cross-border flows selling U.S. assets as the Fed and Treasury continue to undermine the currency. I laid out how this functions in the two most recent macro reports:

Until one of these risks trigger, the primary goal is being long risk assets that benefit from the credit cycle AND managing the path of interest rates within this higher structural range.

The recent labor market prints and rhetoric by the Fed directly connect to specific ranges in the SOFR curve and long duration bonds. I am going to walk you through them and explain HOW to think about WHERE interest rates are likely to move.

The model below breaks down HOW AGGRESSIVELY the forward curve is pricing cuts. The H7 contract (March 2027) is where the deepest part of the cuts exists in the forward curve. In simple terms, the forward curve is pricing a total of 143bps of cuts between now and March of 2027.

The H7 contract priced the same aggressiveness of rate cuts earlier this year during the tariff drawdown in equities. Since this time, the Fed has allowed the reds (colored SOFR contracts in model above) price more and more rate cuts on the forward curve.

The Fed is simply shifting its stance to overemphasize growth risk vs inflation risk in order to justify cutting interest rates. The most recent NFP prints have caused buying pressure in the short end (ZT in the chart below) but we remain BELOW bid from earlier this year (yellow line). We are likely to remain BELOW this level as we progress into the Sept and Oct FOMC meeting because of how aggressively the 2025 contracts are pricing rate cuts.

Notice that we are actually pricing a little bite more than a 25bps cut in the Sept FOMC meeting!

We are almost certainly going to get a 25bps cut at the September FOMC, and it is HIGHLY unlikely that we see a 50bps cut. Given Powell’s shift at Jackson Hole, the recent labor market data, and the fact that 2s10s has not been bear steepening or steepener twisting over the last 3 weeks, a cut at every meeting this year is a very real probability, but it is likely the most dovish outcome.

The implication of this is that there is fuctionally no upside in the Z5 contract if 75bps of cuts are realized for 2025 (which would mean a 25bps cut at the remaining 3 FOMC meetings). As the Z5 and H7 contract have priced more cuts, the 2s10s curve has not bear steepened in a similar manner to 2024 when the Fed cutting immediately caused long end rates to rally.

We are now seeing the 10 year futures contract come back to the level it was at during the drawdown in equities earlier this year. In my view, we are unlikely to move ABOVE this level in ZN before the Sept FOMC meeting and if we continue to have capital move out the risk curve on equity rallies, it further decreases the probability of bonds rallying.

However, the key differntiator for WHERE we are moving with long end rates is how 10 year inflation swaps correlate to the further upside in equities. If 10 year inflation swaps begin to have a negative correlation with things like the Russell (blue line) then we could move into a Goldilocks regime where stocks and bonds rally together. Inversely, if the equity melt up begins to become a larger issue for inflation and drag up 10 year inflation swaps, then this will create significant headwinds for bonds.

Interest Rate Scenario Analysis and Strategy Guide:

The structural reality is clear: long-end rates are anchored in higher ranges by resilient growth, yet capped from breaking higher by muted inflation risk. Within that band, the short-term path is shaped by the catalysts that hit month by month—CPI, PPI, PCE, labor market data, and the FOMC. Each release acts as an intertemporal marker that tests whether markets press the top of the range on temporary inflation scares or the bottom on temporary recession scares.

What matters for strategy is not predicting the exact future, but knowing where we are in the cycle and how to adjust exposure. The scenarios below link the structural regime to cyclical catalysts and provide a clear playbook for households, businesses, investors, and governments to act decisively as we move through the end of 2025.

Structural Frame

Long-end rates trade in higher structural ranges, anchored by resilient growth.
Tops of the range = temporary inflation scares that fade.
Bottoms of the range = temporary recession scares that fade.
Path into year-end is defined by catalysts (FOMC, CPI, PPI, PCE, ADP, JOLTS, NFP).

Scenario 1 — Base Case: Resilient Growth, Contained Inflation

Triggers: CPI/PCE ~0.2–0.25 MoM, NFP 100–175k, JOLTS soft but stable.
Curve: Mild bull steepening, long end mid-range.
Strategy: Stay positioned for stability in higher rates by locking favorable financing, pacing corporate and household balance sheet risk, and using quality duration or credit selectively to capture steady carry.

Scenario 2 — Inflation Flare, Fades (Top-End Test)

Triggers: One or two hot CPI/PCE prints (0.3–0.4), follow-ups cool.
Curve: Bear steepener/twist, fails at top of range.
Strategy: Treat inflation scares as tactical opportunities to fade; hedge exposures in the short term, then re-enter duration or credit once the data confirms the cycle is not breaking higher.

Scenario 3 — Growth Scare, Fades (Bottom-End Test)

Triggers: NFP <100k once, JOLTS openings lower, CPI tame.
Curve: Bull flatten, long end tests bottom of range.
Strategy: Use temporary growth scares as an opportunity to rebalance into equities or credit once data stabilizes, positioning ahead of the unwind of the duration bid while maintaining liquidity discipline.

Scenario 4 — New Inflation Cycle (Upside Breakout)

Triggers: 3+ hot inflation prints, wage growth accelerates.
Curve: Bear steepening, long end breaks above range.
Strategy: Shift aggressively away from duration, front-load financing and borrowing, and reposition toward inflation-linked assets and sectors that can sustain margins in higher rate environments.

Scenario 5 — Hard-Landing Recession (Downside Break)

Triggers: 2–3 weak NFPs (<50k), quits collapse, CPI <0.15 for several months.
Curve: Bull steepening, long end breaks below range.
Strategy: Move defensively by extending duration, prioritizing liquidity and high-quality assets, and reducing cyclical exposure as risk premia reprice across markets.

Contingency Planning is EVERYTHING!

Thanks

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