Hello readers,

Good news. Due to popular demand, we’re extending last week’s Black Friday sale through the end of this week (Sunday, 12/7).

If you’ve been thinking about upgrading or locking in a full year of research + data at a discount, this is the best time to do it.

An annual subscription ($14.58/month at the reduced rate) gets you:

1. Access to our portfolio

2. “Cycle awareness” updates

3. Market insights and macro views

4. Curated datasets (which informed our move to “risk off” and will inform subsequent moves to “risk on”)

We will be adding additional features and raising the price next year (existing members lock in at current prices).

Don’t forget: our best work is done in the bear markets.

Important note: if you are already a monthly Pro subscriber, you’ll need to cancel your monthly plan (go to manage subscription on our website) before upgrading to annual via the link below.

Back to the program.

Last week’s report focused on market narratives vs reality through the lens of onchain data and BTC long-term holders.

Today, we’re following a similar theme, but focusing on the TradFi markets.

After all, the best way to gain an edge in the market is to hold strong, data-driven views that run counter to market consensus.

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.

Let’s go.

New Fed President/Rate Cuts

As we’ve noted in recent research, the gears are currently grinding on the fiscal side of the capital flows equation:

1. Spending growth is disinflating. We can see this in the marginal decline in the fiscal deficit for FY25 (ended 9/30 — Trump was in office for about half the fiscal year). The October data just came in, showing a 29% decline in the deficit compared to October ‘24.

2. Tariff revenues are pulling capital from the private sector to the government sector.

It’s our view that this is the big shift that is playing out in the U.S. economy right now. Declining spending growth + tariffs = a drag on liquidity.

We believe this is leading to softness in the labor market (along with immigration) and tensions in repo markets — as reflected in reduced banking sector liquidity/reserves.

We started flagging tightening liquidity in the banking sector in early October. The problem continues to persist.

Rate Cuts

Market participants seem happy to look past these warning signals, given that a new (dovish) Fed President is expected to be announced before year-end.

Rate cuts have to be good for risk assets, right?

In 2025/2026? That might not be the case.

Why?

1. Lower borrowing costs for one party reduce income for another.

2. In this case, the U.S. Government ($38 trillion of debt) will have lower borrowing costs. That means fewer interest payments to the private sector.

That’s liquidity negative.

We think it’s going to reduce the fiscal deficit even further (less $ moving out to the economy/private sector).

Sure, rate cuts can lead to more bank lending. But is it enough to offset the tightening liquidity conditions elsewhere?

We’re not convinced. Especially not during the transition phase (near-term).

That’s why we believe the fiscal dominance/debasement trade is on hold, for now.

The Dollar

It’s our view that the Trump administration strategically wants a weaker dollar for several reasons:

1. To boost U.S. exports — a weaker dollar makes American goods cheaper for foreign buyers (improving the trade deficit).

2. To reduce U.S imports — by making them more expensive for Americans (again, this helps the trade deficit with China).

3. Reshore manufacturing — points 1 + 2 support a long-standing political objective to bring production back to the U.S.

To achieve this (and offset the liquidity drain from slowing fiscal spend and tariffs), the Trump admin wants substantially lower interest rates — which should put downward pressure on the dollar.

Markets are interpreting this as bullish for risk assets.

But something happened in April that caught our attention:

The dollar sold off as equities sold off.

This is highly unusual. Typically, risk off = dollar up. But the April behavior shattered a widely held view — revealing something more profound about the structure of foreign ownership of U.S. assets, global capital flows, and the modern carry trade regime.

The Setup