The Macro Regime is approaching a point in time where the probability of long end yields blowing out to the upside is increasing
Positioning is not expecting this, and a repricing of interest rates will reverberate across equities, BTC, and FX
Let's dig in 🧵👇
Ever since the beginning of the rate-cutting cycle in 2024, longer term interest rates have continued to shrug off recession risk and push higher. This is an indication that as the Fed is cutting and pausing, long term nominal GDP expectations are accelerating.
The Fed has blatantly ignored the signals by the market and instead opted to pause when they should have more of an aggressive stance.
1 year inflation swaps have been rising since June of 2024 indicating inflation risk is rising.
As inflation swaps have risen, low quality factors have begun to rally as capital moves out the risk curve. When capital moves out the risk curve like this, it is an indication of accelerating growth and liquidity in the system which ultimately results in inflation, especially if we remain above the 2% target.
Deflation bros continue to say inflation is at or even below the 2% inflation goal in spite of core services being well above 3%
After the JOLTS and NFP print last week, it was very clear that an imminent recession is not likely. However, expectations refuse to acknowledge that it's not just that recession risk isn't here but it's the opposite: HIGHER inflation/growth risk.
As I laid out prior to the CPI print, the skew in bonds remains to the downside:
All of this is bringing us to the macro end game where they will have to choose who they want to hurt, either the economy or the currency, as the long end of the curve blows out. In the interim, equities and BTC melt up:
Additionally, in the interim we are going to see short positioning in the dollar get absolutely destroyed. The bear steepening in the US curve as well as repricing of the short end is creating significant buying pressure in the DXY.
And wrote primers on how to develop a macro thesis, how to analyze the S&P500 in these regimes, and how to analyze Bitcoin properly. These playbooks set the foundation for the melt up and melt down that is coming.
I continue to hold the long ES, RTY, and BTC positions I laid out in this thread. All of the signals for the melt up remain green. Once they turn yellow and then red, I will publish a report on it for subscribers on the website.
locking in even more
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