The Macro Filter

Europe is a vassal. They lack the political will to nuke their welfare state which is a requisite step in building a military sufficient to keep their borders secure. If the U.S. leaves it knows China is the default inheritor of the vassal. Because China is our primary adversary we will not leave Europe intact economically on our way out. We will rip away its access to energy. We will nuke its access to dollar liquidity and throw its existing over-indebted financial system into a tailspin. We will block Europes export access to any country in our sphere. That includes Japan. And most importantly we will fragment Europe on the way out. We will rip it apart from the inside. Not because we hate Europeans. We don’t. Because Europe is a vassal. A resource of empire. And just because it forgot this due to our benevolence doesn’t mean China will view it as anything other than a resource to extract from. And you don’t leave the enemy resources. You blow it the fuck up and leave a pair of star-spangled boxers in the wreckage on the way out. 🫡

How a solid quarter for Global Macro hedge funds was a great quarter for those holding a low-cost, 2x alpha indexing strategy: Global Macro HF index, net: 5.6% Estimated Fees: 1.2% Leverage Cost: -1.0% 2x Return, Gross: 11.5% 2x Return, Net of 95bps/yr fees: 11.3%

Every OpenAI investor should be asking this question: How did Anthropic manage to surpass OpenAI in revenue despite spending less than half of what OpenAI did on training?

Back from vacation and hopefully regular posting. During the market turmoil we added $RWE, $LNG, and a tiny of $BTU as we think coal will have a longer half-life after this crisis. We also shorted airliners and $HYG which helped us offset a lot of the losses in our AI infra basket. Good think we're out of memory ($EWY and $MU) prior to Feb 27 but we did experience losses on the other holdings ($CAT, $GWL, $COHR, others). On Friday we also bought short term rates in US and Germany as we think that (1) Fed won't raise rates so there is an asymmetry if crisis resolve, and (2) A lot has been priced in European rates. We did this via $SFRH7 and $DUM6. We got stopped out of $META but we kept our July CS at 710/750 (mostly derisked now) and yesterday we added a little bit of delta. Finally during the crisis we built a position on QQQ Dec 625/650 call spread. As the market heals the deltas there should restore some of the risk we reduced and more the make up for the losses. Lets see how the newsflows evolve and what the consensus for Trump speech at 9pmET builds. Depending on that I may reduce some of the hedges I still hold (short airliners, short $HYG).

This is what I wrote on my weekly: Given all of the above, I still maintain that Trump is constrained and my expectation is he will wrap this up sooner rather than later. Here is why: Politically the war is very unpopular within the broader population but specially within Trump’s MAGA base. This look a lot like the beginnings of forever wars like Iraq which Trump campaigned very much against. Although the GOP is likely to lose the House in the midterms, the Senate is not a given, but the way things are going it looks like Trump may lose the Senate. For instance polymarket put the odds at almost even. This would be a disaster for Trump and he could even be impeached. If oil prices continue to increase there will be demand destruction and there could be recession as a result. The economy is already in a fragile state with the labor market barely growing. It doesn’t take much to tip it into recession. Two important nodes in the AI race are very much affected by this: Taiwan and South Korea. In the context of AI competition with China the last thing the administration would want is to handicap their companies on chips and memory. If this continue there could be adverse consequences there.

If US/Israel back out now, you’ll have a new Iran, bold, with a hardliner religious leader who will no doubt go nuclear. They can’t back down unless they’re sure that Iran nuclear program is set back decades.

Can't say much with respect to the conflict. A lot of noise, propaganda and fake news all over. As it looks, Iran is angry and command not centralized which means risk of an accident is greater. Trump has lots of exit strategies here. He already got the big prize. A lot will depend on oil prices and market reaction.

Can't say much with respect to the conflict. A lot of noise, propaganda and fake news all over. As it looks, Iran is angry and command not centralized which means risk of an accident is greater. Trump has lots of exit strategies here. He already got the big prize. A lot will depend on oil prices and market reaction.