Paulo Macro — The Second Mouse Gets the Cheese (Jul 2026)

One-line take: His named trade archetype — "The Second Mouse Gets the Cheese": a second chance into a big move where "the fundamental picture remains the same or even improved, yet investors are no longer involved because they were run over and killed in the mouse trap the first time." Between "China's 2Q disappearing act and Trump's jawboning," the physical market "caught out one of the larger net long speculative positions the oil market has seen over the past decade," stopping out tens of billions of length while CTAs and managed money piled into the short side. The Jul-21 COT week is the evidence: WTI $79→$85 and Brent $85→$91 (+7%), yet only ~30% of the record Brent managed-money short has been cut by contract count — and none of it in notional US$ terms (flat price also rallied +30%, so the $ short is "pretty much the same size as it was at the lows… larger than the price collapses of 2024-25"). Combined WTI+Brent managed-money net long peaked ~US$64bn at 1Q-end, collapsed to $9bn by early July ("among the lowest readings on record") and has rebuilt only to ~US$26bn — "consistent with Brent prices of mid-$70s in 2025 and low $80s in 2024… speculators are 'lighter' at $91 Tuesday than they were in 2024-25 at $75-85." A textbook Kovner divergence ("a consensus the market is not confirming"). Open interest confirms no fresh money: WTI OI at late-2025 lows, Brent OI -30% YTD and "barely grown on the bounce," WTI non-commercial net long as a % of OI back to 15-year rarities, Brent managed-money net long at 7% of OI ("consistent with Brent in the upper $70s, not Tuesday's $91") — "existing (underwater?) longs selling to shorts who are covering." Physical confirms the move: Dated Brent — the 'tell' that led the 2Q crash and revealed China stepping out — is now moving in tandem, and the Dubai 2m swap over Brent says the picture has changed regardless of the "obsession over counting dark transits in Hormuz." Backwardation "is screaming for crude to come to market", with the 2-3m / 2-5m / 1yr Brent spreads at 2Q22 Russia-Ukraine levels when Brent traded $100-125 — "the crude flat price and speculative positioning are too low." And the "Jaws of Death": cracks lead, crude follows (as in March-April, when "crude caught up to cracks…and then continued to rally"); he expects cracks to stay elevated on brutally tight product inventories, and "as long as refiners are earning a $50+ crack, they will run every last barrel as hard as they can." He owns the YTD record both ways — the January "Oil Has Turned a Very Big Corner" win and calling the war off the Purim buildups, but also the drawdown from "crappy options and cash trades" as he missed the China move. Conviction in a "Guns of August" blowout "has never been greater" — right when Trump is most politically vulnerable and Iran most willing to fight with midterms three months out ("the North Star persists"; "TACO remains absurd"). Oil is his largest position by a wide margin on a delta- and vol-adjusted basis — calls and call spreads on BNO and related futures, expiries August to January. "As always, I would not listen to me… stay frosty."

1. Stocks & names mentioned

Ticker	Name	Research	View	What's said	Source
BNO	United States Brent Oil Fund	QT · SA · STK	Positive	The expression of the "Second Mouse" re-entry: "Oil remains my largest position by a wide margin on a delta and volatility adjusted basis. I own a variety of calls and call spreads on BNO and related underlying futures with expiries ranging from August to January." Conviction in a "Guns of August blowout of epic proportions has never been greater" — positioning is "too low" (~US$26bn combined net long vs $64bn at the 1Q peak; Brent managed money 7% of OI) while backwardation sits at 2Q22 $100-125 levels and cracks lead crude. "As always, I would not listen to me."	read ↗
BTC	Bitcoin	STK	Positive	A one-line self-reference, not a fresh case: buying oil here "feels deeply irresponsible (sorta like my long bitcoin trade here for me — do the hard trade)." Confirms the Jul-8 tactical bitcoin trade is still on and is filed under the same discipline — the uncomfortable trade nobody wants.	read ↗

A positioning/flows note on crude — one substantive security. BNO is the trade (calls + call spreads, Aug→Jan expiries; "my largest position by a wide margin on a delta and volatility adjusted basis"). BTC appears only as a one-line self-reference confirming the Jul-8 bitcoin trade is still on ("do the hard trade"). Named-in-passing and intentionally not tabled: the underlying markets and instruments themselves — WTI and Brent futures/options, Dated Brent, the Dubai 2m swap over Brent, Brent time spreads (2-3m / 2-5m / 1yr), refinery crack spreads and the CFTC Commitment of Traders categories (managed money / non-commercial / commercial) — these are the macro substance of the note, not securities. Morgan Stanley is cited only as the source of an inventory chart (a chart attribution, not a stance). Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.

2. Talking points

"The Second Mouse Gets the Cheese" — the archetype

A rare trade type he names explicitly: "a second chance into a big move. The fundamental picture remains the same or even improved, yet investors are no longer involved because they were run over and killed in the mouse trap the first time."
Why it works: "the positioning is cleaner and investors are more scared the second time around, which means the trade works in a classic 'wall of worry' as investors have a hard time staying in for the meat of a move."

How the first mouse died — China's 2Q disappearing act + Trump's jawboning

"Most investors threw oil into the 'too hard' pile many weeks ago." The physical market "caught out one of the larger net long speculative positions the oil market has seen over the past decade," stopping out tens of billions of speculative length in futures and options while "mechanical CTAs and other managed money piled into the short side."
"The setup was among the most convex I have ever seen …and became even more so."

The COT week that should have seen short-covering — and didn't

Reporting period Tue Jul 14 → Jul 21: WTI $79 → $85, Brent $85 → $91 (+$6/bbl). It misses the further $6-8 leg of the past few days, but "+7% in the recent reporting period is still a real move, and I expected decent short-covering and a notable increase in net long."
Instead the data "is eye-opening and reveals the degree to which investors are running scared of Trump and his ability and motivation to destroy the crude market — as if global supply and demand for the world's largest, most widely traded commodity rest entirely in his hands."
He restates the framework: "the North Star still exists, and no I have not changed my mind about any of it… the idea of 'TACO' remains absurd to me; he may have started this mess, but the resolution is not up to him."

The record Brent short: -30% by contracts, unchanged in dollars

Weeks ago Brent managed money held "the largest short in history by number of contracts, along with the largest notional $ short." As Brent rallied from its ~$70 low on Jul 2 to $91, "~30% of the outstanding short position has been cut."
"But that's only part of the story because the flat price has also rallied +30% off the lows, so the short position in notional US$ terms is pretty much the same size as it was at the lows, i.e. we have not yet seen the short cut back and it remains larger than the price collapses of 2024-25."

Positioning vs price — the Kovner divergence

Combined WTI+Brent managed-money net long (futures + options, in notional US$): peaked ~US$64bn at 1Q-end → collapsed to $9bn by early July ("among the lowest readings on record") → rebuilt to ~US$26bn today.
But "this length is consistent with Brent prices of mid-$70s in 2025, and low $80s in 2024. In other words, speculators are 'lighter' at $91 Tuesday than they were in 2024-25 at $75-85. This is a notable divergence in positioning vs price."
The quote he anchors on: "What I am really looking for is a consensus the market is not confirming. I like to know that there are a lot of people who are going to be wrong." — Bruce Kovner.

Open interest — no fresh money in the space

WTI open interest has collapsed to lows last seen in late 2025 — "general commercial activity and market size is down." (The mechanic he spells out: buying a contract either takes a long's exit, keeping OI flat, or draws a fresh short, growing OI.)
Brent OI has tumbled ~30% since early this year and "has barely grown on the bounce."
Normalized: WTI non-commercial net long as a % of OI fell to levels "rarely seen in the past 15 years" by early July (last seen late last year with WTI in the $50s); Brent managed-money net long is 7% of OI — "consistent with Brent in the upper $70s over the past few years, not Tuesday's $91."
Conclusion: "much of the recent activity featured existing (underwater?) longs that are selling to shorts who are covering, and we are not seeing significant fresh money come into the space (yet). People are burned, and getting left behind for fear of Trump and China."

Physical is confirming — Dated Brent and the Dubai swap

Dated Brent for immediate delivery was the 'tell' that led the crude crash lower in 2Q — the signal of what was later understood as China stepping out of the market. "As with the March liftoff, physical is confirming the move in tandem."
Against the "obsession over counting dark transits in Hormuz" (still happening, "but in reduced numbers"), "the Dubai 2m swap over Brent is showing you that this picture changed."

Backwardation at 2Q22 levels — "screaming for crude to come to market"

Brent time spreads (2-3m, 2-5m, 1yr) are at the levels of 2Q22 Russia-Ukraine, when Brent traded firmly $100-125.
"The crude flat price and speculative positioning are too low."

The "Jaws of Death" — cracks lead, crude follows

While the press and sellside spent two weeks "obsessing over crackspreads as diesel and gasoline product prices ripped on refinery constraints," he points back to his own chart: "cracks lead (white), crude inevitably follows (red)" — a reckoning he has been "warning since mid June."
He owns the miss: "I wasn't looking for (or even imagining) a move down from $85 to below $70 in the interim, but here we are." The precedent: March-April, when "crude caught up to cracks…and then continued to rally."
Cracks should stay "very elevated from here as global product inventories are brutally tight" — and "as long as refiners are earning a $50+ crack, they will run every last barrel as hard as they can, stressing equipment and skipping maintenance if they have to." Inventory charts from Morgan Stanley (global) and the US.

Owning the scorecard — both the wins and the drawdown

"I stand by everything I've written on oil, and I own all the great and bad trades YTD": the January "Oil Has Turned a Very Big Corner" call "when the whole Street was negative," and "successfully calling the war weeks out because of buildups into Purim."
The bad: "the drawdown with crappy options and cash trades as I missed the China move and under-appreciated the possibility that positioning would reset all the way back to the 4mmbbl+ Superglut days of Dec2025."
The behavioural point that makes the second-mouse setup: "most people I know who were actively trading crude in March to May are long gone or otherwise running a fraction of their position sizes. Once bitten, twice shy."

"Guns of August" — conviction has never been greater

"It feels deeply irresponsible (sorta like my long bitcoin trade here for me — do the hard trade)… but my conviction in a Guns of August blowout of epic proportions has never been greater."
Timing logic: "right in the time window when Trump is most vulnerable politically and Iran seems most willing to fight tooth and nail knowing Trump has midterms barely three months out (the North Star persists)."

The position

"Oil remains my largest position by a wide margin on a delta and volatility adjusted basis. I own a variety of calls and call spreads on BNO and related underlying futures with expiries ranging from August to January."
"As always, I would not listen to me. Hope everyone has a great weekend… stay frosty…"

3. In plain English

A jargon-free summary of the thesis behind each name — what it actually is and why that view. (Plain-language companion to the table above; renders on each ticker's consolidated page.)

BNO — United States Brent Oil Fund Positive

BNO is an exchange-traded fund that simply tracks the price of Brent crude oil via futures contracts, so buying it is a clean way to bet the oil price rises. Paulo isn't just buying the fund — he owns call options and call spreads on it (a call is the right, not the obligation, to buy at a set price by a set date; a call spread buys one and sells a higher-strike one to cut the cost). Options give leverage: a modest rise in oil can multiply the option's value, and the most you can lose is what you paid. His expiries run from August to January, so he is paying for several months of chances rather than betting on one week.

The thesis is about who owns oil, not just what oil is worth. Earlier this year a very large crowd of speculators was long crude; then China quietly stopped buying and Trump talked the price down, and that crowd was wiped out — "run over and killed in the mouse trap." Paulo calls the second entry, after the first crowd has been carried out, "the second mouse gets the cheese": the reasons to be bullish are unchanged or better, but everyone who tried it already has the scars and won't come back — so there is nobody left to sell and a "wall of worry" for the price to climb.

His evidence is the weekly CFTC positioning report (who holds how many futures). Even though Brent rallied from about $70 to $91, the record bet against oil has barely been unwound in dollar terms, and the overall bullish position — about $26 billion, versus $64 billion at the March peak — is smaller today at $91 oil than it was in 2024-25 when oil was $75-85. In other words, the price says one thing and positioning says another; that gap is the setup. Open interest (the total number of contracts alive) has shrunk too, meaning existing bruised longs are selling to shorts who are buying back, with no new money arriving.

Two more confirmations. The physical market — the price of an actual cargo for immediate delivery, and the premium of near-dated barrels over later ones ("backwardation") — is at levels last seen in spring 2022 when Brent traded $100-125. Backwardation means buyers are paying up for oil now, "screaming for crude to come to market" — a shortage signal. And refining margins ("crack spreads," the profit from turning crude into diesel and gasoline) have ripped higher; his "Jaws of Death" observation is that those margins lead and crude follows, as it did in March-April. Add his geopolitical view (an August escalation with Iran while Trump is politically vulnerable into midterms) and this is his largest position by a wide margin — while he freely admits the same thesis cost him money earlier this year.

Key points extracted from the paid PauloMacro Substack post (saved in transcript.txt) for personal study. Not investment advice. © PauloMacro for source material.