Contrarian Codex — Macro Update #19

Why another macro update

• "It wouldn't really be a week in 2026 if it didn't include at least one macro update" — a week-later check-in on last week's extensive macro analysis report (the recommended companion for the state of the fiscal system), with the US rate backdrop the thread that has moved most as new data landed.
• He flags up front that some of this overlaps last week's report, and deliberately closes the macro section early rather than repeat it.

Warsh — same man, different script

• During the confirmation fight Warsh told the Senate he would "absolutely not be anyone's sock puppet," and opened hawkish at his first press conference over the summer.
• By the ECB gathering in Portugal he was telling the room that inflation risks had eased — "without naming a single indicator that showed it."

The Trump channel, and the contrast with Powell

• Trump and Warsh have been speaking on and off since confirmation went through: the President asking about forecasts and the economy, Warsh reportedly handing back an upbeat read each time. Both camps insist the Fed's independence is untouched.
• Set that next to the treatment Powell still gets — the blame for rates, the probe over the building renovation, the running effort to reshape the board around him.

The CPI setup — the trade the sell-side is loaded into

• Even in "unprecedented times for the global macro picture," his argument stands: a soft CPI print this week could push rate-hike odds further out of pricing, pull yields lower and bull-steepen the curve.
• That is the more bullish setup the sell-side is positioned for — another soft reading on the heels of a softer one the month before — "and the labor data backs it on the surface."

The payrolls print, decomposed

• Payrolls fell by 23,000 last month; the prior two months were revised down by a combined 103,000.
• Headline unemployment dropped to 4.1% "but only because people walked out of the labor force rather than into jobs." Participation slid to 61.4% — outside the pandemic, the weakest reading since the 1970s.
• Wage growth cooled to 3.2%, the slowest in more than five years. "A labor market losing altitude (on paper at least) gives Warsh all the cover he needs to keep the front end pinned and keep repeating that the inflation fight is behind us."

Skeptical of the print — but trading it as the market does

• The pushback he shares: a labour market cracking this hard "would be showing up elsewhere by now, in the spending figures, in what companies are actually saying, and mostly it isn't" — possibly one-time circumstances.
• His resolution is explicitly not to fight it: "let's take the numbers as the market takes them and hope it sets us up for further strength into a potentially soft CPI print soon."

Hormuz, month six — lanes agreed, waterway still shut

• The war is into its sixth month and the strait is "still effectively shut beyond some minor transports."
• Iran and Oman have spent weeks agreeing coordinates for new shipping lanes and Tehran now calls the arrangement close to finalised — "though a finalized arrangement with Oman does not reopen the waterway."

The concession list vs the counter-demand

• Full reopening has been hung on a list of concessions from Washington: an end to the naval blockade, sanctions relief, release of frozen assets, war compensation, a permanent end to the conflict, and a US pullback from the region.
• Trump answered by demanding compensation from Iran — for roadside-bomb deaths and, in a later revision, for damage across Lebanon, Syria, Yemen and Gaza. He now calls himself "only semi-negotiating," content to let the economic squeeze grind on Tehran rather than order fresh strikes; his Treasury Secretary floated a reopening under a 30-to-60-day ceasefire as soon as this week.
• "By any honest reading the two sides are further apart than they were a week ago."

The no-deal chain

• The sequencing he carries over from last week's macro report: no deal = increased strain on the UST market = potential weakness for risk assets and the general market = eventual fiscal intervention — "but not before more selling."

The AI buildout has become a credit product

• Data-center and AI buildout talk stays on the table because "that is what has been driving the market up for the better part of this year and as long as it keeps underpinning buying, it remains an important factor."
• Nvidia lined up $500bn in financing with a consortium of the biggest private-capital firms — compute itself pledged as collateral, the company backstopping up to 25% of it. Jensen Huang now calls compute an investable infrastructure asset, "a tidy way of saying the AI buildout has become a credit product."
• The consequence: it makes "the whole edifice more sensitive to credit conditions and stacks another layer of circularity onto a set of deals already drawing hard questions."

Goldman is the only bank in the room

• Inside an otherwise private-capital consortium, Goldman is the lone bank — "positioning itself as lead bookrunner on the public debt to come," i.e. staking the underwriting seat for when this financing migrates into public bond markets.

Microsoft's record single session

• Microsoft added almost half a trillion dollars of market value in a single session — a record for any stock — after Azure revenue grew 43%.

The SEC lifts the post-2008 brake

• The SEC cleared data-center securitizations to skip the risk-retention rules written after 2008, "the ones meant to keep issuers honest."
• That paper went from $2.4bn of issuance in 2020 to $15.5bn last year and is on pace for another record — "the post-crisis brake lifted for the fastest-growing corner of new credit."

ICE buys the plumbing

• The parent of the NYSE is paying $6bn for a corporate-bond venue in the same window — "more consolidation of the plumbing all this debt has to run through."

Putting it together — the terrain hard assets are cut for

• The stack, in his words: a central bank pinning the front end into hot inflation, a bond market left to do the tightening the Fed will not, an energy shock reloading the very impulse the Fed claims has faded, a currency-versus-bond-market choice being made in real time in both Washington and Tokyo, and a credit boom handed looser rules on the way up.
• "That is the terrain hard assets are cut for and the reason the debasement trade keeps working no matter how many times the market tries to call the end on it."

Positioning — the rest of the cash waits for the data and the reaction

• "There is still plenty of risk out there" — so after buying more in July he is sitting on what is left of the cash position "to see how tomorrow's data comes in and more importantly how the market reacts to it."

The momentum stat — a 21-day thrust, screened

• The S&P went from a 21-day closing low to a 21-day closing high in 4 trading days — a thrust that has shown up only 18 times on record. On its own "it is a coin toss, higher on some occasions, lower on others, nothing to lean on."
• Screen for the ones that landed within 2% of a 52-week high "and the picture flips, higher a year later every time, 9 for 9, mean gain 13.28%."
• The mechanism he attaches to it: negative real rates push capital out of cash and into anything with a claim on real growth, and the debasement trade does the rest as it gathers momentum — "the buyers are not waiting for permission from the data."

What would break it

• Both the Fed and another run in the price of oil can break that momentum, "and then the 9 for 9 record more than likely will not hold."
• Short of one of those, "the geopolitics stays a headline the market trades around rather than a wall it runs into," with the market seemingly caring less and less about the Strait or the constant mixed-message tweeting.
• The closing balance: top-callers and shorts "have been wrong the whole way up," but the macro backdrop remains uncertain — "so keep that balance in check."