Cross-Border Flows, the Dollar Devaluation, and the Global Trade Rebalancing
Why money never functions in a vacuum, and what the asset liability web tells you about where capital is actually going
Cross-Border Flows, the Dollar Devaluation, and the Global Trade Rebalancing
Most of the narratives about macro liquidity, dollar devaluation, and credit cycles circulating right now are disconnected from price. Today I went back to first principles. What is money? How does credit creation actually work? What are the two fundamental risks that price every asset in existence? And how do you connect all of that to what is actually happening in markets right now rather than just describing an abstract concept? Below are the main talking points. Tomorrow I go deeper into cross-border flows, trade imbalances, and how surplus and deficit countries drive FX.
LIVESTREAM RECORDING FROM TODAY:
Today’s Livestream: Main Talking Points
1. Every financial asset is simultaneously someone else’s liability. Your bank deposit is the bank’s debt. Your treasury bond is the government’s debt. Your mortgage is an asset to the bank. This is not a philosophical point. It means that money never functions in a vacuum and that every macro shift creates winners and losers on both sides of these relationships simultaneously. If you bought a house in 2020 at a locked-in low rate, you are winning as inflation rose. The bank that issued that mortgage at 3% into a 5% rate environment is losing in real terms. That asset liability mismatch is how financial crises actually happen.
2. Most money in the modern economy is credit, not central bank printing. When a bank makes a loan, it creates an asset and a new liability simultaneously. No physical money is printed. Purchasing power is created through an accounting entry. This is why the Fed expanded its balance sheet through the entire 2010s and inflation barely moved. The people saying quantitative easing always causes inflation could not explain that. If you cannot explain that divergence, your liquidity framework is incomplete.
3. Every asset in existence is priced by exactly two risks: duration risk and credit risk. Duration risk is the uncertainty of real purchasing power over time, driven by inflation. Credit risk is the uncertainty of nominal repayment, driven by growth. Long bonds and growth stocks get crushed when inflation rises because of duration risk. High yield spreads blow out in recessions because of credit risk. Everything else is a derivative of these two. Once you understand that, the stock-bond correlation tells you in real time whether markets are pricing a duration shock or a credit shock on any given day.
4. The 2022 bear market was a duration risk event, not a credit risk event. Stocks and bonds sold off together because the primary driver was inflation repricing the value of future cash flows. Credit spreads widened but not catastrophically. The labor market held. That is not what a credit cycle contraction looks like. Understanding that distinction would have kept you on the right side of the trade all year and prevented you from being positioned for a recession that never arrived.
5. Crises do not erupt from high debt levels. They erupt from asset liability mismatches. Every chart on Twitter showing debt-to-GDP at all-time highs is not telling you a recession is coming. It is describing a stock. What matters is the mismatch -- when short-dated liabilities are funding long-term assets and the rollover conditions change. The duration of high yield debt has been collapsing for five years. Banks are giving shorter terms on high yield credit, which means less duration risk in the high yield market but more refinancing risk. That dynamic is why the high yield ETF moves with equities, not with TLT.
6. The equity risk curve is the most direct read on whether liquidity is expanding or contracting. The Goldman Sachs high yield debt sensitivity index, which captures the stocks with the most leverage, has been making multiple all-time highs. Capital is moving out the risk curve into the highest risk, highest leverage names. That is not what a liquidity contraction looks like. If someone is telling you liquidity is contracting while that index is at all-time highs, their framework has been falsified by price. Connect your view to price or admit the view is wrong.
7. The yield curve encodes the current macro regime in real time. Bull steepening signals crisis or aggressive easing. Bear flattening signals late-stage tightening. Bear steepening signals inflation fears. Bull flattening signals a growth scare. We had the curve invert on inflation risk in 2022, not recession risk. We un-inverted into bear steepening because growth and inflation were accelerating, not because a recession was imminent. Everyone who said the un-inversion signals recession lost money. The model is free on the Substack. There is no excuse for not having it.
8. Tomorrow: how surplus and deficit countries drive FX, carry trades, and cross-border flows. The US is a trade deficit country. China is a surplus country actively suppressing its currency to carve out global manufacturing. Every other major economy is choosing between defending trade competitiveness and fighting inflation. That contest is playing out in FX right now and it connects directly to how capital flows across borders, what the dollar does next, and why the people Trump has put in place -- Bessent, Warsh, Miran -- all specialize in exactly this. That is tomorrow’s stream.
Slide Deck, Credit Cycle Playbooks, Educational Primers:
Below are the 3 reports/videos I have done on the current credit cycle and the bets I am taking in it. If you are trying to understand WHERE we are and WHAT to look for, go through these.
Here is the slide deck from today’s livestream:
Here are the two educational primers I wrote on the credit cycle and money:
All of the educational primers are here for free:
![[FREE] Educational Primers On Every Aspect Of Macro & Markets](https://substackcdn.com/image/fetch/$s_!tfas!,w_140,h_140,c_fill,f_webp,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F69c49472-3d63-47f0-9b8c-2a682fa625f1_1024x1024.jpeg)
Tomorrow: Capital Flows | Agentic Macro Trading | Surplus Countries, Deficit Countries, and the FX Endgame
Tomorrow, I am mapping the full cross-border flows framework. How trade imbalances between surplus and deficit countries create the savings glut that funds US asset markets. How China weaponizes its currency. Why the dollar falling against the yuan right now is not a liquidity story -- it is a deliberate trade rebalancing play. And how all of that connects to carry trades, FX positioning, and the next leg in equities.
TOMORROW’S LIVESTREAM: LINK
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