Notes from the back porch at Camp Kotok, August 2026. The conversation was held under the Chatham House Rule, so remarks are unattributed, with one exception: David Kotok reviewed this draft and gave me permission to quote and name him. Camp Kotok is organized by the Global Interdependence Center; I serve on GIC’s program committee. Nothing here is investment advice.

Every year at Leen’s Lodge, after dinner, the most interesting conversation happens on the porch. This year it started with a chart: fifteen years of a flat line, then the line goes vertical.

[CHART: Shanghai Futures Exchange gold warrants outstanding, in kilograms. Source: Bloomberg, SFGDTOTL Index. Chart courtesy of David Kotok.]

That line is the stock of physical gold sitting behind registered warrants at the Shanghai Futures Exchange: roughly 114 tonnes, up from effectively nothing two years ago. For perspective, the median level of that series across eighteen years of daily data is under three tonnes, and the all-time high was set this week. The buildup began, not coincidentally, after the West froze roughly $300 billion in Russian reserves and then moved to tap them. One participant has been tracking the daily figures, which are public and run on Bloomberg, and walked us through why he thinks it matters more than its size suggests.

The short version of his argument: China has quietly assembled the two halves of a payment system that competes with ours, and gold is the trust mechanism holding it together.

The plumbing nobody watches

Start with clearing. In 2015, Shanghai opened a facility that lets trading partners settle transactions in yuan rather than routing through dollars. At launch it was, in the words of the person who tracks it, a pimple. It has grown every year since, and the growth maps neatly onto the shocks the United States has delivered to the rest of the world: sanctions, seizures, tariff fights, debt-ceiling brinksmanship. Around 130 countries now participate.

Most of those payments are visible. The interesting part is the sleeve that isn’t. China runs its own messaging system, CIPS, parallel to SWIFT. It’s fast, it settles in seconds, and Western eyes cannot see inside it. China, meanwhile, remains a SWIFT member and sees everything we do. Something like a fifth of the payments clearing through Shanghai now travel through that opaque channel. We know North Korea gets paid for missile parts somehow. This is somehow.

Now add the gold. A warrant is a claim on a specific kilogram in a registered vault, and when a warrant settles, the physical metal moves from one account to another. That’s what the vertical line at the top of this piece is measuring, and the data is public. Next door, the Shanghai Gold Exchange already handles more physical gold delivery each year than any other exchange in the world. Compare that with how we trade gold in the West, where volumes are perhaps ten times larger but almost everything settles in paper claims. Their market is a fraction of our size and all of it settles in metal.

Put the two together and you get something one porch veteran called Bretton Woods 2.0. If you’re a businessman in Jakarta paying a supplier in Frankfurt, you can route the payment through Shanghai, invisibly if you like, and take five percent of the proceeds in physical gold. No dollars touched. No trust in the yuan required, and that last part is the point. Nobody around that porch believes foreigners trust Chinese currency. The system works precisely because you don’t have to.

The original Bretton Woods died, the argument went, because gold was fixed at $35 and there was no mechanism to adjust the price. The Shanghai version prices its gold at market, daily, in yuan. Somebody learned from our mistake.

After camp, David Kotok put the argument in writing for me, on the record:

“Very few people are seeing this skillful approach of a Bretton Woods 2.0, where market forces set the currency exchange rate and offer a gold option, and the anchor clearing mechanism is yuan, not dollar, and the structure bypasses trust in government institutions except for the PBOC. If the PBOC maintains credibility while the US government loses credibility and continues a deterioration of image and global trust, I believe the trend in favor of Shanghai will continue and accelerate.”

Read that last sentence again. The system doesn’t eliminate the need for trust. It relocates it, to a single institution in Beijing, and sets up a race between that institution’s credibility and ours.

What the swaps market is whispering

The second thread of the evening was credit default swaps on the United States, credit insurance on Treasury debt, traded mostly in Frankfurt, in euros, by institutions outside our borders. Americans don’t really trade this stuff, which is what makes it a clean read on how the rest of the world prices us.

Going into the financial crisis, US CDS traded in the single digits and essentially flat across all maturities, which after settlement mechanics is effectively zero. The United States was riskless. The first crack came with the 2011 debt-ceiling fight. Today the curve is upward sloping and stays that way regardless of conditions: roughly 23 basis points at one year, 40 at five, 50 at ten. During the last debt-ceiling standoff, before the handshake deal, the one-year topped 100.

[CHART: US credit default swaps in euros, term structure on January 1, 2008 versus August 5, 2026. Intermediate tenors interpolated from 1-, 5-, and 10-year quotes. Source: Bloomberg; pricing via CMA New York. Chart courtesy of David Kotok, Cumberland Advisors.]

A basis point sounds like nothing until you remember it’s being applied, conceptually, to the entire debt structure of the country. Call it $27 trillion. Sophisticated foreign institutions are paying real money for insurance against an event that has never happened, not because America can’t pay, but because of what one participant called the wild craziness in Washington.

Here’s where it got uncomfortable. Someone ran the statistics on euro-denominated US CDS against the euro gold price, same currency on both sides, dollars deliberately excluded. The causality math comes back strong, around 0.6, across horizons of three to twenty-two months. That doesn’t prove gold is trading on American creditworthiness. It does mean the relationship repeats often enough that you have to respect it. And the gold price has run parallel with Shanghai’s volume growth for two years.

One more wrinkle worth filing away: central clearing of fixed income through the FICC goes into effect next July, and at least one person on the porch suspects part of the design intent is to dampen exactly this CDS pricing. Whether it works, nobody claimed to know.

The room votes with its unease

Camp Kotok surveys its attendees, a group that collectively manages or represents somewhere between half a trillion and a trillion dollars. Asked whether America’s standing in the eyes of the world is improving or deteriorating, 80 percent said deteriorating. Asked five years ago whether the Treasury’s gold certificate, still carried on the Fed’s books at $42.22 an ounce, a relic of 1973, would ever be revalued, essentially nobody would have said yes. This year, a handful did. A revaluation would let the Fed deposit roughly a trillion dollars into the Treasury’s account by legislative stroke of a pen. A prior administration reportedly studied the idea and dropped it, partly because it would enrich the gold hoards of Beijing and Moscow at the same time.

The pushback around the porch was real, and it’s the argument that has won for fifty years: there is no alternative with the depth and liquidity of the Treasury market, gold yields nothing and costs money to hold, and over two centuries the metal has returned about one percent above inflation while equities returned six or seven. Someone summarized the dollar’s position as the least worst option, and nobody disputed it. Distrust of America still beats trust in anyone else.

The tripwire everyone agreed to watch

Least worst holds until something forces a choice. The porch settled on one candidate: oil.

There are versions of the current Gulf negotiations in which energy payments to Iran and its neighbors would settle in yuan and clear through Shanghai. If that happens, it will almost certainly be announced as an American win, and in the headline sense it might be. But the petrodollar is the keystone of dollar demand, and it doesn’t matter what the press release says if the actual payment flows through CIPS and a slice of it converts, invisibly, into kilograms in a vault. As one participant put it: break it in oil and you break it everywhere.

Nobody on the porch claimed a dollar crisis is here. The word that kept coming up was thresholds. Where are the levels, in Shanghai volume, in CDS pricing, in oil settlement, at which the dynamic actually changes? Nobody knows. That’s what makes it worth watching.

The central banks are voting too

Here’s the thing that makes the porch discussion more than a China story: the official sector worldwide has already reached its own verdict, and it’s buying.

[CHART: Gold futures, weekly, 2024 to present]

Through the first half of this year, Poland has been the largest official buyer, adding 82 tonnes as part of a stated plan to push holdings toward 700 tonnes and roughly 30 percent of reserves. Uzbekistan, China, and Kazakhstan follow, with the Czech Republic, Singapore, Chile, Jordan, and Ghana also adding. Central banks bought over 860 tonnes in 2025, nearly double the pace of the 2010s, and net purchases have now run seventeen consecutive months through some of the highest prices in history.

The more telling development is the first-time buyers. Guatemala. Indonesia. Malaysia. Cambodia. Uganda. Kenya. Some of these institutions have never held meaningful gold in their history. When central banks in Kampala and Guatemala City independently decide they want metal outside anyone’s jurisdiction, that is not momentum chasing. That is a judgment about the reliability of the existing system, rendered by the smallest players, the ones with the most to lose if their reserves are ever frozen.

[CHART: Central bank buyers and sellers, H1 2026]

And look at who’s selling: Turkey and Russia, both under fiscal strain. That confirms something said on the porch about how the metal actually functions. Gold is the asset a country liquidates when it’s in trouble, central bank to central bank. It’s the reserve of last resort, which is exactly why everyone else is stockpiling it.

The price has noticed. Gold touched an all-time high above $5,500 in late January, corrected nearly 30 percent to around $4,000 by midsummer, and has since bounced back toward $4,400. Even after the correction, it has nearly doubled in two years. A pullback of that size inside a bull market driven by policy buyers rather than traders deserves careful thought, not a shrug.

Gradually, then suddenly

The phrase that hung over the evening came from Hemingway, on how one goes bankrupt: gradually, then suddenly.

It’s not the first time I’ve heard that arc applied to reserve currencies this year. In December, at the GIC’s College of Central Bankers Symposium in New York, Catherine Mann of the Bank of England’s Monetary Policy Committee took part in a session titled “Eroding Reserve Currency Status: A Current and Historical Perspective,” alongside former Atlanta Fed president Dennis Lockhart. Mann sits inside the institution that lived this. Sterling was the world’s reserve currency for a century, and Britain didn’t lose that status in a single crisis. It leaked away over decades of fiscal strain, war finance, and accumulating doubt, until one day a transition that had been unthinkable was simply complete. The session is available through GIC here and is worth your time.

Britain, it’s worth remembering, remained a rich and important country afterward. What it lost was the exorbitant privilege: the ability to borrow in its own currency at a discount the rest of the world subsidized. The American cost of capital has been quietly underwritten by that privilege for eighty years. Our standard of living is built on it in ways most investors never think about, because they’ve never had to.

Do you have enough?

So the question I brought home from Maine isn’t whether to trade gold. It’s an allocation question.

For most American investors the honest answer is close to none. US ETF investors hold under 2 percent of assets in commodities and gold; the comparable European figure is around 8 percent. David Kotok, strategic advisor to the board of Cumberland Advisors and the reason this camp exists, told me he’s now recommending clients hold 3 to 5 percent of their wealth in gold at all times, at any price. He added that it’s something he never thought he’d say. That stuck with me more than any chart did.

The porch advice was the same and deliberately unexciting: a permanent few percent, held regardless of price, because this story doesn’t resolve on a trader’s clock. It’s a dimmer, not a light switch. And the correction from January’s highs means anyone who felt they missed the move now gets a second look at the question.

What I’m watching from here, all of it public and free:

• The gold price itself, as it digests that correction

• Shanghai’s gold warrant stock and physical volumes: SHFE inventory and the historical warrant series, plus the SGE Au99.99 benchmark for the price the metal actually trades at in yuan

• US sovereign CDS spreads, tracked daily at Investing.com (the full euro-denominated term structure lives behind terminal paywalls, but the 5-year tells you the direction)

• The World Gold Council’s central bank statistics, updated monthly

• Any headline about how Gulf oil gets paid for

Any one of them moving is noise. All of them moving together is the story.

In the meantime, the question the porch left me with is the one I’ll leave with you. Look at your allocation. Do you have enough?

These are my notes and interpretations of an off-the-record conversation, and any errors of transcription or emphasis are mine. David Kotok reviewed a draft of this piece, supplied the warrant data and sources, and, with characteristic generosity, offered to take responsibility for any errors. I’ll let him keep the data; the opinions and any remaining mistakes are mine. Not investment advice; talk to your own advisor about your own situation.

I also had a job to do — I moderated the morning session on tariffs and war.

More on that below.

I take notes at these things with one filter: what does this mean for a retail trader running defined-risk stock and options positions? Here’s what made the cut.

Keynote: The Fed is getting harder to read, and that’s a volatility story

The keynote, “Supply Shocks: Macro Cost of Policies,” came from Lael Brainard, Ph.D., former Vice Chair of the Federal Reserve Board of Governors, in conversation with Michael McKee, Bloomberg TV’s international economics and policy correspondent. Her argument was more specific than the usual Fed-watching fare, and it matters for anyone trading rate-sensitive names.

The new Fed leadership has dropped forward guidance — the old “rates stay low until X” commitments. Brainard thinks that’s defensible. Forward guidance really only earns its keep when rates are pinned at zero and the Fed needs to promise accommodation it can’t deliver through cuts. It worked after the financial crisis. It failed badly against the COVID supply shocks.

What worries her is something different: the Fed has also stopped explaining its reaction function — the logic connecting incoming data to its next move. Her point was that these are two separate things, and dropping the second one turns policy into a black box. She called it one of the most consequential departures from Fed strategy in decades — and noted the new chair argued for exactly the opposite a year ago.

The market evidence backs her up. Two-year yields posted their biggest jump since the Liberation Day tariffs after the June meeting’s hawkish projections, then fully reversed two weeks later on a few dovish comments from the chair — with no meaningful new data in between. That’s not a market processing information. That’s a market guessing at a reaction function it can no longer see.

She also flagged the new task forces reviewing inflation measurement, productivity, and the Fed’s framework. Fair questions, she said, but they prolong the uncertainty — and she noted the chair’s preferred inflation gauge, the Dallas Fed trimmed mean, happens to be the lowest reading on the board right now, while stickier measures like non-housing services are still running above anything consistent with 2%.

Two exchanges from the McKee Q&A worth passing along. On the chair’s power: the chair reviews every governor’s speech before delivery, shapes the statement, and influences the SEP — so even without ordering votes, the chair steers more than most people realize. And on the Fed’s balance sheet: Brainard argued a return to scarce reserves is technically possible but would force the Fed into a bigger crisis-lending footprint, not smaller — uninsured deposits now run at phone speed, as Silicon Valley Bank proved.

Trader takeaway: the chop in rate-sensitive sectors — financials, REITs, utilities, anything with duration — is partly a communication problem, not just an economic one. That argues for wider strikes and more room in your defined-risk structures. When the market can’t model the Fed, it overreacts to every speech.

Session I: Tariffs and war — consumers are paying, and the middle is where it hurts

I moderated this one, “Tariffs and War: 2nd-order Effects on Households and Markets,” with two people who came at the question from opposite directions: Irina Shaorshadze, PhD, economist and FICC strategist (and fellow GIC board member), on the macro transmission, and Leo Feler, visiting economist at the Federal Reserve Bank of Chicago, with real-time consumer data.

Irina’s numbers first. Effective tariff rates are at levels not seen in roughly 70 years, though below the headline statutory rates — USMCA utilization jumping from about 40% to over 90% explains much of that gap, along with carve-outs like semiconductors. The effective rate has changed roughly 30 times in a year and a half, which is why policy uncertainty measures stay pinned high. The pass-through research is blunt: costs are landing almost entirely on US consumers, not foreign exporters. The reshoring story is thinner than advertised — a modest bump in manufacturing, offset by declines in agriculture and other sectors. And the supply-chain shift she emphasized is structural: companies and countries are moving from just-in-time inventory to just-in-case stockpiling. More resilience, less efficiency — which is a quiet, persistent cost push.

On the Middle East conflict, her framing was a classic supply shock that goes beyond crude — fertilizer and petroleum products too. Shipping has largely normalized since the memorandum of understanding, oil prices have actually come down from the spike, and the US is relatively insulated. The lasting effects she expects: more investment in alternative energy sources, higher defense spending, and wider deficits — in the Gulf, Europe, and Asia alike.

Leo’s data is the part I keep thinking about. His panel tracks 200,000 households through their actual receipts. Inflation-adjusted, people are buying more than they did in 2019 — across every income group. Sentiment says misery; receipts say otherwise. And the gap between how people feel and what they buy tracks their news diet almost perfectly. Same purchases, wildly different vibes.

But underneath the average, the story splits. Lower-income households cut back in 2021 and never came back — that gap just persists. Once you strip out shelter, utilities, gas, and healthcare, the bottom 20% has genuinely lost ground on essentials like food while the top has gained. And on tariff-affected goods specifically, it’s middle-income households doing the cutting: spending down 3–4% against price increases of about 1.2%, with some of the pullback happening before prices even moved. High-income consumers haven’t changed a thing — they keep premiumizing while lower-income shoppers trade down to private label.

Trader takeaway: if you’re trading consumer names, the squeeze is concentrated in the middle of the market — mid-tier retail, casual dining, the brands that live on the middle-income wallet. Luxury and deep discount sit on firmer ground. That’s a relative-value setup, not a broad consumer short.

Immigration is now a macro variable

Jonathan Grode, Esq., U.S. Practice Director and Managing Partner at Green and Spiegel, LLC, delivered a case study on the economic realities of immigration with more market relevance than the title suggests.

The headline stat: 2025 was the first year since 1936 with net negative migration — more people left the country than arrived. Layer that onto a system where policy now moves by executive memo rather than legislation (the last comprehensive reform was Reagan’s in 1986), and labor supply becomes a genuine macro uncertainty. His structural point: only 16% of US immigration is employment-based, versus roughly 35% in Europe and 60% in Canada — and the country-by-country backlog means an Indian national starting a green card today faces a wait measured in decades while a Canadian waits a few years.

His theme was “changing behavior without changing law.” Tourism is down about 20% (Canadian visits to Las Vegas, down 40%). Foreign student enrollment, down about 20% — driven by headlines, not statutes. A June 25 Supreme Court decision affirmed executive authority to end Temporary Protected Status, putting hundreds of thousands of workers into removal proceedings.

His sharpest example was the Hyundai battery plant in Georgia — an $8.6 billion investment celebrated as exactly the reshoring the tariffs are supposed to produce, until an enforcement raid detained roughly 500 Korean nationals and sent them home. Reshoring needs workers, and immigration enforcement and industrial policy are currently pulling in opposite directions. He closed with the numbers that should get every investor’s attention: half of Fortune 100 companies were founded by immigrants or their children, and roughly half of US AI startups were founded by people who arrived on student visas — while Germany actively recruits 400,000 skilled workers a year.

Trader takeaway: labor scarcity is a margin story. Watch it in construction, agriculture, hospitality, and any reshoring name whose labor math quietly assumes workers who may not be available. It’s also one more log on the wage-inflation fire the Fed says it’s watching.

Session II: AI — real spending, narrow proof

“AI Gains and Consequences” paired Holly Wade, Executive Director of the NFIB Research Center and GIC Board Chair, with Don Rissmiller, founding partner at Strategas, moderated by Kay Davis, Vice President of the National Cyber Incident Response Team for the Federal Reserve System.

Don’s framing was the most quotable of the day: we’re at “the end of the beginning.” The spending is real — data center construction has now crossed above office construction in dollar terms. The producers of AI are making money. What’s missing is the other half: users of AI reporting that the technology is improving their earnings. His sector work — pairing GDP against employment by industry — finds a measurable productivity effect in exactly three places: tech, finance, and business services. That’s about 20% of the workforce. The other 80%: nothing you can point to yet. He also pushed back on the software-apocalypse narrative, noting job openings data doesn’t support wholesale replacement — jobs change, people adapt, same as library science in 1999.

Holly’s small-business data explains the lag. Most established owners are tinkering, not transforming — subscriptions to two or three AI tools, spending that’s become steady rather than sporadic (per JPMorgan Chase Institute data), but nothing that redraws the business model. They don’t have the time. The disruption is coming from new business formations, still running at elevated post-COVID levels and disproportionately AI-native from day one. Her expectation: the transformation arrives through churn — new firms replacing retiring ones over the next five years — not through incumbents adapting.

One detail from Holly with direct portfolio relevance: the industry where her members report the worst hiring struggles is residential construction — because data centers are hiring the same skilled trades and paying more. The AI buildout is directly competing with homebuilding for labor.

Two more moments worth reporting. A bank executive in the audience described a quiet reason productivity gains aren’t showing up in the data: firms are deliberately not publicizing AI-driven headcount efficiencies for fear of public and shareholder backlash — one described internal mandates to cut labor costs division by division that met “mass revolt” from managers. The gains are real; the disclosure isn’t. And Jim Bianco of Bianco Research stood up and made the maximalist case — this is the biggest game changer we’ve seen, and effectively every job gets changed by it. The panel didn’t disagree on the destination, just the timeline.

Trader takeaway: the market is paying today for that other 80% to show up. The trade isn’t “AI yes or no” — it’s watching whether user-side earnings evidence starts appearing in guidance over the next few quarters. If it does, the rally has legs beyond the builders. If it doesn’t, the capex names are carrying the whole story. And homebuilders face a labor cost problem that has nothing to do with mortgage rates.

Lunch: Jackson Hole as a preview

The lunch presentation came from Jonathan Schechter, member of the Jackson Town Council, on what happens when global capital lands on a town of a few thousand people. Teton County has the highest per-capita income of any county in America — around $530,000, six to eight times the national average, driven overwhelmingly by passive investment income that took off after the 2018 tax cuts. It also has the widest income inequality of any county in America: the mean-to-median income gap has gone from 2x to 6x since 2000, median home prices have tripled since 2018, and immigrant families are hot-bedding their kids in shifts because housing is that scarce. All of this in the middle of the Greater Yellowstone Ecosystem — 25 million acres, the largest intact ecosystem in the lower 48 — which the town’s own comprehensive plan commits to protecting, capping how much they can ever build.

I’m not including this because you should trade Teton County. I’m including it because it’s the cleanest small-scale picture of the same K-shaped divergence Leo’s consumer data shows nationally: wealth compounding through assets on one side, wages that can’t keep up on the other. When capital detaches from geography, this is what it looks like on the ground. Schechter, to his credit, didn’t pretend to have the answer — he asked the room for ideas.

Session III: Capital markets — the panel that named levels

The closing session, “Capital Market Implications,” was the one built for this audience: Dominic Nolan, CEO of Aristotle Pacific Capital, and Anne Walsh, CIO of Guggenheim Partners Investment Management, moderated by Bill Kennedy, CIO of RiskBridge Advisors.

Both landed on the same 10-year range: roughly 4.5% to 4.75% as the sustainable level, anchored by Anne’s point that the very long-run average is about 4.5% and economies function fine there. After a five-standard-deviation rate shock like 2022, she noted, history says yields don’t keep skyrocketing — they chop sideways for a decade or more, with the real action at the short end where deficit-driven issuance concentrates. Dominic went further: if the 10-year touches 5%, he’s a buyer, because that level isn’t sustainable given what it does to government financing costs worldwide. A 5% print is a signal, not a milestone on the way higher.

Anne’s inflation call: this isn’t an inflationary backdrop, it’s a reflationary one — think 1990s, around 3% — driven by the technology buildout and the battle for capital. Consistent with rates staying in that band, with a flattish curve.

On the Fed: Bill polled the room — very few hands expecting hikes this year, and notably fewer still believing the Fed acts fully independently of political pressure. Dominic was direct that the DOJ investigation reads as a signal that cracks Fed independence. Both panelists expect the Fed to lean on other tools — balance sheet, framework tweaks — rather than headline rate moves, and Anne flagged the contradiction of a balance sheet that’s grown ~$300 billion in six months (stimulus by another name) while officials talk about tightening.

On liquidity — a number for your notebook: citing JPMorgan work, consumer liquid assets have gone from about $2 trillion pre-COVID to roughly $6 trillion, part of an estimated trillion-plus in total sideline cash earning 4% and waiting. That’s structural support under both equities and credit demand.

On credit: spreads are tight and both think they stay tight — fundamentals are strong, and the post-COVID handoff moved debt from corporate balance sheets to the government’s. The risk they’re watching isn’t credit quality; it’s what Anne called the two L’s: leverage plus illiquidity. Private credit vehicles that promised quarterly liquidity against assets that can’t provide it are being recalibrated now — Q2 redemption requests ran higher than Q1, and Dominic’s line was that the worst loans are made in the best of times. He flagged single-stock leveraged ETFs as another pocket where leverage is pooling (he’s watching how they whip around the Korean market as a preview), and expects an eventual trigger event — IPO lockup expirations meeting redemption pressure was his sketch — with timing unknowable. His rule of thumb: these things last two years longer than they should.

On the AI buildout: roughly $3 trillion in data center and digital infrastructure financing over the next 3–5 years, mostly through debt. The capital is there to absorb it, both agreed, but expect spreads on that paper to widen as volume arrives — the early signs of tiering in investment grade are already visible. Anne’s framing applies to the whole theme: huge macro trends get mispriced in the short run and undervalued in the long run.

One audience question deserves its own line: whether the Fed would ever buy stocks in a downturn, on the theory that the market is now the nation’s de facto retirement system. Anne’s answer was that the balance sheet isn’t flexible enough for that right now — one more argument for shrinking it — while noting equities have technical support that didn’t exist pre-2008: half as many public companies as the 1990s and relentless 401(k) flows. Neither panelist dismissed the idea of a Fed put. The debate was about the strike.

Trader takeaway: you now have levels. The 4.5–4.75 band on the 10-year is where professional money expects mean reversion — structure rate-sensitive spreads around that assumption, and treat a 5% print as an event to trade against, not a trend to chase. Watch data center credit spreads as your early-warning system: if that debt widens while AI equities stay hot, the credit market is telling you something stocks haven’t priced. And $6 trillion in sideline cash is the reason dips keep getting bought.

Closing: Takeaways panel

The day wrapped with “Takeaways: Interdependence in a New Economic Order” — Holly Wade, Lael Brainard, and Bill Kennedy — before Holly’s concluding remarks. The thread running through it was the same one running through every session: the old signals are degraded. The Fed’s reaction function is opaque. Tariff policy has changed 30 times in 18 months. Migration flows reversed for the first time in 90 years. Sentiment data has detached from spending data. Even the productivity numbers are muddied — recent Fed research suggests work-from-home effects have been swamping AI effects in the data.

For a probability-based trader, degraded signals aren’t a reason to sit out. They’re a reason to size smaller, define risk on every position, and stop pretending you can predict what even the professionals in that room admitted they can’t. Nothing I heard in Jackson changed my approach. It confirmed why the approach exists.

So, it is no surprise that our classes exploded this week with questions when Elon Musk finally did the unthinkable. He brought his crown jewel to the public markets.

The SpaceX (SPCX) initial public offering (IPO) did not just break records—it shattered them. The company priced its massive 555.6 million share offering at $135 a piece, raking in a historic $75 billion in cash. By the time the closing bell rang on its first day of trading, the stock surged 19% to close at $161, instantly putting the company’s market value north of $2 trillion and cementing Elon Musk as the world’s very first trillionaire.

But before you go blindly throwing your hard-earned retirement cash into this stellar debut, we need to do what we always do at OptionsANIMAL. First and foremost, until it trades options on the public market, I am not going to touch it. Even after it starts to trade options, we have to peel back the layers of the onion. We need to look past the hype, analyze the real numbers, and see if the risk-to-reward ratio makes sense for a portfolio.

The Massive Bull Case: A World of Total Dominance

Let’s not mince words here. What SpaceX has achieved is absolutely mind-boggling. If you are looking at the opportunity side of the ledger, the company is targeting what it calls the largest total addressable market “in human history”—a staggering $28.5 trillion.

But to buy into that number, you have to understand that SpaceX is no longer just a company that builds cool rockets and launches satellites. Following its merger with Elon Musk’s artificial intelligence startup, xAI, and the social media platform X, SpaceX has transformed into a massive, vertically integrated AI and global connectivity powerhouse.

When you buy shares of SPCX, you are getting three distinct businesses wrapped into one:

• The Rocket Business ($370 Billion Market): Total global dominance in space launch. Thanks to reusable rockets, SpaceX has completely cornered the market.

• Starlink Connectivity ($1.6 Trillion Market): A global satellite broadband network that already provides high-speed internet to 164 countries and over 10 million customers.

• Enterprise AI Infrastructure ($26.5 Trillion Market): The company is planning to launch up to one million AI compute satellites into orbit using Starlink tech, aiming to build a space-based data center network powered by their Grok AI model.

The excitement from early investors is palpable. Shaun Maguire, a partner at Sequoia whose firm invested early in the company, called Musk a “generational entrepreneur,” comparing the impact of the Starship rocket to the introduction of railroads in the 19th century. Maguire noted he is highly confident the company can generate hundreds of billions of dollars in revenue by 2030, stating, “As an individual, I’m going to hold my shares forever.”

Even the heavy hitters on Wall Street are ecstatic. Following the blockbuster debut, Goldman Sachs CEO David Solomon publicly congratulated the company on X, stating he was proud of the “strong partnership” they built and that Goldman was thrilled to act as the lead left bookrunner for the historic deal.

Elon Musk himself used the IPO stage to remind everyone why people love to bet on him. Ringing the opening bell, Musk gave an emotional speech about pushing past boundaries:

“There are always problems on Earth... and we should solve them. But there also have to be things that get you excited about the future, that make you glad to wake up in the morning because you can’t wait to see what happens next. And that’s the future that SpaceX wants to bring to you.”

Just two days after the launch, Musk doubled down on social media, boldly projecting that SpaceX could bring in a massive $1 trillion in annual revenue by 2030.

The Bear Case: Where the Hype Meets Reality

Now, let’s take off the space helmet and put on our risk-manager hats. If you have spent any time in our classes, you know that unlimited upside always comes with real, tangible risks. And right now, the numbers under the hood of SpaceX should give any fundamental investor serious pause.

While the market capitalization has blown past $2 trillion, the company’s actual financial intake tells a very different story. In 2025, SpaceX brought in $18.67 billion in revenue. On top of that, because of ballooning research and development (R&D) costs and massive interest expenses, the company actually swung to a massive net loss of nearly $5 billion for the year.

Do the math on that. At a $2 trillion valuation, the stock is trading at an astronomical 115 times its trailing sales. To put that in perspective, similarly valued tech behemoths like Amazon or Broadcom bring in hundreds of billions in revenue and generate massive cash profits every single quarter. SpaceX is priced for absolute perfection, yet it is still deeply in the red.

This extreme valuation gap is exactly why some of the sharpest minds on Wall Street are ringing the alarm bells. Veteran tech investor Dan Niles, founder of Niles Investment Management, has been incredibly vocal about the poor risk-to-reward setup for retail investors buying at these levels.

Niles broke down the reality of the situation on CNBC, warning that the company’s $28.5 trillion total addressable market calculation relies heavily on an unproven space-AI thesis.

“The company says its total addressable market is the largest ‘in human history’... But this requires SpaceX to be thought of as a vertically integrated AI and connectivity infrastructure platform versus the rocket and satellite company which it is today,” Niles noted.

Niles further explained that while passive index funds will buy up shares over the next few weeks due to strict index inclusion rules—temporarily propping up the price—the long-term economics are incredibly risky. With growth slowing, losses mounting, and unproven space ventures requiring billions in continuous capital expenditures, Niles summarized his view cleanly: “I believe the risk vs. reward is very poor at these valuation levels.”

Furthermore, Dan Niles pointed out that you do not even need to own SpaceX directly to profit from Musk’s wild space-AI ambitions. If SpaceX is going to build a million AI satellites, they are going to have to buy an ungodly amount of computer chips. Niles noted that he is much happier owning other companies in the semiconductor and tech ecosystem that trade at a reasonable 10 to 15 times earnings, rather than chasing SpaceX at 115 times sales.

Beyond the valuation, you also have a major key-person risk. Elon Musk controls an iron grip on the company, holding roughly 85% of the voting power through super voting shares. He has historically used SpaceX as a personal piggy bank, taking out large loans to fund or rescue his other troubled business entities. As a public shareholder, you are completely along for the ride, with zero say in how the company is run.

Greg’s Final Take: How to Trade the Space Race

So, what is the play here? Should you run out and buy shares of SPCX tomorrow morning?

If you are a long-term investor who believes Elon Musk can successfully launch a million AI data centers into orbit, colonize Mars, and hit $1 trillion in revenue by 2030, then maybe you carve out a tiny, speculative slice of your portfolio for it.

But if you are a disciplined trader looking for a high-probability setup, buying a stock at 115 times sales that loses $5 billion a year is a very dangerous game. The valuation is way out ahead of its skis.

Instead of taking the unlimited risk of buying the stock outright at all-time highs, this is exactly the type of market environment where we use the power of options. If you want to participate in the SpaceX movement without betting the farm, we can structure defined-risk strategies like bull call spreads to cap our downside. Or, if you agree with Dan Niles that the stock is bound to come back down to Earth once the initial index-buying frenzy fades, we can look at bearish spread strategies to profit from a pullback—all while keeping our risk strictly limited.

Don’t let FOMO (Fear of Missing Out) dictate your trading account. Keep your emotion out of it, protect your capital, and manage your risk.

If you want to learn how to trade high-flying IPOs like SpaceX using smart, defined-risk options strategies that protect your portfolio from massive drawdowns, check out our latest OptionsANIMAL courses and join our community of educated investors today!

What are your thoughts on the SpaceX debut? Are you buying into Musk’s $1 trillion revenue promise, or do you think Dan Niles is right to stay away? Let me know:

• Your current outlook on the tech sector (bullish or bearish?)

• Whether you prefer owning shares long-term or trading short-term volatility

• If you have ever used defined-risk options spreads to trade an IPO before

But here’s the part I want to talk about with you specifically — the trading parallel. Because the longer I’ve trained in Brazilian jiu-jitsu, the more I’ve come to believe that the mat and the markets are teaching the same lesson. Most of us are just better at hearing it from one than the other.

The “cute” move problem.

A few years into training, in the middle of a sparring round, I tried something I’d seen on YouTube the night before. Some flashy reversal. I didn’t really understand it — I just thought it looked cool.

Professor Bruce felt it coming before I finished the motion. He swept past it, took my back, and locked in a rear naked choke. As he was finishing it, he asked me, calmly, “Did you see that on YouTube?”

Every gym has the white belt who comes in with a head full of YouTube. He’s seen the berimbolo. He’s seen the buggy choke. He’s read about the worm guard. What he hasn’t done is ten thousand reps of a basic guard pass, so the second a calm purple belt puts pressure on him, the whole exotic toolkit evaporates and he gets crushed by knee-on-belly.

Retail trading has the same white belt. He’s seen the iron condor video. He’s watched Instagram reels about jade lizards, broken-wing butterflies. He’s stacking unusual structures on top of stocks he doesn’t really understand, collecting small premiums and feeling clever. And it works. That’s the part that hooks people. It works most of the time.

Until natural gas goes from two dollars to twelve overnight, and the retail trader selling naked calls on it loses her million-dollar account and has to write a check for another 1.3 on top of it. She wasn’t reckless in any way she would have recognized. She was running someone else’s cute trade. (That’s a real trade by a real person. $2.3M lost.)

The cute move on the mat costs you a round. The cute trade costs you the account. Same instinct, different bill.

Process beats cleverness.

Every expert I know has a process. In BJJ they have a guard they default to. They have two or three sweeps they hit reliably from it. They have a backup if the sweep fails. They know what comes next, and what comes after that. The fancy stuff is a finishing flourish on a structure that’s already winning the position.

Every trader I respect runs a process too.

They know what they’re trying to accomplish before they put a position on. They know their max loss. They know what closes the trade early. They know what they do if price moves against them, and what they do if it moves against them harder than that.

In jiu-jitsu we call this a game. In trading we call it a plan. They’re the same thing. A defined beginning, a defined middle, a defined exit — and the discipline to follow it instead of getting bored and reaching for something flashier.

The traders who blow up almost never blow up from ignorance. They blow up because they had no plan for the day the position went sideways, and by the time they needed one, they were making decisions in a panic. Same way the white belt gets choked. Not because he didn’t know jiu-jitsu existed. Because he had no plan for what to do once a calm opponent started taking his posture.

Tuition is non-negotiable.

The hardest habit to build, in both worlds, is reviewing your losses honestly.

Professor Bruce said something on the podcast that stuck with me: in competition, the guys who refuse to watch their own match footage are the same guys who keep losing the same way. It’s painful. Nobody enjoys watching themselves get armbarred. But the tape is where the actual learning lives, and the guys who skip it stay stuck.

Trading is identical. I lost fourteen thousand dollars across a few trades earlier in my career. I teach a class about those trades now, because that fourteen thousand bought me something the winning trades never could have — a specific, durable understanding of exactly how I get myself in trouble.

That’s tuition. You’re going to pay it either way. The only question is whether you bother to collect the education that comes with it. The trader who buries his losers and only talks about his winners is the same guy at the gym who only tells you about the rounds he won. You already know not to trust that guy on the mat. Don’t be him in your brokerage account.

Less stupid than the other guy.

Charlie Munger used to say the secret to investing wasn’t being brilliant — it was being less stupid than the other guy. That’s also, more or less, the secret to staying on the mat past fifty.

Pick a game you understand. Run it well. Define your exits before you start. Size things so you can survive being wrong. Review the rounds you lost. Skip the cute stuff.

It’s not glamorous advice. It doesn’t sell courses. But it’s the trade — and the round — I want you taking next week.

The full conversation is on the Bullish on Jiu Jitsu podcast — Episode 36, on Spotify. Thanks to Professor Bruce and Big Joe for having me on, and to everyone at B1 in Naperville who’s spent the last six years making me less stupid than I used to be.

— Eric

At first glance that sounds like a political topic. It isn’t. It’s really about how the financial system functions.

For traders and investors, that distinction matters.

Lacker’s central argument is that Fed independence is often misunderstood. It’s not about the Fed being untouchable or operating outside the government. It’s about structure.

The system has two parts.

First, the Fed’s day-to-day decisions about interest rates should be insulated from political pressure. Politicians should not be threatening or leaning on policymakers to cut rates before an election or keep rates low to support short-term growth.

Second, the Fed is still accountable to Congress. Congress created the institution and assigned its goals. If the Fed performs poorly, the proper response is stronger oversight through Congress, not political interference from the executive branch.

That distinction gets lost in most of the public conversation.

Independence is often lost from inside the building

One of the most interesting points Lacker made is that central bank independence rarely collapses because politicians storm the gates.

More often it erodes from within.

He used two historical examples.

In the early 1970s, Fed Chair Arthur Burns worked closely with President Nixon and supported expansionary policy ahead of the election. Burns believed wage and price controls would contain inflation. Instead, once those controls were removed, inflation accelerated dramatically.

Contrast that with William McChesney Martin, an earlier Fed chair appointed by President Truman. Truman assumed Martin would follow the administration’s lead. Instead, Martin pursued an independent policy path that frequently frustrated the White House.

The lesson is simple: institutions matter, but leadership matters just as much.

The issue investors should focus on: the Treasury market

The most important section of Lacker’s talk had nothing to do with politics. It focused on the Treasury market.

Before the financial crisis, the Fed generally tried to remain neutral in Treasury markets. Its balance sheet existed mainly to support the supply of currency and manage bank reserves.

After 2008, that approach changed.

The Fed began purchasing large quantities of longer-term Treasuries through quantitative easing programs. In 2020 it again intervened massively during the pandemic.

Sometimes those actions were justified as preserving market functioning. Other times they were described as macroeconomic stimulus.

The problem, according to Lacker, is that the line between those two goals can become blurry.

When markets expect the Fed to step in during periods of stress, private participants have less incentive to provide liquidity themselves. Fewer institutions commit capital to buying bonds during sharp selloffs because they assume the central bank will ultimately stabilize prices.

Over time that can reduce the market’s natural depth and resilience.

If everyone believes the Fed will catch the falling knife, fewer investors prepare to catch it themselves.

A possible reset between the Treasury and the Fed

Lacker suggested that the relationship between the Fed and the Treasury market may need a clearer framework.

He referenced the Treasury-Fed Accord of 1951, which helped establish the modern structure of central bank independence.

A modern version of that agreement could clarify responsibilities.

The Treasury would control decisions about the maturity structure of government debt. The Fed would hold Treasuries mainly to support currency and bank reserves rather than actively influencing longer-term yields.

One way to implement this would be a return to a “bills only” portfolio, where the Fed holds short-term Treasury bills rather than large quantities of longer-dated bonds.

The objective would be to reduce expectations that the central bank will routinely intervene in long-term bond markets.

The balance sheet and the reserves debate

Another topic that surfaced during the discussion was the size of the Fed’s balance sheet.

Today the banking system holds trillions of dollars in reserves. Lacker suggested the financial system likely does not require reserves at that scale to function effectively.

He described a dynamic where policymakers attempt to reduce reserves but retreat quickly if short-term funding markets show signs of stress. Because the pressure never lasts long enough, private markets never fully adapt.

The result is a system that may remain larger than necessary.

Why this matters to investors

For investors, this discussion is not about politics. It’s about market structure.

Treasuries sit at the center of the global financial system. They anchor interest rates, serve as collateral throughout the banking system, and influence valuations across equities, credit, and derivatives.

If the Fed gradually steps back from actively managing parts of that market, two things could happen.

Over time, markets may become healthier and more resilient because private participants take on a larger role in providing liquidity.

In the short run, however, volatility could increase because investors cannot rely on the same level of central bank intervention during periods of stress.

The takeaway

The key message from Lacker’s remarks is that Fed independence is not just a political concept. It is a structural feature of the financial system.

When central banks intervene too frequently or too unpredictably, markets can become dependent on that intervention. When that dependency builds, resilience declines.

For traders, it is worth paying attention not just to where interest rates are today, but to how the framework around those rates may evolve.

Because when the next shock arrives, the structure of the system will determine how markets respond.

The panels were strong. The debates were thoughtful. The official sessions were worth your time.

This is the post that matters.

Because the most important insight didn’t come from the stage.

It came from the side conversations — the small-group discussions with economists, fund managers, policy advisors, and central-bank-adjacent people. Chatham House rules. No attribution. No quoting names.

Just themes.

And here was the theme that kept resurfacing:

AI is not a “future risk.”

It is a present economic force.

And it is moving faster than policy.

The Part Nobody Wants to Say Out Loud

Your paycheck is at risk.

Not because of some sci-fi fantasy about robots taking over the world.

Because the substitution has already started.

The example that kept coming up was the new class of AI systems that can build and adapt software autonomously. Not assist. Not suggest. Actually produce working tools.

When the marginal cost of creating software collapses toward zero, traditional business models don’t just get pressured — they get repriced.

That observation alone helps explain why segments of the software complex have struggled even as broader indices remain resilient.

But software isn’t the story.

Labor is.

White-Collar Is More Exposed Than You Think

The consistent view in those conversations was blunt:

White-collar knowledge work is more exposed than blue-collar labor in the first wave.

Analysis. Reporting. Routine decision-making. Middle management. Coding. Legal drafting. Financial modeling.

Anything that looks like “take information in, produce structured output.”

Those jobs won’t vanish overnight. But they don’t need to.

When AI lowers the cost of cognitive output, wages compress. Bargaining power shifts.

It doesn’t take mass unemployment to change the math.

It just takes enough margin pressure.

Policy Is Behind the Curve

When disruption moves faster than institutions, the conversation shifts quickly.

Ideas that used to be dismissed are now being discussed more seriously — including some form of consolidated income support or universal basic income structure.

Not as ideology. As contingency planning.

Whether government handles it smoothly is an entirely separate question.

Counting on it as your personal hedge is not a strategy.

The Dividing Line That Matters

Here was the most striking takeaway:

Even amid all this disruption, there was broad agreement that markets can continue to do well.

That sounds contradictory — until you remember how capitalism allocates gains.

Productivity improvements benefit capital first.

Efficiency gains flow to owners before they flow to wages.

Disruption often transfers wealth. It doesn’t destroy it.

So the dividing line becomes simple:

People whose only exposure is their paycheck

vs

people who own productive assets

If your entire financial engine is wage income, you are concentrated in a single asset: your labor.

Concentration risk is dangerous.

Participation Is Defensive

This is not a call to speculate.

It’s a call to rethink what “risk” means.

Being absent from markets while structural productivity shifts unfold may be more dangerous than market volatility itself.

Participation isn’t hype.

It’s defense.

You don’t need to predict which AI company dominates.

You need to reduce your dependence on wages as your only source of resilience.

That means:

• Building repeatable exposure instead of chasing headlines.

• Defining risk before entering trades.

• Staying invested through volatility instead of freezing.

• Using options as structured tools — not lottery tickets.

This isn’t about getting rich.

It’s about not getting structurally sidelined.

AI doesn’t have to replace everyone to change everything.

It just has to reprice enough of the margin.

And if your entire life is priced off your paycheck, that margin matters.

“U.S. Exceptionalism: Can It Last? How?”

On stage were Catherine Mann, Caroline Freund, Damon Coletta, Leland Miller, and Don Rissmiller. It was a heavy lineup. The discussion wasn’t theoretical. It was about the system your portfolio lives inside.

This session was jam-packed with insight. Let’s break it down cleanly.

Exceptionalism Is a System, Not a Slogan

Professor Damon Coletta framed the debate through three books he teaches at the Air Force Academy:

• Civilization: The West and the Rest by Niall Ferguson

• The Soldier and the State by Samuel P. Huntington

• The Dollar and National Security by Paul Poast

The common thread wasn’t patriotism. It was institutions.

Competition.

Rule of law.

Professional expertise.

Scientific leadership.

Alliance structures.

The dollar’s dominance is downstream of those forces. It is not the cause of American strength. It is the output.

If the institutional foundation holds, the dollar holds.

If it cracks, the currency eventually reflects it.

The Sterling Warning

Catherine Mann walked through the history of sterling’s decline as a reserve currency.

In 1900, sterling and gold dominated global reserves. Then came:

• World War I financing

• The UK’s shift from creditor to debtor

• The rise of U.S. financial markets

• The Suez Crisis, which fractured alliances

Sterling didn’t fade smoothly. It endured for decades — and then hit structural breaks.

Mann didn’t quote Ernest Hemingway, but the dynamic was clear: deterioration tends to happen gradually… then suddenly.

Reserve currency status doesn’t erode tick by tick. It breaks when confidence breaks.

That’s the historical model.

Supply Chains: The Modern Stress Test

If there was one operational theme that dominated the panel, it was supply chains.

Leland Miller made it explicit: tariffs are yesterday’s tool. Supply chains are the real battlefield.

Critical minerals.

Rare earth processing.

Pharmaceutical inputs.

Foundational semiconductors.

The logic of globalization has shifted.

Globalization 1.0 optimized efficiency.

Globalization 2.0 prioritizes resilience.

Resilience means redundancy. Redundancy costs money. That has inflation implications.

But Mann added an important nuance. Many supply chain disruptions were historically treated as tail risks — low-probability events sitting at the edge of the distribution. Fukushima. Thailand floods. Factory collapses. Pandemic shocks.

Today those risks are closer to the center. Corporations are pricing them in.

That shift alone changes cost structures, inflation dynamics, and capital allocation.

Now connect that to the dollar.

If the U.S. builds broad, trusted supply-chain alliances, dollar invoicing and dollar settlement remain dominant inside that architecture.

If the U.S. alienates too many partners while restructuring supply chains, regional blocs form. Currency fragmentation becomes more plausible.

Supply chains are not just trade mechanics. They are monetary architecture in disguise.

The Dollar: Burden or Privilege?

There was open discussion about whether policymakers might prefer a weaker dollar.

From a trade perspective, a weaker dollar:

• Makes exports more competitive

• Narrows trade deficits

• Shifts activity toward tradables

That logic is coherent.

But Caroline Freund emphasized the other side.

The “burden” of reserve currency status is also the privilege.

Because the dollar is dominant:

• The U.S. borrows more cheaply.

• Capital floods into Treasuries during crises.

• Even in 2008 — when the U.S. was the epicenter of the financial crisis — money ran toward U.S. debt.

That is not normal behavior in global finance.

That is structural trust.

You can’t weaken the dollar strategically without risking the privilege embedded in it.

Debt, Deficits, and the Real Breaking Point

An audience question raised the obvious issue: 100%+ debt-to-GDP.

There is no magic threshold.

Markets tolerate high debt when:

• Growth is credible.

• Institutions are stable.

• Data is transparent.

• Rule of law is intact.

Reserve currency status is not about spreadsheets. It is about trust in governance and financial plumbing.

The true stress signal is not equity volatility.

It is the bond market.

Equities can wobble 15% and recover.

If global capital ever hesitates to hold Treasuries during stress, that’s the regime shift.

So far, that hasn’t happened.

Technology: The Emerging Variable

There was also discussion of financial technology.

Stablecoins are currently dollar-backed, which reinforces dollar usage. But the same technology could theoretically allow other currencies to scale digitally.

Technology can reinforce dominance — or accelerate fragmentation.

It’s another variable in the system.

So… Can Exceptionalism Last?

Here’s the synthesis.

U.S. exceptionalism rests on:

• Deep, liquid capital markets

• Rule of law

• Institutional transparency

• Scientific and technological leadership

• Military credibility

• Durable alliances

• Supply-chain architecture

The dollar is the output of that system.

If those pillars remain strong, the dollar likely remains dominant — even with volatility of 10–15% in either direction.

If those pillars weaken materially, history suggests change won’t feel linear.

It will feel stable… until it doesn’t.

What’s the Most Likely Crack?

Not a sudden currency collapse.

Not overnight de-dollarization.

The most plausible failure point is slow institutional erosion combined with fiscal drift — enough to weaken long-term confidence without triggering immediate crisis.

That’s the scenario markets would price gradually.

And that’s the one to watch.

What This Means for Retail Traders

You are not just trading earnings and options spreads.

You are trading inside a geopolitical and monetary operating system.

Watch:

• Bond market behavior during stress

• Supply-chain bloc formation

• Alliance cohesion

• Capital flow direction in crises

• Policy credibility

As long as global capital runs toward U.S. assets in moments of fear, exceptionalism remains intact.

The day that changes, the risk profile changes.

The dollar is not just a currency.

It is a confidence meter.

And confidence cannot be legislated.

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One of the most practical—and honestly most clarifying—sessions wasn’t about interest rates or tariffs. It was Session III: Military Power, the Rule of Law, and U.S. Exceptionalism, featuring Howard Hensel of the Air War College and Vice Admiral Charles Martoglio (ret.), moderated by William Kennedy.

At first glance, this sounded like a foreign policy lecture. It turned into something much more useful. It was really about what actually underpins American power — and why that matters for markets.

Start with the framework: principles, interests, objectives, strategy

Howard Hensel laid out a clean structure:

• Principles are the values and rules a country claims to stand for.

• National interests are the durable priorities that rarely change.

• National objectives are the specific goals that shift with events.

• Grand strategy is how you use every tool you have to get those objectives.

That distinction is a big deal. Interests stay pretty stable across decades. Objectives change fast when the world forces your hand.

If you have ever wondered why policies swing, or why presidents campaign on one thing then spend their term dealing with something else, this is why. Events crash the party.

The slide that basically said “good luck forecasting”

Vice Admiral Charles Martoglio described today’s reality like a systems problem, not a checklist.

He showed a slide titled “Today’s Strategic Environment.” It was a dense map of connected stress points: cyber vulnerabilities at home, Europe and Russia in gray-zone conflict, Middle East instability, Iran, Taiwan risk, supply chains, AI and tech proliferation, debt, terrorism, health instability, climate, the Arctic.

The line at the bottom said the quiet part out loud. A huge number of inter-related issues… with no easy solutions.

This matters because it changes how policymakers talk and act. You stop making clean predictions and start working in ranges. You stop trying to fix one problem in isolation because every fix breaks something else.

Markets hate that kind of environment. They reprice constantly because the probability tree keeps moving.

The panel’s blunt point: economic power comes first

Martoglio asked a simple question: among economic, diplomatic, military, and information power, which matters most?

His answer was economic power. Because without it, you cannot sustain the rest.

This is where the dollar comes in.

He referenced the interest burden on U.S. debt and stressed protecting the primacy of the dollar. He did not need to say “reserve currency” every five minutes. The logic was embedded in everything.

Here is the clean version: the U.S. can project influence globally because it can fund it, and it can fund it more easily than others because the world still treats the dollar as the core currency of trade, finance, and reserves.

If that credibility weakens, everything gets more expensive. Defense spending. Industrial policy. Alliances. Even basic fiscal flexibility.

That is not a political statement. It is plumbing.

The “future state” view: balance of power is back

Martoglio described three broad paths:

• Continued U.S. primacy

• Balance of power

• Spheres of influence

He argued the most likely path is balance of power, with heavier emphasis on the Western Hemisphere.

One line stuck with me: in great power competition, neither side has to “win,” but neither side can afford to “lose.” Losing means living inside the other side’s rules, including how trade and finance work.

That is why tariffs, export controls, sanctions, industrial policy, and defense posture are increasingly one conversation. The economic and security toolkits are now intertwined.

For traders, that means you should stop treating geopolitics as occasional noise. It is part of the trend structure.

Allies are the advantage, and also the weak spot

He made another point that sounded obvious but is easy to forget in day-to-day market noise.

Alliances are the difference between a level playing field and a stacked one.

He framed it as a simple scale. The U.S. economy is enormous. Add the allies, and the combined economic base is much larger than any adversary bloc. That is real leverage.

But he also called alliances a vulnerability. If partners hedge, drift, or lose trust, the whole balance shifts. Adversaries know this and work that seam constantly.

This is where the “rule of law” stops being academic. It is part of the trust layer that keeps coalitions together. If the U.S. looks arbitrary or purely transactional, the coalition gets harder to hold.

Taiwan: deterrence is about making the choice ugly

On Taiwan, Martoglio drew a line between readiness and inevitability.

Be ready by 2027 does not mean war is scheduled. It means the military plans for that window.

The strategy he described is deterrence through making Taiwan “indigestible.” The goal is not to posture. The goal is to make Beijing look across the water and decide, “today is not my day.”

For markets, the key is that deterrence is not a single event. It is an ongoing signal loop: capability, positioning, allied alignment, and economic pressure all moving together.

What this means in practice

This session wasn’t giving stock picks. It was giving a map.

Here are the real takeaways you can use without turning into a full-time geopolitical hobbyist:

• Expect more policy-driven volatility. The world is now a connected system of stress points, not a sequence of isolated crises.

• Watch the dollar and U.S. funding conditions as strategic variables, not just macro variables. If funding gets tight, policy options narrow.

• Assume economic tools will be used for security goals, and security posture will be used for economic goals. That is the new normal.

• Track alliances like you track liquidity. When coalition cohesion strengthens, risk can compress. When it fractures, risk expands.

• Treat “range thinking” as the default. Policymakers are operating in ranges, and markets will follow.

If you want one sentence to carry forward, it is this:

Military power projects influence, but the dollar system finances it, and credibility holds the whole machine together.

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Session II speakers:

• Catherine Mann, Bank of England Monetary Policy Committee

• Caroline Freund, Dean, UC San Diego School of Global Policy and Strategy

• Moderator: Dominic Nolan, CEO, Aristotle Pacific Capital

Why this session mattered

Most retail traders hear “tariffs” and immediately jump to: inflation up, stocks down, done. This panel made the more irritating (and more useful) point: the first-order headline is rarely the trade. The real action is in second-order plumbing: rerouted supply chains, who eats the cost, where inflation shows up (or doesn’t), and what happens when the US starts acting like a less predictable partner.

1) Tariffs reshuffle trade faster than they “fix” anything

Freund rewound to the first Trump-era tariff wave, mostly aimed at China. The big outcome wasn’t a clean manufacturing boom or a repaired trade balance.

It was trade diversion.

Direct US imports from China fell sharply, but the overall trade deficit didn’t magically vanish. Tariffs don’t rewrite the country-level reality of savings vs investment. If the US keeps consuming like the US, the goods still show up. They just take a different route, sometimes with Chinese value-added still inside the product.

Bottom line: tariffs redraw the supply chain map before they change the national balance sheet.

2) The new twist: tariffs as a “membership fee” for US leadership

A fresher framing floated onstage: the US provides global public goods (military umbrella, reserve currency system). Those are expensive. The emerging vibe in parts of policy land is that other countries should “pay” for access to the US market and the security architecture.

That helps explain why the more recent tariff posture hasn’t been “China-only.” Allies got clipped too, which makes less sense if you’re building a coalition, and more sense if you’re pricing access to the world’s biggest consumer.

What this means: this isn’t just economics. It’s leverage.

3) The shocker: not much retaliation (because the US card is too important)

Trade economists expected retaliation to match the rhetoric. It didn’t.

China pushed back in selective ways. Europe talked a bigger game than it played, largely because the security relationship matters more than scoring points on tariffs.

Freund’s point was blunt: lots of exporters need the US market badly, and “find a new customer base the size of America” is not a weekend project.

Net takeaway: the US has more pricing power in market access than the models want to admit.

4) Tariffs raised revenue, but don’t confuse that with “solving” anything

Tariff revenues are up meaningfully. But even big-sounding tariff numbers are still small next to the real pillars of federal revenue like income taxes.

Reality check: tariffs can fund a slice of government. They can’t replace the tax base without breaking something.

5) Inflation: the dog that didn’t bark (at least in the US)

Freund argued the inflation pass-through has been milder than many expected. Imports are a relatively small share of US consumption, and businesses can absorb costs, re-negotiate with suppliers, or re-route sourcing.

She also leaned on real-world pricing behavior: a lot of mainstream consumer goods haven’t surged the way “tariffs = instant CPI shock” narratives predict.

Then Mann came in with the important twist.

“Somebody else is paying”

Mann’s message: exporters may keep prices lower into the US to preserve access, then try to make up margin elsewhere by charging higher prices into other markets.

So US inflation can look calmer while other economies deal with more pressure.

So what: tariffs can shift inflation across borders, not just raise it everywhere equally.

6) UK lens: why a central banker cares

Mann framed the policy problem through two lenses: quantities and prices.

On quantities: Europe appears to be absorbing more diverted trade than the UK. The UK hasn’t seen the same “China share” surge, so the “UK gets flooded with cheap goods” story isn’t the free lunch people imagine.

On prices: UK imports are exposed to both dollar-priced and euro-priced goods. When USD and EUR move differently, the sterling effective exchange rate can be oddly stable even when USD/GBP headlines look dramatic.

Mann also flagged something non-obvious: in the UK, a big driver of near-term inflation dynamics is not tariffs. It’s regulated/administered prices and policy-driven cost changes (think regulated charges and tax-like adjustments).

Key point: the macro story you’re trading is not always the macro story moving CPI.

7) The dollar: still the cleanest dirty shirt, but trust is the real risk

Both speakers basically agreed: there’s no immediate replacement for the dollar.

Reserve currency status needs:

• trust (rule stability, political reliability)

• convertibility

• deep, liquid markets

That’s still the US.

But the slow-burn risk they kept circling was reliability. Global leadership requires predictability. If trade partners start treating the US as policy-random, the dollar can lose ground gradually at the margin, even without a single clear successor.

Mann’s historical point landed: reserve status sits on trade and trust. Erode either long enough and you erode the foundation.

What to watch: “trust premium” shows up in term premium, funding costs, and FX behavior over time.

8) A nerdy but important possibility: a more multi-currency world

Mann floated a longer-horizon idea: technology reduces frictions that once forced one dominant currency. If switching currencies becomes cheaper and easier, a more multi-polar reserve setup becomes more plausible over time.

Freund’s pushback was practical: it’s easier to shift trade invoicing than to shift reserve asset holdings. Reserves are about safety, depth, and trust, not convenience.

Practical takeaway: multipolar reserve is a long game, but it changes how you think about structural USD premiums.

9) The legal wildcard: tariffs and the Supreme Court

There was also a legal thread: if courts constrain tariff authority, markets could pop on “less tariff risk.” But the deeper issue is institutional uncertainty and the ongoing tug-of-war between Congress and the executive on trade powers.

Translation for your portfolio: even if tariffs get trimmed, the uncertainty premium can hang around.

What you should watch next:

1) Rates discipline policy faster than headlines do

Bond yields can force policy reversals quickly. If tariffs push yields up (risk premium, inflation expectations, deficit stress), something tends to break politically before the full tariff wish list gets implemented.

2) FX is relative, not absolute

If the US exports some inflation abroad, other central banks may stay tighter longer. That changes rate differentials, which can matter more for currency trends than whatever cable news is yelling about tariffs.

3) Winners/losers live inside supply chains

Tariffs aren’t “US vs China.” They hit importers with thin margins, manufacturers dependent on imported inputs, and retailers playing hot potato with who eats the tariff.

4) The real regime risk is trust

The most tradable long-term concept from this panel wasn’t “tariffs up/down.” It was credibility and reliability. Lose enough of that and it shows up everywhere, slowly: FX, funding markets, and risk appetite.

This wasn’t a crypto pep rally. It wasn’t a Bitcoin funeral either. It was something rarer: a clear explanation of how money actually moves, why the dollar still dominates, and where real change is happening underneath the surface.

Retail traders should care. Not because you need to trade meme coins—but because payment plumbing affects liquidity, volatility, and capital flows, which eventually show up in equities, rates, and FX.

Here’s the signal.

Stablecoins Are Not “Crypto Bets.” They’re Payment Rails.

Waller made a simple but important distinction that gets lost online:

• Crypto assets (Bitcoin, NFTs, tokens) are things people buy.

• Stablecoins are how people pay in the crypto ecosystem.

Think of it like this:

Buying an apple at the grocery store involves an object (the apple), a payment instrument (debit card), rails (Visa/Mastercard), and a ledger (your bank statement).

Stablecoins do the same job, just with different technology.

They are dollar-denominated payment instruments, not speculative assets. Treating them like risky investments is a category error. Holding a $1 stablecoin is economically closer to holding cash in a checking account than owning a stock or bond.

That matters for regulation, adoption, and systemic risk.

The Real Disruption: 24/7, Borderless Payments

Here’s where the market impact comes in.

Traditional finance still runs on:

• Bank hours

• Batch processing

• Multi-day settlement

• Expensive cross-border fees

Stablecoin rails don’t.

They were built from day one for:

• 24/7 operation

• Global transfer

• Near-instant settlement

• Lower transaction costs

This isn’t theoretical. It’s already happening, especially in cross-border corporate payments.

Example Waller gave (paraphrased):

A U.S. firm paying a supplier in Mexico can either:

• Use the traditional banking system (slow, expensive), or

• Convert dollars to stablecoins, move them instantly, and convert locally.

That pressure forces banks to speed up, cut fees, and modernize. Even if stablecoins never dominate retail checkout lines, they are already reshaping back-end finance.

Competition is the point.

Why This Actually Reinforces Dollar Dominance

Here’s the part that should kill the “dollar is doomed” narrative.

Over 99% of stablecoins are dollar-denominated.

Why?

Because in countries with:

• Weak banks

• Capital controls

• Seizure risk

• Political instability

People want exposure to dollars that can’t be frozen or inflated away.

Stablecoins export the dollar’s utility without exporting U.S. banks.

That strengthens dollar exceptionalism. It doesn’t weaken it.

Waller was explicit: the Fed does not believe a U.S. central bank digital currency (CBDC) is necessary to defend the dollar’s global role. The private sector is already doing that—using the dollar as the base layer.

No, This Is Not “Shadow Banking 2.0”

A common fear is that stablecoins are just unregulated banks waiting to blow up.

Waller pushed back hard on this.

Key differences:

• Stablecoin issuers cannot do maturity transformation

• Assets are short-dated, highly liquid

• No long-term loans funded by short-term deposits

• No implicit promise that “your money is always there” like traditional banks

Could there be runs? Sure.

But they look very different from bank runs and don’t automatically threaten the core financial system.

That distinction matters when markets panic.

The Fed’s Sleepless-Night Risk Isn’t Crypto

This was one of the most revealing moments.

When asked what actually keeps him up at night, Waller didn’t say Bitcoin, stablecoins, or DeFi.

He said:

If the U.S. payment system, i.e., ACH, Fedwire, went down for a day, everything stops.

The real systemic risk is infrastructure failure, not speculative assets. That’s where the Fed’s focus is: redundancy, resilience, and keeping the pipes flowing.

Crypto volatility? Markets can absorb that.

Payment paralysis? That’s chaos.

What Should You Take Away?

This isn’t a call to trade stablecoins. It’s a framework shift.

Three practical implications:

1. Dollar dominance is evolving, not ending

   New rails are extending its reach, not replacing it.

2. Payment innovation increases market efficiency

   Faster settlement and lower friction matter for liquidity-sensitive assets.

3. Volatility narratives are often backward-looking

   Crypto price swings don’t equal systemic risk. Infrastructure failure does.

If you’re watching markets through the lens of flows, liquidity, and incentives, not headlines, this matters.

The plumbing is changing. The foundation isn’t.

That shortcut is wrong.

Beta doesn’t measure volatility.

It doesn’t measure danger.

It measures correlation to the market — and traders routinely confuse that with safety.

That confusion shows up where it hurts most: in real P&L.

What beta actually measures (quickly, without the nonsense)

Mathematically, beta is a regression coefficient. In plain English, it answers one question:

When the market moves 1%, how much does this stock tend to move with it?

That’s it.

Beta tells you how a stock moves relative to the S&P 500.

It does not tell you how much the stock actually moves on its own.

And that distinction matters — a lot — if you’re a trader.

The trader trap: low beta ≠ low risk

Here’s where things go sideways.

Traders screen for low beta thinking they’re reducing risk.

What they’re really screening for is low correlation, not low volatility.

Those are not the same thing.

A stock can:

• Have a low beta

• Be weakly correlated to the market

• Still swing violently on earnings, news, commodities, or sentiment

Low beta often just means uncorrelated.

It does not mean calm.

That’s how traders end up surprised by “safe” stocks that gap 10–20% overnight.

Real-world examples where beta fails traders

You see this constantly in:

• Pharmaceutical and biotech stocks

• Commodity-linked names

• Thin, news-driven equities

They can show up with:

• Betas well below 1

• Daily or event-driven volatility far above the S&P 500

Beta looks comforting on a screener.

Actual price behavior tells a very different story.

So what should traders use instead?

If you trade, stop outsourcing risk assessment to a correlation coefficient.

Measure movement directly.

A few metrics that actually matter:

• Historical volatility — what the stock really does

• Average True Range (ATR) — how far it moves in a normal day

• Bollinger Bandwidth — whether volatility is expanding or compressing

These tools tell you:

• Position sizing reality

• Stop placement reality

• Whether a trade is manageable before you’re in it

Beta can’t do that.

The mental model to keep

Portfolio managers care about correlation.

Traders care about movement.

Or put another way:

Beta tells you who a stock dances with.

Volatility tells you how hard it can hit you.

If you’re trading stocks or options and still relying on beta as a risk metric, it’s worth rethinking that habit.

Watch the full breakdown

We walk through the math, the examples, and the alternatives in detail in this episode of The Everyday Trader:

👉 Watch here:

It’s this:

“What is this person’s motivation for telling me this?”

Markets are noisy by design. Everyone with a platform has a take, and everyone with a take has an incentive, whether they admit it or not. Analysts, strategists, fund managers, podcasters, and influencers don’t operate in a vacuum. They operate inside incentive systems. Ignore those systems, and you’re outsourcing judgment to people whose goals may not align with yours.

That’s not cynicism. That’s basic risk management.

Why Analysts Share Their “Best Ideas”

The official story is simple: analysts publish research to help investors make better decisions. That’s partly true. Institutional clients expect coverage. Silence is not an option.

But public recommendations exist for other reasons too:

To stay visible

To justify fees

To support firm relationships

To build personal brand and career leverage

To influence flows—subtly or directly

Even at reputable firms, research rarely exists in isolation from sales, trading, or banking. Analysts may not trade the stock personally, but their employer may benefit when optimism—or pessimism—spreads.

This doesn’t mean the research is wrong. It means it’s contextual, not neutral.

“Talking Your Book”: What It Really Means

“Talk your book” is Wall Street shorthand for promoting positions you already benefit from.

The phrase comes from trading desks, where a trader with inventory would openly push a narrative to encourage interest, liquidity, or price movement. It was never polite. It was practical.

Over time, the term entered mainstream investing culture and even got reclaimed as the name of a popular podcast segment by the Animal Spirits hosts, Michael Batnick and Ben Carlson. In that context, “talking your book” is transparent—guests openly discuss strategies or products they believe in and often profit from.

That distinction matters.

Talking your book with disclosure is honest.

Talking your book without transparency is where problems start.

The Classic Warning: Henry Blodget

The most famous example remains Henry Blodget.

During the dot-com bubble, Blodget publicly promoted internet stocks while privately expressing doubts in internal communications. When the bubble burst, investors were wiped out, careers ended, and trust in Wall Street research took a generational hit.

The wrong lesson from that era is “analysts are liars.”

The right lesson is simpler and more uncomfortable:

Incentives shape narratives.

That lesson didn’t expire in 2001.

Three Recent Examples

1. When the Megaphone Is the Trade

In 2024, U.S. authorities charged Andrew Left, the founder of Citron Research, with securities fraud.

The allegation wasn’t that he had opinions. It was that he used his public platform—TV appearances, social media, published research—to move stocks while allegedly trading in ways that conflicted with or front-ran his public statements.

This is a modern version of “talking your book” taken too far. When someone’s voice alone can move price, the temptation to trade the reaction becomes enormous.

The megaphone becomes the position.

2. Optimism by Omission: Wells Fargo

The Wells Fargo fake-accounts scandal wasn’t about stock tips, but it’s still a powerful lesson for investors.

For years, public commentary emphasized steady growth and disciplined execution. Internally, employees were opening millions of unauthorized accounts to meet aggressive targets. Externally, analysts largely echoed the firm’s narrative—until regulators intervened.

This matters because misleading analysis doesn’t always involve false statements. Sometimes it’s about what can’t be said without disrupting institutional incentives.

Silence can be as misleading as deception.

It also shows that well-establish institutions are not immune from abuse.

3. Market-Moving Commentary Without the Analyst Label

In 2018, Elon Musk tweeted on the app formerly known as Twitter the infamous “funding secured” post about taking Tesla private. The stock moved violently. The claim proved unfounded. Regulators stepped in.

Musk isn’t an analyst—and that’s the point.

Today, market-moving commentary comes from CEOs, founders, influencers, politicians and media personalities. If someone can move price with words, incentives matter regardless of job title.

Is This Illegal?

Sometimes. Often not.

In the U.S., oversight primarily falls to the Securities and Exchange Commission and FINRA. Fraud requires misrepresentation, undisclosed conflicts, insider information, or manipulation.

Most analyst behavior lives in the gray zone of opinion, assumptions, and projections are legally protected but not risk-free for investors who take them at face value.

Which means the ultimte burden of judgment sits with you.

Who Can You Trust?

Trust in markets isn’t about personality or confidence. It’s about process, transparency, and consistency across cycles.

Here are practical guidelines investors should consider.

Guidelines for Evaluating Analyst Advice

1. Unknown name, vague institution = skepticism by default

   If you’ve never heard of the analyst and barely recognize the firm, treat the call as a hypothesis—not guidance.

2. Demand the thesis, not the ticker

   A buy or sell without reasoning is marketing. You want assumptions, drivers, risks, and what would invalidate the call.

3. Check track record, not just confidence

   Tools like TipRanks help quantify historical accuracy. Nobody is perfect. Patterns matter.

4. Watch behavior after they’re wrong

   Do they revise assumptions, or quietly move on? Intellectual honesty shows up most clearly in drawdowns.

5. Separate direction from timing

   Many analysts are excellent at calling where a stock will end up and terrible at explaining how it gets there. Being right eventually doesn’t help if the path wipes you out first. “I was right. I was just early.”

6. Follow the incentive trail

   Are they paid to gather assets, generate trades, or promote products? Do they already have a long or short position on the equity? Compensation explains tone better than disclaimers.

7. Beware single-factor certainty

   Markets are multi-variable systems. Anyone claiming that one driver explains everything is simplifying for effect.

8. Prefer probabilistic language

   Ranges, scenarios, and uncertainty signal thinking. Absolutes signal b.s.

The Bottom Line

Listening to analysts isn’t the problem.

Listening uncritically is.

Use analyst research the way professionals do: as raw material, not instruction manuals. Borrow frameworks. Challenge assumptions. Keep ownership of decisions.

Before acting on any bold call, ask the quiet question underneath it: Who benefits if I believe this?

The market doesn’t care who convinced you. It only cares what you trade.

That’s a lesson worth relearning every cycle.

More consistency.

Fewer mistakes.

A smoother equity curve.

Less stress.

That instinct makes sense. It just doesn’t work very well.

Results don’t come from resolutions. They come to how decisions are made, day after day, especially when nothing feels obvious. If 2025 taught most retail traders anything, it’s that hoping next year will be better isn’t a strategy. Envisioning outcomes without changing how you operate just gives you new ways to be frustrated.

Why Outcome-Based Resolutions Fall Apart

“Next year I’ll be more disciplined.”

“Next year I’ll size better.”

“Next year I’ll stop overtrading.”

Those sound serious, but they’re not plans. They are intentions.

When success is defined by results, the trade that worked or the month that was green, randomness is still grading your performance. You feel good when the market agrees with you and uneasy when it doesn’t. Discipline turns into mood management, and markets are terrible at managing anyone’s mood.

What Actually Changes Traders From One Year to the Next

The traders who look genuinely different in 2026 won’t be the ones who predicted more winners. They’ll be the ones who changed how they think before they changed what they trade.

At some point, they stop asking how much they can make and start asking how they want to make decisions when conditions are uncertain. That shift doesn’t look dramatic from the outside. It’s quiet, almost boring. It’s also the point where things start to stabilize.

Why Systems Outlast Motivation

Motivation fades. Markets don’t care how focused or inspired you feel on a given morning.

A system doesn’t promise profits, but it does remove ambiguity when risk is on the line. It answers the hard questions before emotion shows up. Why am I in this position? What would make me wrong? What happens if I am wrong? What happens if I’m right?

You don’t need certainty. You need structure.

Over time, that structure builds confidence, not because every trade works, but because you stop improvising when pressure is highest.

A Better Way to Think About 2026

If you’re setting a trading resolution for 2026, don’t visualize the winning trade.

Visualize something less exciting and far more useful - the process you will use.

You enter positions for clear reasons.

You manage trades without second-guessing yourself.

You exit because conditions change, not because your P&L flickers.

Losses feel contained, not personal.

Wins feel repeatable, not lucky.

That’s not optimism. That’s professionalism.

The Quiet Truth About Longevity

Markets are chaotic by design. Your approach doesn’t have to be.

The traders who last don’t obsess over predictions. They build ways of operating that hold up when predictions fail. So if 2026 is going to be better, it won’t be because the market finally behaves.

It’ll be because you do.

Focus less on the outcome you want.

Focus more on the system that gets you there.

That’s a resolution worth keeping.

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Every December, traders dust off one of Wall Street’s oldest seasonal patterns: the Santa Rally. Some years it arrives right on schedule. Some years it limps in late. And occasionally, it gets run over by macro reality.

Before we decide whether Santa is alive, late, or dead, it’s worth understanding where this idea came from, how it’s defined, and what the long-term and recent data actually say.

Where the Santa Rally Came From

The Santa Rally was formally identified and popularized by the Stock Trader’s Almanac in the 1970s. It wasn’t folklore—it was data mining before that term was fashionable.

The Almanac defined a very specific trading window, not a vague “December is strong” idea.

The official Santa Claus Rally period consists of:

• the last five trading days of December, and

• the first two trading days of January

For 2025, that window is:

• Start: Wednesday, December 24, 2025

• End: Monday, January 5, 2026

(Christmas Day and New Year’s Day are market holidays, which is why the window spans fewer calendar days but still includes seven trading sessions.)

The “Rules” of the Santa Rally

Over time, traders added informal rules—some useful, some superstitious.

The most cited:

“If Santa fails to call, bears may come to Broad and Wall.”

Translation: when the Santa Rally fails to appear during its official window, January has historically been more vulnerable.

Another widely referenced observation:

• There has never been three consecutive negative Santa Rally periods in the historical record.

That doesn’t mean a positive outcome is guaranteed—but it frames expectations in terms of probability, not prediction.

Long-Term Track Record: The Boring Part That Matters

Over decades of data:

• The first half of December is often flat or weak

• The back half of December does most of the work

• Strength tends to cluster around the holidays themselves, not earlier in the month

This is why early-December weakness does not invalidate the Santa Rally. Historically, it often sets the stage for it.

Recent Years: Santa Has Been… Complicated

The last few years have tested blind faith in seasonality.

Recent Santa windows have been influenced by:

• Higher interest rates

• Quantitative tightening

• Macro shocks overwhelming calendar effects

• Narrow market leadership

The last two Santa Rally periods were negative—rare, but not unprecedented. Importantly, history still shows no instance of three consecutive failed Santa Rally windows.

What the Market Is Saying This Year

Santa Isn’t Early — and That’s Normal

The S&P 500 has been range-bound since September. No breakout. No collapse.

That aligns with history. Early December strength is not a requirement for a Santa Rally. In fact, late-month participation is the norm.

With the official window beginning December 24, the market still has time to follow the script.

Positioning Leaves Room

Investor positioning heading into the window remains:

• Balanced rather than euphoric

• Hedge fund leverage below extremes

• Options markets are not flashing overcrowding

• P/E is stretched but not extreme

Santa rallies don’t start when everyone is already long. They start when there’s still ammo left.

Macro Still Matters

Seasonality does not override liquidity, rates, or growth expectations.

PMIs have softened. Liquidity has stopped improving. Yields remain a constraint. That’s why some have declared Santa “dead.”

But historically, Santa doesn’t need perfect macro conditions—just no new shocks during thin holiday liquidity.

So… Is Coming This Year?

Historically:

• Late Santas are common

• Weak early Decembers are normal

• Balanced positioning is constructive

• Macro conditions retain veto power

The Santa Rally is not a guarantee. It is a probabilistic tailwind, and it only counts inside its official window—which, in 2025, begins December 24.

What This Means for Traders

Santa Rally analysis works best when:

• You respect the exact dates

• You treat seasonality as context, not a trade

• You manage risk first and expectations second

Santa doesn’t create trends. He amplifies them—or fails when macro refuses to cooperate.

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It’s amusing because it’s largely true. Predicting complex systems like economies or markets is incredibly hard. Small shifts in assumptions can produce wildly different results. Factor in politics, geopolitics, tech breakthroughs, and unpredictable human behavior, and pinpoint accuracy often proves elusive.

Markets aren’t predictable or linear. They’re adaptive, reflexive, and subject to sudden changes. Anyone claiming to know the exact S&P 500 level in 2026 with certainty is either exceptionally confident—or overlooking key uncertainties.

Yet forecasts remain valuable.

Why Forecasts Matter

Their true worth lies not in precision, but in insight.

The real value comes from the underlying reasoning, not the final number. These reports force firms to lay out their assumptions clearly: on growth, earnings, inflation, rates, policy, politics, and risks.

That’s why comparing them is so helpful. It reveals where views align, where genuine debates exist, and which risks are being downplayed or ignored.

Treat forecasts less as prophecies and more as windows into possible futures.

Shared Assumptions Across Forecasts

Most firms share similar foundational views.

Economically, the consensus expects ongoing expansion, not recession. Growth might slow at times, but a sharp contraction isn’t the base case.

On policy, volatility from elections, fiscal gridlock, and geopolitics is anticipated—but not outright catastrophe. The Fed is seen as responsive, not extreme.

Structurally, outlooks acknowledge stretched valuations, heavy mega-cap concentration, and a shift to higher volatility compared to the 2010s. Differences arise in how much these factors will weigh on returns—and how long investors will tolerate them.

Here, forecasts move from data to judgment.

Wall Street’s 2026 S&P 500 Views

Some firms provide specific year-end targets; others prefer ranges or scenarios. Point estimates generally cluster around 7,500–7,800, with optimistic cases reaching higher:

• Morgan Stanley: 7,800

• Citi: 7,700

• Goldman Sachs: 7,600

Bank of America is more cautious at ~7,100–7,200.

Stifel avoids a single point but outlines a 6,500–7,500 trading range.

UBS and KKR focus on scenarios, valuation bands, and broader themes rather than fixed index levels.

Avoiding a precise target isn’t hesitation—it’s often a deliberate choice to emphasize probabilities and risks. Overall, there’s agreement on the upward direction but divergence on the magnitude and smoothness.

The Underlying Consensus

Stylistic differences aside, a clear shared view emerges.

Recession isn’t the base case for most. Earnings growth, not valuation expansion, is expected to drive returns. AI remains pivotal, but with an increasing focus on dispersion between leaders and laggards. Higher volatility is viewed as the new normal.

This points to uneven gains: periodic pullbacks, rotating leadership, and less “buy-the-dip” reliability.

Key Disagreements and Why They Matter

Differences highlight the real debates.

Valuation sustainability is one divide. Optimists like Citi, Goldman, and Morgan Stanley expect investors to accept high multiples if earnings deliver and rates ease. More cautious voices, including Bank of America and Stifel, see greater downside risk from elevated starting points.

Market breadth is another. Some anticipate meaningful rotation beyond mega-caps; others doubt leadership fully shifts from proven scale and strength. AI monetization timing varies, too.

Bullish views assume quick productivity payoffs; skeptics like UBS and KKR highlight risks of spending outpacing returns. Downside modeling also differs—some provide explicit bear cases, others stress scenarios and discipline.

These aren’t minor quibbles; they shape how resilient portfolios need to be.

The Geography Debate: U.S. Exceptionalism?

A subtler split involves regional outlooks.

Firms like Goldman Sachs, Citi, and Morgan Stanley lean into continued U.S. dominance, especially in large-cap tech and AI, underpinned by strong growth expectations that can help offset elevated fiscal deficits and sustain investor tolerance for higher debt levels.

In contrast, UBS and KKR are more balanced, explicitly highlighting the re-emergence of sovereign debt concerns as a key risk, alongside diversification benefits, attractive non-U.S. valuations (e.g., Europe with its fiscal support and reindustrialization efforts), and potential vulnerabilities from U.S. concentration and twin deficits.

Emerging markets and Asia tie into supply-chain shifts, domestic recovery, and policy flexibility.

U.S. leadership isn’t guaranteed—it’s an assumption worth questioning, particularly as rising deficits and debt sustainability become more prominent in cautious outlooks.

How to Use These Outlooks

Don’t chase specific targets or sectors blindly.

The best approach: Identify what must go right for each view to play out, then align your portfolio accordingly.

If U.S. exceptionalism holds and earnings validate valuations, mega-cap tech remains compelling. If breadth expands amid easier conditions, international or small-cap exposure becomes more appealing. In a volatile, dispersed environment, passive indexing alone may underperform.

Common pitfalls include ignoring changing assumptions or reacting only after pain hits.

Build a process: Clarify your views, express them intentionally, define success/failure signals upfront, and monitor key drivers (growth, earnings, policy, breadth). Adjust based on evidence, not emotion.

Forecasts aren’t oracles—they’re diagnostic tools. Use them that way, and they’ll improve your decisions even when proven wrong.

Research Appendix

Institutions Reviewed

• Goldman Sachs

• Citi Research

• Morgan Stanley

• Bank of America Global Research

• Stifel

• UBS

• KKR

Forecast Approaches

• Point Targets: Common for base cases, often with bull/bear variants.

• Scenario/Ranges: Preferred by some to capture uncertainty and probabilities.

Notes

• Base cases prioritized; qualitative themes incorporated where no explicit target.

• Regional views drawn from allocation emphasis and commentary.

• Forecasts evolve with new data—treat as snapshots of current thinking.

In a recent episode of The Everyday Trader, Greg Jensen and I walked through this question in detail. The key conclusion is straightforward: gold and silver are rallying for very different reasons, and understanding that distinction matters.

👉 Watch the full YouTube episode here:

Silver and Gold - What the Market Are Telling Us About 2026

Gold: a policy and currency signal

Gold’s strength has coincided with a sharp increase in central bank purchases, particularly from countries looking to diversify reserves away from an over-reliance on any single fiat currency. According to data from the World Gold Council, central banks have been net buyers of gold at historically elevated levels for multiple consecutive years.

This isn’t a prediction of imminent dollar collapse. It’s better understood as risk management in a world where debt-to-GDP ratios are high across the U.S., Europe, and Japan, and where monetary policy is once again becoming more accommodative. When central banks expand balance sheets or slow quantitative tightening, gold tends to benefit as a hedge against currency debasement and policy uncertainty.

Importantly, this doesn’t argue against equities. If anything, it reinforces the idea that owning assets matters more than holding idle cash during periods of rising liquidity.

Silver: a structural supply-and-demand story

Silver’s move is driven by a different engine. Roughly 60% of global silver demand comes from industrial uses, including solar panels, electric vehicles, and semiconductors. As AI data-center buildouts and electrification continue, silver demand has grown faster than supply.

Industry data shows that global silver production — including mining and recycling — has struggled to keep pace, resulting in recurring supply deficits. When industrial demand collides with constrained supply, price trends often last longer than traders expect. Silver isn’t acting like a classic “safe haven.” It’s acting like a critical input in a capital-intensive economy.

Why this matters for traders

Gold and silver may look similar on a chart, but they’re responding to different signals underneath the surface. Treating them as interchangeable can lead to poor positioning and emotional decision-making.

This also isn’t an all-or-nothing trade. Precious metals don’t need to replace stocks. They can complement portfolios built around equities, options, and income strategies — particularly in an environment shaped by policy uncertainty, infrastructure spending, and uneven growth.

Practical exposure

For traders who want exposure without dealing with physical metals or futures contracts, liquid ETFs tied directly to gold and silver provide straightforward access. Select miners with sufficient liquidity can also be used, though miner performance can diverge from spot prices depending on costs, margins, and operational risk.

Looking toward 2026

The real question isn’t whether silver or gold have already moved “too far.” It’s whether the forces behind them — central bank behavior, industrial demand, infrastructure investment, and liquidity conditions — remain in place. At the moment, there’s little evidence those trends are reversing.

So the better question may be this: heading into 2026, would you rather own exposure tied to policy risk — or exposure tied to physical demand?

That’s the discussion worth having.

Mentioned: GLD SLV GDX SIL NEM NVDA FCX

References & Further Reading

• World Gold Council — Central bank gold demand and reserve data

• The Silver Institute — Global silver supply and demand statistics

• International Energy Agency (IEA) — Solar and electrification trends

• Federal Reserve — Balance sheet and liquidity operations

• Semiconductor Industry Association — Chip demand and capacity trends

For decades, institutional investors have used options not to speculate, but to reshape portfolios.

Not trades.

Not income hacks.

Not high-win-rate games.

Portfolios.

A 30-year study of systematic option overlay strategies shows that when options are implemented with discipline and proper sizing, they have improved returns and reduced volatility across market cycles¹.

Yet retail traders keep repeating the same mistakes.

Let’s talk about the biggest myths — and why they refuse to die.

Myth #1: “Selling puts is conservative income”

Retail logic usually sounds like this:

“I wouldn’t mind owning the stock, so selling puts is safe.”

Institutions don’t think this way.

The data shows put-writing works best when it is fully collateralized and structurally tied to the bond allocation, not used as a standalone trade¹.

Over 30 years, systematically selling modestly out-of-the-money index puts while holding bonds as collateral:

• Generated equity-like returns

• With far lower volatility

• By monetizing persistent demand for downside insurance¹

Retail traders usually:

• Sell puts without defining capital usage

• Ignore drawdowns during tail events

• Treat assignment as “no big deal” — until it is

Hard truth:

If you’re selling puts without mentally assigning them to your bond sleeve, you’re not conservative — you’re improvising.

Myth #2: “Covered calls are free money”

Covered calls do work. The data is clear.

Systematically selling short-dated out-of-the-money calls on equities:

• Increased long-term returns

• Reduced portfolio volatility

• Improved risk-adjusted performance over 30 years¹

So why do retail traders struggle?

Because they misunderstand the tradeoff.

Covered calls convert uncertain future upside into known present income. That’s a feature — not a flaw. But retail traders often overwrite stocks they want unlimited upside in, then feel frustrated when markets rally through their strikes.

Institutions accept capped upside intentionally.

Retail traders expect income and unlimited gains. Markets don’t offer that deal.

Hard truth:

Covered calls don’t fail. Expectations do.

Myth #3: “Buying protection is always a drag on returns”

Retail traders hate hedging. They see it as wasted money.

The long-term data disagrees.

Put-spread collars — buying downside protection while partially funding it by selling upside — reduced portfolio volatility dramatically, while still maintaining equity exposure¹.

Over 30 years:

• Volatility fell by nearly half

• Risk-adjusted returns improved meaningfully

• Portfolios became smoother and more behaviorally durable¹

Institutions hedge to:

• Reduce drawdowns

• Prevent panic selling

• Improve capital efficiency

Retail traders usually:

• Buy protection late and expensively

• Or don’t hedge at all

Both approaches are flawed.

Hard truth:

Protection isn’t expensive when it’s structured properly. It’s expensive when you buy fear instead of selling greed.

Myth #4: “High win rate means low risk”

This is the most seductive myth.

Selling options usually works. That’s exactly why people get comfortable.

But win rate is not risk management.

The strategies that succeed long-term do so because they:

• Harvest the volatility risk premium

• Accept occasional losses as inevitable

• Control exposure and sizing¹

Retail traders fixate on:

• How often they’re right

• How rarely they get assigned

• How smooth the last few months looked

Markets don’t care about your win rate.

They care about your worst month.

Hard truth:

A strategy that “works most of the time” can still destroy a portfolio.

Myth #5: “Options are tactical tools, not portfolio tools”

This is the core misunderstanding.

The research shows that, under a wide range of assumptions, the optimal allocation is often to use option overlays at or near their maximum size relative to the underlying asset¹.

That’s not tactical. That’s structural.

Options:

• Change the shape of returns

• Alter volatility

• Redefine how portfolios behave in stress

Retail traders use options to enter trades.

Institutions use options to engineer outcomes.

Hard truth:

If you’re treating options as trades instead of architecture, you’re missing the point.

The Variable Retail Traders Ignore: Cost of Capital

This is where most retail education completely breaks down.

The optimal mix of option strategies depends less on market forecasts and more on your cost of capital¹.

• Low cost of capital → volatility-efficient portfolios (collars, put-writing)

• Higher cost of capital → higher standalone return strategies (overwriting)

Institutions start here.

Retail traders almost never do.

Instead, they ask:

“What’s the best strategy right now?”

That’s the wrong question.

The better one:

“What structure fits my capital constraints?”

What Institutions Do Differently

The hink in sleeves, not trades:

• Equity sleeve

• Bond sleeve

• Option overlays that belong to each

Define risk before yield.

Accept tradeoffs intentionally.

Stop confusing simplicity with safety.

Options aren’t magic.

They’re tools — powerful ones — when used with discipline.

Final Thought

Wall Street isn’t smarter because it has better forecasts.

It’s smarter because it respects distribution, volatility, and structure.

Retail traders don’t lose because they don’t know enough strategies.

They lose because they believe too many myths.

Footnotes & References

1. Goldman Sachs Global Investment Research, “Optimal Asset Allocation with Option Overlay Strategies: A 30-Year Study”, December 2025.

   Analysis of systematic overwriting, put-spread collars, and put-writing applied to a 60/40 portfolio from 1996–2025.

2. Carr, Peter & Madan, Dilip, “Volatility as an Asset”, Journal of Portfolio Management.

   Foundational work on harvesting the volatility risk premium.

3. Goldman Sachs Global Investment Research, “Turning Stocks into Bonds Using Options”, 2010.

   Early framework for equity collar strategies as volatility-reduction tools.

4. CBOE, S&P 500 Index Options Volume and Put/Call Ratios, multiple years.

   Empirical evidence of persistent demand for downside insurance.

This talk came from the Chicago Fed’s 39th Annual Symposium, December 12, 20205, and it was one of the more useful “real economy” presentations I’ve seen in a while. Excellent presentation with several key insights.

It feels like we’re at a critical juncture economically. We’re not out of the woods on recession risk, and the mix of slowing labor dynamics plus sticky/returning inflation pressure is exactly the kind of setup that can blindside investors. Leo Feler (Chief Economist at Numerator) laid out several leading indicators we can keep an eye on to see where we’re heading.

In the meantime, there are some tradeable ideas.

Why you should care

Most consumer conversations are vibes-based. Leo brought receipts. Literally.

Numerator’s dataset comes from a large consumer panel using the Receipt Hog app, where households share item-level purchases by uploading receipts or linking accounts (Amazon, Walmart, CVS, etc.). That creates a near real-time view of what people actually buy, what they pay, and how behavior shifts before traditional data prints catch up.

Even better: their retail spending series tracks closely with official Census retail sales. Translation: this isn’t just “interesting.” It’s a potential signal source.

The key takeaways (the stuff that changes trades)

1) The consumer is resilient… but split (K-shaped)

High-income households largely maintained or increased spending in real terms. Lower-income households pulled back and remain the weak link. That split explains why the topline economy can look “fine” while stress builds underneath.

There’s a divide at a household income of $60k

2) Essentials are steady, discretionary is where the cracks form

Grocery/food spending is comparatively stable across income groups. The pullback is much sharper in general merchandise (apparel, home goods, toys, small electronics, etc.). If recession risk rises, that’s your early damage zone.

3) Inflation can re-accelerate with a lag

Leo’s point wasn’t “tariffs equal instant CPI spike.” It was that price increases often show up later because of:

• Retailer contracts (pricing resets happen in windows)

• Supplier hedges and pre-buys (input costs hit later)

• “One bite at the apple” behavior (companies wait to pick a single, defensible hike)

Base implication: inflation pressure can build quietly and then hit more broadly when contract windows roll.

4) The labor market isn’t collapsing, but households feel the ground shifting

People increasingly say it would be difficult to find a similar-paying job if they lost one. That’s a leading indicator because it changes behavior before unemployment looks “bad” on paper.

5) Tariff chaos is its own shock

Beyond the level of tariffs, the stop-start implementation creates uncertainty. Businesses pause decisions. That can slow growth even before price effects show up.

6) GLP-1s are a measurable headwind for grocery spend

Numerator’s research suggests GLP-1 users spend about 5% less at grocery stores, and the effect may be seasonal (stronger early in the year). Not “food apocalypse,” but meaningful at the margin—especially for certain categories.

Source: Hristakeva, Sylvia and Liaukonyte, Jura and Feler, Leo, The No-Hunger Games: How GLP-1 Medication Adoption is Changing Consumer Food Demand (December 27, 2024). Cornell SC Johnson College of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=5073929 or http://dx.doi.org/10.2139/ssrn.5073929

Leading indicators Leo emphasized (simple, trackable)

• “How hard would it be to replace my job?” sentiment

  Rising “it would be difficult” responses often precede slower discretionary spending.

• Real spending by income tier

  If the bottom third continues to contract in real terms, that’s recession fuel—because it tends to hit broad discretionary categories first.

• Discretionary vs essential mix shift

  Promotions and unit weakness in general merchandise can show up before the macro headlines shift.

• Price changes in less-frequent purchases (durable-ish goods)

  Consumers may not notice a Bluetooth speaker price jump, but the data will—and margins will.

Outlook: a clean scenario framework

Base case (most likely in his framing)

• Moderate inflation pressure that builds over the next ~6 months as pricing resets through contract windows and hedges roll off

• Slower growth, but not necessarily a collapse

• The bottom-income cohort remains the primary stress point

Risk case (the “critical juncture” version)

• Inflation pressure + slower growth at the same time

  That combination is what tends to break margins, compress multiples, and punish anything dependent on discretionary demand.

Tradeable ideas (themes retail traders can use)

Theme 1: “Necessities win, discretionary bleeds” (until proven otherwise)

If spending holds up, it’s because essentials do. If it breaks, discretionary breaks first.

Tickers to watch (examples):

• Resilience / trade-down beneficiaries: WMT COST

• Discretionary sensitivity: TGT BBY

• Low-income stress exposure: DG

Theme 2: Tariff pass-through is a margin story before it’s a CPI story

Watch for:

• Gross margin commentary

• Promo intensity

• January/July “pricing action” language

Businesses with weak pricing power get squeezed first.

Theme 3: Import-heavy categories are the canary

If tariff-driven goods inflation persists, import-heavy categories face some combo of:

• Higher prices

• Lower unit volume

• Margin compression

This tends to show up in retailers/brands tied to discretionary goods.

Theme 4: GLP-1 second-order winners/losers

Obvious beneficiaries: NVO LLY

Second-order: food brands and retailers where basket mix matters.

Watchlist ideas:

• Pharma: NVO LLY

• Food brands to monitor for mix/volume changes: GIS KHC CPB

• Retail basket exposure: WMT

Theme 5: Labor softening becomes a credit story

If job replacement fear rises, big-ticket discretionary slows and credit reliance can increase.

Watch: delinquencies, BNPL tone, and lender commentary.

A simple “next two quarters” checklist

• Are promotions increasing?

• Are discretionary categories showing unit weakness even if sales dollars look okay?

• Do companies reference January pricing actions or contract resets?

• Is the bottom-income cohort still shrinking in real terms?

Bottom line

This wasn’t a “doom” talk, and it wasn’t a “soft landing victory lap.” It was a reality check: the consumer is still spending, but the economy is split, inflation pressures may reappear with a lag, and recession risk is still on the table.

That’s exactly why the tradeable edge is in watching the leading indicators—especially discretionary goods behavior and income-tier spending—before the headlines catch up.