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Today’s Bullets:

• 🚬 Who Was Paul Volcker?

• 🔨 The Night the Fed Got Serious

• ⚖️ Why 1980 Let Him Do It

• 🔒 Why Today Won’t Let Anyone Do It

• 📉 Investment Implications

Inspirational Tweet:

Josh, always one for a good jab. And this one landed nice and square for good reason.

Because last week, Kevin Warsh sat before the Senate Banking Committee. The cameras rolled. The questions started. And Elizabeth Warren unleashed her usual unhinged tirade of accusations before the newly nominated Warsh could finish a single sentence.

Ah, yes. The Senate Confirmation Hearings. Pomp, circumstance, and full stage theatrics on display for the world to see. But even with the Warren verbal tornado, a different theme arose and caused more questions than answers from armchair analysts.

In short, is Warsh merely a Trump “sock puppet”, as Warren suggested, or would he be the new Volcker?

Because that’s the split right now. On one side, Democrats and the usual critics insisting he’s a political hire, picked for loyalty, ready to slash rates the moment the White House calls. On the other, a growing chorus of market voices hope he’s something else entirely. A tough, independent inflation fighter in the mold of the man who once saved the dollar.

Two sides. One nominee. Opposite conclusions.

But to even know what “the new Volcker” means, you have to know what the old Volcker actually did.

Which brings us to the questions. Who was Paul Volcker? What did he really do? And could anyone, Powell, Warsh, or the next person in line, do it again today?

All good questions, and ones we will answer, nice and easy as always, here today.

So pour yourself a big cup of coffee and settle into your favorite seat for a candid look at the most famous Fed Chair in American history, and why his shoes may be harder to fill than anyone thinks. It’s time for this Sunday’s Informationist.

Partner spot

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Join Checkonchain and Unchained for a live presentation and Q&A exploring what signals matter most right now and how investors are thinking about positioning through uncertainty. Register to attend and receive early access to The Bitcoin Checkpoint report.

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🚬 Who Was Paul Volcker?

Picture this.

It’s August 1979. A six-foot-seven man in a rumpled suit walks into the Federal Reserve building carrying a cheap cigar. Not a Cuban. Not a custom-rolled anything. A drugstore special.

His shirt collar curls up like a corn chip.

His shoes are as dull as an old wallet.

This is the man about to save the American economy.

Or destroy it. Depending on who you ask.

Paul Volcker didn’t look, act, or sound like a central banker. Born in Cape May and raised in Teaneck, he carried small-town sensibility rather than big city wisdom into the most powerful financial office on Earth.

Don’t get me wrong, he was educated. Maybe overeducated, for God’s sake.

Princeton for undergrad. Harvard for grad school. London School of Economics after that. But ask anyone who worked with him, and they’ll tell you the fancy degrees never quite took. He stayed stubborn, blunt, and allergic to nonsense his entire career.

And by 1979, America needed exactly that kind of man.

The Country Was Breaking

Let’s paint the scene, shall we?

Inflation was running at 11% and climbing. Gas lines stretched around the block. A gallon of milk cost more than it did the month before. And the month before that. Americans were losing faith in the dollar itself.

President Jimmy Carter had a serious, and growing, problem.

His Fed Chair, a genteel economist named G. William Miller, wasn’t cutting it. The markets didn’t respect him. Inflation didn’t listen to him. And the dollar was dropping against every major currency like it was a penny stock.

Carter needed someone the markets would take seriously.

He needed a bulldog.

So in July 1979, he called Paul Volcker into the Oval Office. Volcker was then the President of the New York Fed. He’d spent decades in Treasury, in banking, in and out of Washington. He knew where the bones were buried.

Carter offered him the job.

Volcker, being Volcker, didn’t jump at it. He told the President directly. If you want me, you’re going to get tight money. You’re going to get pain. You’re going to get an independent Fed that doesn’t answer to the White House.

Carter agreed.

And one of the great political miscalculations in American history was set in motion. Because the tight money Volcker was about to deliver would help cost Jimmy Carter his presidency.

But save the dollar.

The Man Behind the Cigar

Here’s what we need to understand about Volcker the human being.

He was cheap. Infamously cheap. His suits were rumpled. His apartment in Washington was small and cramped, a rental he kept while his wife stayed in New York for her health. He commuted home on the Eastern shuttle on weekends.

The cigar was an Antonio y Cleopatra, $1.20 for a drugstore six-pack. He smoked them throughout the day, much to the irritation of every senator and journalist who had to share a room with him. The Washington Post once published an op-ed calling his cigar habit “hideous.”

Volcker did not care.

He didn’t golf. He didn’t hobnob. He didn’t give speeches for six-figure fees.

Looking straight at you, Lizzy Warren.

No, Volcker wasn’t into any of that old money, old world social play.

Instead, Volcker liked to fish.

That was his thing. Fly-fishing, quietly, on rivers from Montana to Maine. Often alone.

When the Fed’s Kansas City branch was looking for a permanent home for its annual economic symposium, they picked Jackson Hole, Wyoming, in 1982. Specifically because the fly-fishing might draw Volcker out of the Washington heat. The Jackson Hole conference, now the most-watched annual Fed event, exists because of his hobby.

From the Volcker era to Powell, it’s become the main boondoggle for the annual Fed gathering ever since.

What He Actually Believed

Volcker had one economic conviction that guided everything he did.

Inflation was the cruelest tax.

Yes, my good sir. Yes it is.

And not metaphorical theft. Real theft. Every percentage point of inflation stole from savers, from workers on fixed wages, from retirees, from anyone who’d done the right thing and held dollars. He saw it as both a moral and economic failure of the government.

In his confirmation hearing, he told the Senate Banking Committee a line that should be etched on the Fed building itself.

“We will have to call the shots as we see them.”

That was it. No dressing it up. No hedging. Just a warning to everyone listening that the new Fed Chair wasn’t going to play politics. He was going to do what the data told him to do.

And what the data was telling him, in August 1979, was this.

It was about to get ugly. Like, Newark, New Jersey landfill ugly.

🔨 The Night the Fed Got Serious

Flash forward a few months, to October 6, 1979.

A Saturday.

The Federal Reserve doesn’t typically do anything on Saturdays. The markets are closed. The phones are quiet. Bankers are at their country clubs, economists are with their families, and the Eccles Building in Washington is mostly empty.

But not this Saturday.

Paul Volcker had just returned from Belgrade, where he’d attended the annual IMF meetings. And for three straight days, European finance ministers had hammered him about the same thing.

The dollar. It was collapsing.

Down 12% against major currencies since 1976. Foreign central banks were selling Treasuries. Investors were piling into gold, which had doubled in twelve months and would peak at $850 an ounce by January, the most violent flight from a reserve currency since the breakdown of Bretton Woods.

Volcker flew home with that message ringing loud and clear in his ears.

He landed on a Thursday. By Saturday, he’d called a secret, unscheduled FOMC meeting.

And at 6:00 PM that evening, with the sun going down over the Eccles Building, he walked into a press conference that would change the course of American economic history.

The Saturday Night Special

Here’s what Volcker announced that night.

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Today’s Bullets:

• 🚨 Paulson’s Warning

• 🏛️ The $15 Billion Not-So-Stealth Buyback

• 📉 Where the Buyers Went

• 🎰 How This Actually Ends

Inspirational Tweet:

If you’re like most people, you’re not spending your Wednesdays watching the Treasury market. Most people have jobs, families, and much better and more enjoyable things to do than track government bond auctions.

But this past Wednesday, two things happened you should probably know about. Quietly. On the same morning. For reasons that are not a coincidence.

The US government made a move that signals something in the bond market is shifting in the wrong direction. And a man who has been in the room for exactly that kind of moment went on Bloomberg to tell the world.

But what exactly shifted? Who is this Paulson character? And what does any of this have to do with your money, savings, and your retirement? I.e., why should we care?

Important questions that we will sift through, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a walk through what the bond market is telling us this week with this Sunday’s Informationist.

Partner spot

Are we in a typical four-year-cycle bear market with more downside to come, or will 2026 prove to be a deviation from the multi-cycle trend? James Check is back to break down what onchain data is revealing about the path into this downturn and how this market compares to prior ones.

Join Checkonchain and Unchained for a live presentation and Q&A exploring what signals matter most right now and how investors are thinking about positioning through uncertainty. Register to attend and receive early access to The Bitcoin Checkpoint report.

When: May 5 · 3PM CT · Live online · Free to attend

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🚨 Paulson’s Warning

Let’s start with exactly who we’re talking about, shall we?

Hank Paulson was the 74th US Treasury Secretary, serving from 2006 to 2009 under President George W. Bush. Before Treasury, he climbed the ranks of Goldman Sachs for nearly three decades before he became CEO for seven years.

Why does that matter?

Because Paulson is the man who ran the Treasury when the global financial system nearly collapsed. He approved the rescue of Bear Stearns, sat in the room when AIG imploded, and made the call to let Lehman Brothers fail.

Three days after Lehman went down, Paulson went to Congress with a three-page document and asked for $700 billion. That became TARP. The largest emergency financial intervention in American history at the time, and still the template for how Washington responds when credit markets seize up.

In short, Hank Paulson wrote the modern “break-the-glass” playbook. And he did it while watching banks fail in real time and central bankers pick up phones at all hours trying to keep the system functioning.

So when a man like that goes on Bloomberg Television’s Wall Street Week and tells the country to start preparing a new break-the-glass plan, it deserves attention.

Here are his actual words from Wednesday’s interview:

“We need an emergency break-the-glass plan, which is targeted and short-term, on the shelf, so it’s ready to go when we hit the wall.”

Paulson went on to describe what hitting the wall would actually look like:

“When you hit the wall and you’re trying to issue Treasuries and the Fed is the only buyer and the prices of the Treasuries are going down and interest rates are up, that’s a dangerous thing.”

Asked when the US would actually hit the wall, Paulson said bluntly, “When we hit it, it will be vicious.”

So, what is the worst-case scenario Paulson is describing here?

Put simply, it is one where demand for US government debt collapses, the Federal Reserve steps in as the emergency buyer, Treasury prices fall anyway, and interest rates spiral higher.

This is the shape of a sovereign debt crisis. The kind that has happened to Argentina, to Greece, to the UK in 2022. Paulson is asking whether it could happen here, and he is saying the US should have a plan at the ready.

Consider the numbers behind Paulson’s warning:

• Total US federal debt now stands at over $39 trillion, up more than $10 trillion in just the past five years.

• The marketable portion, the part that actually trades in the open market, is roughly $31 trillion and growing.

• The federal deficit has averaged roughly 6% of GDP for the past three years. That level is historically seen only during wars or recessions. We are in neither.

• Interest payments alone now exceed $1 trillion per year, larger than the entire defense budget (unless, of course, Trump gets his way, then both numbers are going much higher).

• The CBO projects US debt-to-GDP will hit a record 108% by 2030, surpassing even the post-World War II peak, (Total US Debt to GDP is already at 125%).

Paulson ticked through America’s advantages: biggest economy, strongest companies, energy independence, a safe neighborhood. Then he named the threat:

“Our challenges are debt, fiscal and political polarization.”

The man who ran Treasury when the modern financial system nearly failed is telling the country that the biggest threat we face is our own balance sheet.

Luke Gromen, a good friend and one of the sharpest independent minds in the macro space, said:

Henry Paulson Says US Should Prepare for a ‘Vicious’ Bond Crash - BBG, 4/16/26

Conspicuous in its timing, IMO. “Why am I reading this now?”

“Conspicuous in its timing.”

That was on Wednesday afternoon. To understand why Luke used those words, you have to know what happened this past week.

🏛️ The $15 Billion Not-So-Stealth Buyback

Here’s the state of the US Treasury market in one dramatic visual:

But now let’s talk about why this drama is becoming quite real.

Read more

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Today’s Bullets:

• 🎰 From Scratch-Offs to Super Bowls

• 📱 The Explosion

• 🫥 The Line That Disappeared

• 💵 The Question Behind All of It

Inspirational Tweet:

You’ve seen it. Everywhere, all around us.

The DraftKings ad before kickoff. The FanDuel promo during the podcast. Your Uber driver checking a Final Four parlay at a stoplight. Your buddy on Kalshi betting on the number of views of a MrBeast video.

Betting used to be something you only did in Vegas or Atlantic City. Maybe at the gas station, scratching a ticket while the guy behind you waited for a pack of Marlboros. Now betting is on your laptop, or worse…your phone, in your pocket, all day long.

And it happened so fast. Like quicker than a tax hike in California fast.

So what’s going on? How did we become a country where betting went from a weekend vacation to an all-day habit? What’s actually driving it? And what does this explosion tell us about the way money works right now?

Great questions that deserve serious consideration and answers, ones that we will sift through, nice and easy as always, here today.

So pour yourself a big cup of coffee and settle into your favorite seat for a walk through America’s love for wagers with this Sunday’s Informationist.

Partner spot

The Downturn Advantage

Bitcoin’s volatility is its advantage. For long-term investors, volatility creates opportunities to build and refine positions over time. Mark Moss recently joined Unchained to explore how bitcoin fits into long-term strategy, and how downturns can be used to position more effectively.

The discussion covers:

• How bitcoin’s volatility can support long-term accumulation

• Why the current environment is putting pressure on traditional approaches

• How to think about downturns as opportunities for more intentional positioning

Download the recent collaborative report from Mark Moss and Unchained, Retire Off Bitcoin: The Freedom Investor’s Guide, to access both the report and the full event replay.

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🎰 From Scratch-Offs to Super Bowls

The year is 1972, and a nuclear engineer named Mike Kent got bored at work.

He was testing reactor designs at a Westinghouse facility in Pennsylvania, feeding punch cards into a mainframe computer. One day, he decided to use that computer to rank the strength of his company’s softball teams. Then he tried it on college football. Then the NFL.

He started comparing his computer’s predictions to the odds from local bookmakers. Guys named Primo and Bobo. It worked. He was winning.

By 1979, Kent quit his job, stuffed $100,000 cash into a brown paper bag, and drove to Las Vegas.

That’s how sports betting worked in America for most of its history. You had to physically go somewhere. You had to carry cash. You had to know a guy. Or a guy who knew a guy. There was friction everywhere, and that friction was the guardrail.

The only exception?

State lotteries.

Governments had quickly figured out that people will pay a voluntary tax if you package it as hope. A $2 Powerball ticket. A scratch-off at 7-Eleven. Today, 45 states run lotteries.

And look at the result.

Americans spent $109 billion on lottery tickets last year alone. More than they spent on concerts, movies, and books combined.

Ooof.

Still, the lottery was always slow money. Buy a ticket, wait for a drawing, lose, buy another one. The casinos were faster but still required a trip. Vegas. Atlantic City. The tribal gaming halls that popped up across 29 states after the Indian Gaming Regulatory Act of 1988.

All of it required you to show up.

But all that changed on May 14th, 2018.

Because that’s the day the Supreme Court struck down a federal law called PASPA that had banned sports betting in every state except Nevada. The ruling in Murphy v. NCAA told states they could legalize sports betting themselves.

That they did. Fast.

Sadly, Mike Kent died in a quad bike accident later that same year. The man who started it all with punch cards and a paper bag full of cash never saw what came through that door.

Last year, Americans wagered $167 billion on sports. Fifteen times what they bet the year the Supreme Court opened the door. And that doesn’t even count prediction markets, zero-day options, or crypto.

Something is driving all of this. And it isn’t just big companies or better technology.

Oh, it’s something much more troubling. Much worse, in a way.

📱 The Explosion

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Inspirational Tweet:

That chart went viral this week. Nearly 3 million people saw it.

Diamond prices have crashed to their lowest level this century.

Now, I hate to be the one to bring this up. Especially if you or someone you love recently spent a few months’ salary on a ring. I’ve been there myself, and I remember what that felt like walking out of the store.

But there’s something happening in the diamond market right now that I think you need to know about. And after digging into it this week, I’m convinced it has implications far beyond jewelry.

So, pour yourself a big cup of coffee and settle into your favorite seat for a look at the diamond industry’s stunning collapse with this Sunday’s Informationist.

Partner spot

The Downturn Advantage

Bitcoin’s volatility is its advantage. For long-term investors, volatility creates opportunities to build and refine positions over time. Mark Moss recently joined Unchained to explore how bitcoin fits into long-term strategy, and how downturns can be used to position more effectively.

The discussion covers:

• How bitcoin’s volatility can support long-term accumulation

• Why the current environment is putting pressure on traditional approaches

• How to think about downturns as opportunities for more intentional positioning

Download the recent collaborative report from Mark Moss and Unchained, Retire Off Bitcoin: The Freedom Investor’s Guide, to access both the report and the full event replay.

Download the Report

💎 The Greatest Marketing Campaign Ever Run

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👉 And you can always check out the archives to read more of The Informationist.

Today’s Bullets:

• 📉 The Reversal

• 🔢 The Loop

• 🏛️ The One Outcome

• 💰 What It Means for Your Money

Inspirational Tweet:

If you’ve been watching the bond market recently, you’ve noticed something has shifted. Something that makes an already dangerous situation dramatically worse for the Treasury, for the Fed, and ultimately for you and your money.

As I implied above, the surprising rise in the expected Fed Funds rate sets up the story, but it leads to a host of questions.

Like, What happens to the Treasury when rates suddenly start going the wrong direction? What are they forced to do about it? And how does it end up affecting you?

All critical questions. And ones that all lead to one place. One outcome.

Today, we are going to pull back the curtain on what’s really happening with the US Treasury right now, why the situation just became significantly more dangerous, and where it’s all heading.

But don’t worry, we will do it nice and easy, as always.

So pour yourself a big cup of coffee and settle into your favorite seat as we explore the US Treasury’s growing nightmare with this Sunday’s Informationist.

Partner spot

The Downturn Advantage

Bitcoin’s volatility is its advantage. For long-term investors, volatility creates opportunities to build and refine positions over time. Mark Moss recently joined Unchained to explore how bitcoin fits into long-term strategy, and how downturns can be used to position more effectively.

The discussion covers:

• How bitcoin’s volatility can support long-term accumulation

• Why the current environment is putting pressure on traditional approaches

• How to think about downturns as opportunities for more intentional positioning

Download the recent collaborative report from Mark Moss and Unchained, Retire Off Bitcoin: The Freedom Investor’s Guide, to access both the report and the full event replay.

Download the Report

📉 The Reversal

First things first. That chart in my X post above? The one showing where investors expected the Fed Funds Rate to move in the near and longer term?

This is what it looked like just two weeks ago.

What do we see?

More than two rate cuts were expected by early 2027 (right side of chart). The implied overnight rate falling steadily from 3.65% down to just above 3% (left side).

For anyone who needs to borrow money, this was great news. Lower rates ahead. Cheaper financing on the way.

And nobody on the planet needs to borrow more money than the US Treasury.

Now look at the one from my post again:

Same chart. Two weeks later. The cuts have vanished. And in their place, the market is pricing in a hike.

If you caught last week’s issue, you know what triggered this. Iran. Oil spiking over $100, causing inflation to reaccelerate. A Fed that can’t cut. And a bond market that now thinks they may have to hike.

If you’re the Treasury Secretary reading these headlines, seeing these developments, you feel sick.

To understand why, we need to go back a few years. Because this crisis didn’t start last week. It started with a decision.

An astonishingly poor one.

By none other than former US Treasury Secretary Janet Yellen.

See, when Yellen became Treasury Secretary in 2021, she helped facilitate trillions of dollars being printed during COVID. Stimulus checks, PPP loans, direct payments. The printing press was running full speed.

She also had something no Treasury Secretary is likely to see again.

Interest rates at historic lows. The 10-year yielding barely 1%. The 30-year at 1.80%.

She had a once-in-a-generation window to term out the debt. (Translated: issue longer dated debt, like 7 or 10 or even 30-year Treasuries) Lock in those rates for decades.

She didn’t do it.

Instead, she kept borrowing short. Bills and notes that mature in months, not decades. Instruments that roll over constantly and refinance at whatever rate the market happens to be charging at that moment.

When rates are falling, that works fine. You keep getting cheaper deals.

When rates are rising, it’s a disaster.

Now, I know what you’re thinking. How was she supposed to know? How could anyone have predicted rates would go up so much? Should she have somehow anticipated this?

The answer is Yes.

Janet Yellen had been the Chair of the Federal Reserve. She sat in that seat and understood, better than almost anyone alive, what that kind of money creation does to inflation. She knew the risks. She saw them coming.

And she ignored them. Leaving the problem for the next Treasury Secretary to deal with.

Enter Scott Bessent.

Bessent took the job in January 2025. He had publicly voiced similar concerns about Yellen. But he also believed rates would continue to come back down, and that he could gradually shift toward longer maturities and stabilize things.

But then Powell stopped cutting.

Iran happened. Oil spiked. And inflation expectations reversed.

And those two charts above? That’s Bessent’s plan falling apart in real time. The rate relief he was counting on isn’t coming. It’s going the other way.

To be honest, I’d be surprised if he doesn’t just quit at this point, but let’s assume he doesn’t. Let’s assume he stays and does whatever he can to remedy the situation.

Then we have to ask, how bad is it, exactly? How much does the government actually need to borrow at these rates? And where does it all lead?

The answer is what makes this personal. For every one of us.

🔢 The Loop

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Today’s Bullets:

🏦 What the Fed Said vs. What Powell Revealed

📉 What the Bond Market Heard

🔺 The S-Word

💰 Where to Go From Here

Inspirational Tweet:

Six words, and possibly the Fed’s understatement of the century, uttered by Jerome Powell in what might be one of his final press conferences.

Acknowledging tension between rising inflation and a weakening economy, he also pushed back on a word that’s been increasingly floating around trading desks and financial media for weeks now.

Stagflation.

Powell: “I would reserve the term stagflation for a much more serious set of circumstances,” he said. “That was a 1970s term, at a time when unemployment was in double figures and inflation was really high and the Misery Index was super high.”

Fair point, Chairman.

He had a few more things to say about the 1970s comparison, too. We’ll get to those, as they are critical for today’s discussion.

But first, let’s see what happened over the next 48 hours.

Oil surged to $119. Gold futures dropped nearly 6%, 2-year Treasury yields spiked to almost 4%, and the yield curve flashed a pattern we haven’t seen since the spring of 2008.

So is Powell right? Is this just “tension between the goals?” Or is the bond market pricing in something the Fed is all but dismissing verbally?

What does it actually mean when inflation expectations double in three months? And if the Fed truly can’t cut and can’t raise, where does that leave your portfolio?

All good questions that deserve serious consideration and answers, ones that we will sift through, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a look at the Fed’s tightest corner yet with this Sunday’s Informationist.

Partner spot

The Downturn Advantage

The retirement system most people rely on was built for a different era—one of strong real yields, lower debt, and a stable monetary foundation. Today, inflation erodes purchasing power while taxes chip away at the savings meant to compound for decades.

Mark Moss joins Unchained for a live presentation and Q&A exploring how bitcoin is changing the retirement equation and why market downturns can create opportunities to help build generational wealth.

The event will cover:

• Why the traditional retirement model is under structural pressure

• How bitcoin changes the long-term retirement equation

• Why downturns can create opportunities for retirement planning

March 26 · 1PM CST · Live online · Free to attend

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🏦 What the Fed Said vs. What Powell Revealed

Let’s start with what the Fed officially told us on Wednesday.

The FOMC released its statement at 2:00 p.m. Eastern, and if you only read that, you’d think everything was under control. Rates held steady at 3.50% to 3.75%. Economic activity “expanding at a solid pace.” Inflation “remains somewhat elevated.” The committee is “attentive to the risks to both sides of its dual mandate.”

Measured. Clinical. Carefully worded.

Then Powell stepped to the podium for the Q&A. And the tone changed.

Every quarter, the Fed releases something called the dot plot.

I’ve written all about the dot plot before, and if you are unfamiliar with this chart or want a refresher, you can find out all about them here:

For the TL;DR people: It’s a chart that shows where each committee member expects interest rates to land by each year-end. Think of it as 19 people throwing darts at a monetary policy chart, more or less.

In any case, the median dot didn’t change from December. It still implies one possible 25-basis-point cut in 2026.

One cut. Maybe.

But the distribution shifted hawkish. Powell himself noted that four or five members moved from expecting two cuts down to one. And a growing number now see just one cut or none at all. In fact, 14 of 19 members are now in that camp, up from just 7 in December.

Meanwhile, the Fed’s own inflation projections moved in the wrong direction. In December, they forecast PCE inflation at 2.4% for this year. Three months later, that number is 2.7%. Core inflation? Same thing. Up from 2.5% to 2.7%.

Both trending higher, not lower.

Those might seem like small moves. A few tenths of a percent. But when you’re the Fed and your target is 2%, the difference between 2.4% and 2.7% is the difference between “we’re getting there” and “we’re going backward.”

And then came the line that turned heads.

Powell said, “There was discussion of a rate hike at this meeting.”

A rate hike. In 2026. After a year of cutting rates in 2025, and almost every investor in the world sitting on pins and needles, waiting for the next cut.

Powell said most participants don’t view it as the baseline scenario. But the mere fact that it was discussed at this meeting and the last one tells you something about where the Fed’s head is right now.

But it was another comment during the Q&A that really caught my attention.

When asked about whether the Fed could simply “look through” the oil shock, the way central banks have in the past, Powell acknowledged something that changes the balance entirely. He pointed out that inflation has now been running above the Fed’s 2% target for “five years.”

Five years.

The pandemic. The tariffs. And now an energy shock. One after another after another. Powell admitted that looking through this one is harder precisely because of everything that came before it.

The credibility cushion is thinner than it used to be.

And on the labor market? Deutsche Bank ran the numbers after recent BLS revisions and found that over the last three months, the economy has been adding roughly 6,000 jobs per month. Not 200,000. Not 100,000.

A measly six thousand.

But Powell went further. He pointed out that when you strip out government hiring and adjust for the BLS overcounting, “effectively there’s zero net job creation in the private sector.”

Zero.

Think about that for a moment. The Chairman of the Federal Reserve just told you the private sector has stopped creating jobs. He even gave it a name: “zero employment growth equilibrium.” And then added that “it has a feel of downside risk.”

In other words, the Fed Chair is telling us the floor might not hold.

OK. So let’s put this all together.

The official press release statement basically said everything is fine. But the Q&A told an entirely different story. Inflation projections rising. Rate hikes on the table. Five years of above-target inflation eroding the Fed’s ability to look through anything. And a labor market producing nothing.

Powell described this as “tension between the goals.”

Uh huh. I’d personally call it something else.

Exactly what the bond market seems to be calling it.

📉 What the Bond Market Heard

The day after Powell’s press conference, the bond market made its opinion crystal clear.

The 2-year Treasury yield, which is considered the market’s opinion on where Fed Fund rates should be, spiked as much as 21.8 basis points intraday, hitting almost 3.96%. That’s one of the largest single-day moves in the 2-year this year.

Now, if you’re not a bond person, that number might not jump off the page. But here is what it means.

The Fed’s current target rate is 3.50% to 3.75%. When the 2-year yield is sitting below that range, the market is essentially saying: cuts are coming, we expect rates to go lower.

When it jumps above that range?

The market is saying one of two things. Either the Fed needs to raise rates from here, or cuts are off the table for a long while.

Yesterday, that’s exactly what happened. A big, sudden shift in expectations.

But the 2-year yield on its own is just one signal. What made Thursday really stand out was how it moved relative to the 10-year yield.

See, under normal conditions, the 10-year yield sits comfortably above the 2-year. You expect to earn more for lending your money for a longer period of time.

Makes sense, right?

But when the 2-year rises faster than the 10-year, the gap between them compresses. In the bond world, this is called a bear flattening.

Super fancy term, I know.

In any case, back in early February, the gap between the 2-year and 10-year was about 74 basis points. But now look.

By Thursday, it had shrunk to 45. And if it goes negative, meaning the 2-year yields more than the 10-year, that’s a full inversion. And inversions have preceded every major recession in the last 50 years.

But for now, that compression is telling you two things at the same time.

Short-term rates are going up, which means investors are worried about inflation. And long-term growth expectations are going down, which means the economy is weakening.

Inflation and stagnation. At the same time.

You see where this is going.

Now, remember what Powell said about looking through the oil shock? That it depends on inflation expectations staying “well anchored?”

There’s a way to measure that.

The 1-year breakeven inflation rate compares regular Treasury yields to inflation-protected ones. The difference tells you what the bond market expects inflation to be over the next twelve months.

In mid-December, that number was 2.23%. Close to the Fed’s target. Calm. Anchored.

As of this week, it’s 5.38%.

In three months, near-term inflation expectations have more than doubled. The bond market has fundamentally repriced what it expects inflation to do from here.

This is the one condition Powell himself set for when the Fed can no longer “look through” an energy shock. And by his own measure, that condition is failing.

Meanwhile, fed funds futures are telling a similar story. The market is now pricing in roughly half a rate hike by the fall. No cuts until mid-2027. A full easing cycle not until late 2027 at the earliest.

So think about what the bond market is actually saying here. The Fed can’t cut. It might have to hike. Inflation expectations are cracking. Growth is fading. Stocks and bonds are falling together, hitting 60/40 portfolios on both sides.

I wrote about that exact dynamic recently, where normally uncorrelated assets suddenly start moving in the same direction. If you missed that one, I’d recommend going back and giving it a read.

Not to mention, stress in the private credit market has been intensifying.

So, let’s just say the economic situation is less than ideal.

So the official statement said the committee is “attentive to the risks.” The bond market heard something else entirely.

It heard the ingredients of a word that Powell obstinately refuses to use.

🔺 The S-Word

When pressed on the comparison during the Q&A, Powell was direct.

“I reserve stagflation for that, the word, for that period. Maybe that’s just me.”

OK. Let’s take him up on that. Let’s look at that period.

The 1970s stagflation crisis didn’t start with double-digit unemployment and 13% inflation.

No, no. It in fact started with an oil shock.

Interesting.

In October 1973, a conflict in the Middle East led to an OPEC oil embargo against the United States. Oil prices quadrupled in a matter of months. Inflation, which had already been creeping higher, accelerated. The economy, which had already been slowing, tipped into recession.

The Fed was stuck. Sound familiar?

They couldn’t raise rates aggressively because the economy was weakening. They couldn’t cut because inflation was running away from them. So they tried to split the difference. They hesitated. They waited. They hoped the oil shock was temporary.

Yeah, well. It wasn’t.

Then a second oil shock hit in 1979. And this one was triggered by…?

The Iranian Revolution.

History rhymes once again.

And so, inflation became embedded. Expectations shifted. Workers demanded higher wages. Companies passed costs through. The spiral that Powell referenced, the one that drove the Misery Index into the stratosphere, took years to build.

It accumulated.

Let’s be fair though. Powell is right about one thing. We are not in the 1970s. Unemployment is 4.4%, not 10%. Inflation is 2.7%, not 13%. The Misery Index today is a fraction of what Arthur Burns and Paul Volcker faced.

But consider where things stand right now.

An oil shock caused by a military conflict in the Middle East. ✅

A central bank that can’t raise rates without breaking the labor market and can’t cut without fueling inflation. ✅

Five consecutive years of above-target inflation eroding the Fed’s credibility to “look through” anything. ✅

Near-term inflation expectations that have more than doubled in three months. ✅

And a labor market with, in the Fed chair’s own words, “effectively zero net job creation in the private sector.” ✅

Here is what Powell and the Fed are up against:

Powell says he reserves the word stagflation for a much more serious set of circumstances. And I respect the distinction. The 1970s were brutal in ways that are hard to overstate.

But stagflation doesn’t arrive fully formed, of course. It builds, one shock at a time. One missed window at a time. One “we’ll look through it” at a time.

We’re clearly not in the 1970s.

But the question is whether we’re in the early innings of the same game, as this chart seems to suggest.

Looks pretty compelling at a glance, and if the bond market is any guide, the answer becomes even harder to dismiss.

Great. Now, what can we do about it?

💰 Where to Go From Here

If this is the environment we’re heading into, and the bond market seems to think it is, then the playbook matters.

So, let’s look at what actually worked the last time around.

During the stagflation era of 1973 to 1982, the S&P 500 returned roughly negative 2.5% per year after inflation (the real return). Long-term government bonds? About the same. Negative 2.5% real return.

If you were in the standard stock-and-bond portfolio, you lost purchasing power for a decade.

That said, two asset classes quietly outperformed.

US small-cap stocks returned about 5.9% per year above inflation during that entire period. And US housing returned about 5.5% above inflation, when you include both price appreciation and rental income.

Some of you may be asking, why small caps?

Well, a few reasons. Let’s look at them.

First, the S&P 500 entered the 1970s heavily concentrated in what was called the Nifty Fifty, a group of large-cap growth stocks with sky-high valuations. When the environment shifted, those stocks got hammered.

Sound familiar again?

If you look at today’s S&P 500, the concentration is arguably even worse. Instead of fifty dominant names, you’ve got seven.

Small caps, by contrast, tend to have more domestic revenue, more pricing power in inflationary environments, and lower valuations. They’re less exposed to the global growth slowdown and more responsive to the local economy.

And this year, the data backs it up. The Russell 2000 is down about 2.5% year to date. The S&P 500? Down nearly 5%. Small-cap value stocks are actually positive on the year. The rotation appears to already be underway.

Housing works for a simpler reason. It’s a real asset that can be used to generate income. Rents rise with inflation and property values tend to hold in real terms. So you can get inflation protection and yield at the same time. Of course, you don’t need to buy a building to get that exposure. Real estate investment trusts, or REITs, offer real asset exposure with the liquidity of a stock.

Now, what about gold?

Gold returned about 3.4% above inflation during the stagflation era. Respectable, but not the top performer. And this past week, watching gold drop nearly 6% in a single session, you might wonder whether it belongs in the conversation at all.

It does. And here’s why.

Gold sold off because the market repriced toward higher interest rates. When yields spike, money moves toward things that pay you to hold them. Gold pays nothing. So in the short term, a rate shock hits gold.

But zoom out.

Every stagflation in history has eventually been resolved the same way. The Fed holds and holds, until something breaks badly enough that they have to act. And when they act, they cut. They ease. They print.

That’s when gold does its best work. During the resolution. When the central bank reaches for the printing press because it has no other choice.

If you believe, as I do, that the Fed will eventually be forced to choose between fighting inflation and preventing a deep recession, and if history is any guide on which one they choose, gold’s long-term case is as strong as it’s ever been. One bad week doesn’t change that math.

And energy equities deserve a mention here too. If oil is the cause of the stagflationary pressure, energy stocks are a direct beneficiary. They profit from the thing causing the pain.

As we have seen these past few weeks.

So the framework I’d think about looks like this:

Places that have historically worked during stagflation:

• Small-cap value stocks (pricing power, domestic revenue, less concentration risk)

• Real assets with yield (housing, REITs, infrastructure)

• Energy equities (direct beneficiaries of higher oil)

• Gold and hard assets (for the eventual monetary response)

• Short-duration bonds or cash (preserve capital while rates are volatile)

Places to be cautious:

• Long-duration bonds (negative 2.5% real per year during 1973-82)

• Mega-cap growth at stretched valuations (concentration risk, the same vulnerability that sank the Nifty Fifty)

• Anything dependent on cheap financing

As for now, the economy is still functioning. The banking system is stronger than 2008. Powell may turn out to be right that this is just “tension” and not a full-blown crisis.

But the signals are real. The data is moving in the wrong direction. And the Fed, in its own words, is in a difficult situation.

And then there’s Bitcoin.

Bitcoin didn’t exist during the 1970s, so we have no stagflation track record to point to. But we do know this: Bitcoin has a fixed supply. No central bank can print more of it. No committee can vote to expand it. No emergency meeting can conjure it into existence.

If the stagflation playbook ends the way it always has, with the Fed eventually blinking and reaching for the printing press, then an asset with a hard cap of 21 million units and no central point of failure starts to make a whole lot of sense.

Gold has been the traditional answer to currency debasement for thousands of years. Bitcoin is the new one. And in an environment where the Fed is trapped, the bond market is repricing, and inflation expectations are becoming unmoored, sophisticated investors begin to overweight assets that can’t be debased.

Because when the Chairman of the Fed tells you the situation is difficult, it might be worth taking him at his word.

🔎 What I’m Watching This Week

📌 The Number: 5.38%. That’s the 1-year breakeven inflation rate as of this week. In December it was 2.23%. If this doesn’t start pulling back, Powell’s “well anchored” framework is failing by his own measure. (Bloomberg, USGGBE01 Index)

📌 The 2-year yield. It touched 3.96% intraday Thursday. If it holds above 3.75%, the market is telling you rate cuts are dead for 2026.

📌 Oil. Brent at $119 and WTI above $100. Two more weeks here and second-round effects hit everything from airline tickets to groceries.

📌 Fed speak. Multiple FOMC members scheduled next week. Listen for who echoes Powell’s “tension” framing and who starts breaking ranks.

📌 Private credit gates. Fund redemption windows are approaching quarter-end. If more gates close, the stress we covered in Issue #209 accelerates.

That’s it. I hope you feel a little bit smarter knowing what the Fed said, what the bond market heard, and how to think about positioning your portfolio if the S-word turns out to be more than just a 1970s relic.

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Talk soon,

James✌️

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Today’s Bullets:

• 🏦 What Is Private Credit, and Why Should You Care?

• 💣 The Dominoes That Started Falling

• 🔍 Why the Numbers Don’t Add Up

• 🛡️ What This Means for Your Portfolio

Inspirational Tweet:

If you’re a normal everyday person, you probably don’t think about private credit too often, if at all.

And why should you?

That’s for your pension fund or 401(k) manager to worry about. Until this last week. Because you’ve probably noticed that it’s been all over the news, seemingly everywhere you turn. If the article is not about war, it’s about private credit.

But what exactly is private credit? Why is everyone talking about it all of a sudden? Why should you care? And most importantly, how could it possibly affect your own investments?

All good questions and ones that we will answer, nice and easy as always, here today.

So pour yourself a big cup of coffee and settle into your favorite seat for a look inside the private credit market with this Sunday’s Informationist.

Partner spot.

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• How to orient your thinking around bitcoin’s long-term properties

• Common psychological traps to avoid during market downturns

• Practical accumulation strategies like dollar-cost averaging

• Ways to optimize savings, retirement accounts, and idle capital

A small minority will quietly make the moves that matter. We wrote 21 Moves to Make in the Downturn for that minority. If you’re serious about building a position that survives the next decade, start here.

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🏦 What Is Private Credit, and Why Should You Care?

Let’s start with the basics, shall we?

You’ve probably heard of private equity. Big firms like KKR and Apollo that buy entire companies, restructure them, and sell them for a profit. That’s private equity, a sector of investing with its own can of mark-to-market worms.

Private credit is different. It’s the lending side.

See, instead of buying companies, private credit funds lend money to them. Think of it as unregulated banks, operating in the opaque corners of the bankng world, and making loans directly to mid-sized businesses that can’t or don’t want to borrow from traditional banks.

This is why they’re often referred to as shadow banking.

It’s lending outside of the traditional banking system, beyond the reach of most banking regulations.

So why does private credit even exist?

Simple.

After super restrictive bank rules were enacted in the aftermath of the great financial crisis, fund managers saw an opportunity. They raised money from investors, from pensions, endowments, insurance companies, and wealthy individuals, and started making the loans that banks no longer would.

Higher interest rates. Flexible terms. And for the investors putting money in, attractive yields in a world where yields were close to zero.

Everybody won. The companies got their capital. The investors got their returns. The fund managers collected their fees.

And the market grew like black mold in a Houston basement.

FYI, I wrote all about shadow banking last fall. If you have not seen that newsletter or would like to revisit, you can find it here:

Today, including committed capital and leverage, the global market has ballooned to roughly $3 trillion. Larger than the entire global high-yield bond market.

Now here’s who’s actually in this market because this is where it gets personal.

Your pension fund is almost certainly allocated to private credit. If your 401(k) has an “alternative income” option, there’s a good chance it includes private credit. Life insurance companies are some of the biggest buyers. University endowments, too.

You may never have heard the words “private credit” before today.

But your retirement money has.

OK so far so good, right? Companies get loans. Investors get yield. What could go wrong?

Well, a lot of these funds were originally built with long lockup periods. You put your money in, it’s tied up for seven to ten years. The fund makes loans, collects interest, and when the loans mature, it returns your capital. The timelines match. Money goes in long. Money comes out long.

Makes sense.

But over the past few years, Wall Street got creative. They built a new kind of private credit fund. Perpetual funds. Evergreen funds. Names that sound like they’ll last forever.

And in a way, that’s the problem.

These funds have short lockups, sometimes just a year, sometimes none at all. After that, investors can request redemptions every quarter. There’s usually a cap, around 5% of the fund’s total value per quarter.

Sounds reasonable, right?

Here’s the catch. The loans inside these funds still last five to seven years. But unlike traditional funds, perpetual funds never stop lending. When an old loan gets repaid, the manager doesn’t hold that cash for redemptions. He recycles it into a brand new loan. More yield. More fees.

The wheel never stops spinning.

So now you have a fund full of five-to-seven-year loans that keeps making new five-to-seven-year loans, while promising investors they can leave every quarter through a 5% exit door.

When only a few people head for the door each quarter, the math works. The fund keeps enough cash on hand. Nobody notices.

But what happens when 7% want out? Or 9%? Or 14%?

The fund can’t call up its borrowers and say, “We need that $50 million back by Friday.” Those loans are locked. The cash isn’t there. It’s been recycled into new loans that won’t mature for years.

So the fund has two choices. Sell the loans at fire sale prices. Or shut the door.

It’s called putting up the gates.

When I wrote about private credit last fall, I flagged this structural mismatch. I said defaults could hit 5% if rates stayed high. They did.

But I also said contagion was unlikely.

I am now concerned about that last part.

Because over the past few weeks, the gates have started closing. And the names on the doors are unfortunately ones you know.

But the gates aren’t even the part that should worry you.

💣 The Dominoes That Started Falling

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Today’s Bullets:

• The Phone Call

• The Plumbing

• The Pattern

• The Playbook

Inspirational Tweet:

Let’s be honest. This tweet from Michael Gayed deserved a lot more than 10,000 views last week. Buried in a feed full of crude oil price and war-driven inflation worries, it was largely overlooked.

But that other number is the one that stopped me cold.

95%.

That’s how many asset classes are currently trading above their long-term trend. Not 50%. Not 75%. Ninety-five percent. A record.

Think about that. If you own stocks, bonds, real estate, commodities, or crypto, odds are you’re sitting on positions that are all above trend. At the same time.

So what happens when something breaks and everything expensive starts selling at once? Does your diversified portfolio actually protect you? What’s the recovery playbook?

All good questions, and ones we will answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a deep look at what happens when there’s no safe haven, with this Sunday’s Informationist.

Partner spot.

Most People Will Waste This Cycle

Bitcoin bear markets test your wits—and create opportunity for those prepared to act. Our new field guide, 21 Moves to Make in the Downturn, walks you through a clear, practical plan to steady your thinking, accumulate with discipline, and strengthen your long-term position while others lose focus.

Inside, you’ll learn:

• How to orient your thinking around bitcoin’s long-term properties

• Common psychological traps to avoid during market downturns

• Practical accumulation strategies like dollar-cost averaging

• Ways to optimize savings, retirement accounts, and idle capital

A small minority will quietly make the moves that matter. We wrote 21 Moves to Make in the Downturn for that minority. If you’re serious about building a position that survives the next decade, start here.

Download Now

☎️ The Phone Call

March 16, 2020.

I’m sitting at my desk, coffee barely touched, scanning the pre-market numbers. Futures are limit down. Again. The S&P has already lost 20% in three weeks and the bleeding won’t stop.

Then the email hits.

Our prime broker’s normal morning operational summary lands in my inbox. But today, the subject line is anything but normal.

“Immediate Margin Call Required.”

All in red.

I open it. Scan the margin summary first. Then the details.

My stomach drops.

A little background. Most individual investors use something called Reg T margin. It’s simple. Your broker lets you borrow roughly half the value of your stocks. You put up $100,000, you can buy $200,000 worth. 2-to-1.

Hedge funds play a different game. We use something called portfolio margining.

Instead of a flat 2-to-1 rule, the broker looks at your entire book as one unit and assigns each position a haircut.

Here’s how it works.

A haircut is how much value the broker shaves off when calculating what you can borrow against. Blue chips in calm markets might get a 5% haircut. So if you own $100,000 of Apple stock, you need at least $5,000 of capital in your account against that position.

Small number. Easy to cover.

Riskier stocks get bigger haircuts. But when the whole portfolio is diversified, the math works in your favor. Instead of 2-to-1 leverage, you might get 5, 10 or even 20-to-1. Put up $100 million, control over a billion in positions.

Without derivatives.

And if you have not worked in a hedge fund before, here is an important detail for you.

All of those haircuts are set by a black box that sits on the prime broker’s risk desk. Not yours. Theirs. They decide, day to day and sometimes minute to minute, how your portfolio can be margined. How much you can borrow. How much collateral you need.

And you agreed to it. Every hedge fund signs a portfolio margining agreement with their prime broker. You’re playing in their house, by their rules. Rules they can change whenever they want.

When markets are calm, this works beautifully. The portfolio manager diversifies strategically, the black box sees low risk. The book gets small haircuts. Everyone’s happy.

Until they aren’t.

Because when volatility spikes, that black box recalculates. And when it recalculates, the prime broker doesn’t call to discuss it. They send you a notice.

That’s what I was staring at.

Virtually every micro-cap position in the fund had been raised to a 100% haircut. Overnight. Zero borrowing value. Those positions were now dead weight on the books.

Regardless of how much confidence we had in them as companies, as far as the prime broker was concerned, they were dead weight.

Even our best investments, the blue chip holdings in the eyes of the prime broker, you know, big S&P Mag 7 type stocks, had been raised from 5 or 6% to 25 or 30%. Overnight.

One email. Every position. The entire margin structure of our fund had just been rewritten while we slept.

And then you do the math in your head. You realize the cascade. Because it’s not just one position that’s underwater. It’s the whole book. Every holding now requires more collateral than it did yesterday. Collateral you don’t have.

I pick up the phone and call the portfolio manager. Our chief investment officer.

Possibly the worst phone call I’ve ever had to make in my career.

This is where the hedge fund manager bypasses the portfolio managers and heads straight to the traders, telling them to sell. Ten percent. Twenty percent. Of everything. He doesn’t care what it is.

“We need liquidity. We need it now.”

The good positions. The bad positions. The hedges that were working perfectly. Didn’t matter.

In these moments, you sell what you can, not what you want to.

That’s what a correlation-to-1 event feels like from the inside. Like sprinting through a fire, every asset in your portfolio burning right alongside you.

And yes, that means Treasuries too. All of it fair game. Everything on the cutting table.

Because you just need one thing.

Cash.

Suddenly, a whole lot of it.

That was March 2020.

Fast forward to today.

A record 95% of asset classes are trading above their long-term trend. And margin debt just hit an all-time high of $1.28 trillion.

The conditions are lining up again.

So how does this actually happen? What breaks inside the plumbing that turns a normal selloff into a cascade where everything goes down together? Is there a pattern to the recovery? And what can you actually do to protect yourself before the next phone call comes?

Let’s get into it.

🔧 The Plumbing

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Today’s Bullets:

• The Firm That Never Tweeted

• The Rap Sheet

• The Grey Window

• What It Means for Your Money

Inspirational Tweet:

If you’ve been on Twitter this past week, you’ve probably seen one name dominating your feed.

Jane Street.

And unless you work on a trading desk, you probably haven’t heard of them.

But the accusations flying around right now are serious. Insider trading in the $40 billion Terra collapse. Rigging the Indian stock market. And manipulating Bitcoin’s price. Every single morning. At 10 AM.

The entire street has been buzzing about it. Even backstage at the Strategy Conference this past week, Michael Saylor, Phong Le, and Shirish Jajodia, Strategy’s head of treasury and the man executing their capital markets activity, and I were talking about it, trying to separate what’s real from what’s noise.

And these aren’t just Twitter conspiracy theories. Regulators in India have already issued a 105-page enforcement order. A bankruptcy estate filed a lawsuit in federal court. And now, legitimate questions about Bitcoin ETF mechanics are surfacing that go well beyond one firm.

So who is Jane Street? What exactly are they accused of? How do the Bitcoin ETF mechanics actually work? And what does any of this mean for your portfolio?

Fair questions. And ones we’re going to answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a deep dive into the world of Jane Street with this Sunday’s Informationist.

**Please note: This newsletter was written before the weekend conflict in Iran. The prices and movements referenced are as of Friday’s market close.

Partner spot

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

In my latest report, The Debasement Trade, I walk you through:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

You can download the report here:

Download

🏢 The Firm That Never Tweeted

Let’s start with who we’re dealing with. Get a sense of the players and the scene, shall we?

Jane Street was founded in 1999 by four traders who left Susquehanna International Group, one of the original quant powerhouses on Wall Street. Tim Reynolds. Rob Granieri. Marc Gerstein. Michael Jenkins.

They hung a shingle in New York and built something deliberately opaque. No CEO. No corporate hierarchy. Only about 40 people hold equity. The other 3,000 or so employees are compensated handsomely for keeping their heads down and their mouths shut.

How much are they paid, you ask?

Estimates put the average Jane Street trader compensation at about $900,000 per year.

Nice gig.

Though, one former employee has described the culture as an “anarchist commune.”

Hmmm. Noted.

Now the big numbers.

In 2024, Jane Street generated $20.5 billion in net trading revenue. Profit margins above 70%. They handle roughly 10% of all US equity trades. 14% of all US ETF trading volume. And nearly a quarter of all primary market Authorized Participant activity.

We’ll come back to that last one. It matters.

A lot.

Their Twitter account has 16,000 followers. They follow nobody. And check this out.

Some Twitter detectives have speculated that they recently deleted their entire history.

Fact is, they have never posted a single tweet. Not deleted. Never posted. That’s a $20 billion revenue firm that has, quite literally, never said a word publicly on social media.

Interesting.

Also, you may recognize a former employee. Sam Bankman-Fried worked at Jane Street before leaving to start Alameda Research and FTX.

Well, well, well. But it gets better.

In 2022, FTX invested $500 million in a little AI startup called Anthropic. Before the AI boom. Before ChatGPT. When FTX went bankrupt, those shares hit the auction block.

Who bought them?

Jane Street. $100 million worth.

Fast forward to today. Anthropic just raised at a $380 billion valuation. Some quick math tells us that $100 million stake is worth somewhere north of $3 billion.

Holy Mother of God.

So Jane Street knows how to make money. No argument there.

What is in dispute is how some of that money gets made.

Over the past year, three separate stories have emerged. A regulator in India documented a pattern of index manipulation. A bankruptcy estate filed a lawsuit alleging insider trading in the Terra collapse. And traders, myself included, have been watching a pattern in Bitcoin’s price that raises structural questions about how ETFs interact with the spot market.

India is the furthest along. SEBI issued its order and Jane Street posted $566 million in escrow while the appeal plays out.

Terra is an active lawsuit filed last week in federal court. Jane Street says the claims are baseless.

Uh huh, we will see.

Back to the Bitcoin ETF question, which is structural. No regulator has made any allegation. But the mechanics absolutely deserve a close look.

Three stories. Three different stages. Let’s walk through each.

⚖️ The Rap Sheet

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Today’s Bullets:

• The Number Behind the Number

• 6% Club: The Club You Don’t Want to Join

• A Doom Loop Update

• What It Means for Your Money

Inspirational Tweet:

Ray Dalio has been talking about something that should honestly be getting a lot more attention than it has recently.

He laid out a simple target. A number that the US deficit needs to hit to avoid what he calls a debt crisis. And then he listed three levers that could get us there.

Simple enough. Except for one problem.

When you look at where that number actually is right now, and where it’s headed, you realize those three levers will not be enough. In fact, it’s not even close.

And the consequences of that? They touch everything. Your savings. Your mortgage. Your retirement. And if you’re still trying to build those things? It matters even more.

And this morning’s GDP report? It just made the math even harder.

So what is Dalio’s target? What’s the number everyone should actually be watching? And what does all of this mean for the US dollar and your money?

All great questions that deserve serious consideration and answers, ones that we will sift through, nice and easy as always, here today.

So pour yourself a big cup of coffee and settle into your favorite seat for a look at the number that nobody’s watching closely enough with this Sunday’s Informationist.

Partner spot

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

In my latest report, The Debasement Trade, I walk you through:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

You can download the report here:

Download

🫣 The Number Behind the Number

You’ve probably seen the charts. US national debt held by the public just crossed $32 trillion. That’s about 100% of GDP. The total including intergovernmental holdings? $38.6 trillion.

Big numbers. Scary numbers. And they get a lot of attention.

And by the way, even that $38.6 trillion actually, severely understates the problem. When you add in unfunded liabilities for Social Security, Medicare, and Medicaid, the total obligation is over $175 trillion. The real mountain of debt may be more than four times what we’re counting.

But there’s a number behind that number. One that tells a much more urgent story.

Let me explain.

Debt-to-GDP tells you the size of the pile. How much has accumulated over the years. And yes, it’s a big pile. But it’s a snapshot. It tells you where you are at one moment in time.

What it doesn’t tell you is how fast the pile is growing. Whether it’s accelerating or slowing down. Whether the trajectory is getting better or worse.

For that, you need the deficit. Specifically, the deficit as a percentage of GDP.

Think about it like your credit card statement.

The balance is what you owe. A big balance is bad, but what really tells you if you’re in trouble? The monthly charges. How much *new* debt you’re adding each month relative to your income.

Or think of it like this:

The debt is the odometer, which tells you how far you’ve driven.

The deficit is the speedometer. It tells you how fast you’re going right now.

And right now, the speedometer is pinned.

The US ran a $1.83 trillion deficit in fiscal year 2024. That’s 6.3% of GDP.

Fiscal year 2025 came in at $1.78 trillion. About 5.8%.

And fiscal 2023? 6.2%.

Three straight years at or near 6%. Double Ray Dalio’s target.

The 50-year average? 3.8%. We’re running at more than 150% of the historical norm.

Now, you might be thinking, “OK, that sounds bad, but hasn’t the US run big deficits before?”

Yes it has. But never like this.

And to show you what I mean, let me introduce you to what we call the 6% Club.

♣ 6% Club: The Club You Don’t Want to Join

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Today’s Bullets:

• The Original Accord

• How the Fed Broke the Deal

• What Warsh Actually Wants

• The Bull Case vs The Trap

• Investment Implications

Inspirational Tweet:

If you follow financial news, you’ve probably heard the name Kevin Warsh a lot lately.

Trump’s pick to replace Jerome Powell as Fed Chair. Former Fed Governor. Stanford guy. Hawks love him. Doves fear him.

But there’s one idea Warsh floated last year that most people have glossed right over.

A new accord between the Fed and the Treasury.

If that sounds like boring bureaucratic stuff, I promise you it’s not. The last time the Fed and Treasury struck an accord was in 1951. That deal shaped everything about how central banking works in America.

How interest rates get set. How much the government can borrow. How much your money is actually worth.

And Warsh thinks it’s time for a new one.

So what was the original accord? Why does Warsh think it’s broken? And what would a new version actually mean for you, your portfolio, and the dollar in your pocket?

All great questions that deserve serious consideration and answers, ones that we will sift through, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a deep look at the most important deal you’ve never heard of with this Sunday’s Informationist.

Partner spot

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

In my latest report, The Debasement Trade, I walk you through:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

You can download the report here:

Download

🏛️ The Original Accord

To set the stage today, let’s head back to 1942.

The United States had just entered World War II. And wars cost money. A lot of money.

The Treasury needed to borrow, and borrow big. But here’s the problem. If interest rates rise while you’re trying to finance a war, your borrowing costs explode. Every percentage point higher means billions more in debt payments.

So the Treasury went to the Federal Reserve and made a request.

Keep rates low. No matter what.

The Fed agreed. It pegged short-term Treasury bill rates at 3/8 of a percent. And it put an unofficial cap on long-term bonds at 2.5%.

To maintain those rates, the Fed had to buy government bonds. Lots of them. Every time the market tried to push yields higher, the Fed stepped in and purchased more debt. That meant printing more money. Which meant more inflation.

But it was wartime. You do what you have to do.

The problem? The war ended, but the rate peg didn’t.

By the late 1940s, inflation was running hot. Between June 1946 and June 1947, consumer prices rose 17.6%. The following year, another 9.5%.

The Fed wanted out. It wanted to raise rates, fight inflation, do what a central bank is supposed to do.

President Truman said no.

He and Treasury Secretary John Snyder wanted cheap borrowing to continue. They had war bonds outstanding, millions of Americans holding them, and they didn’t want those bonds losing value.

So the Fed was stuck. Forced to keep buying government debt. Forced to keep rates artificially low. Forced to watch inflation eat away at the purchasing power of the very citizens it was supposed to protect.

Then came Korea.

When the Korean War started in June 1950, everything got worse. More government spending. More borrowing. More pressure on the Fed to keep the money spigot open.

By February 1951, inflation hit an annualized rate of 21%.

Twenty-one percent.

The Fed had had enough.

In January 1951, Truman invited the entire Federal Open Market Committee (you know, the FOMC) to the White House. After the meeting, the President released a statement claiming the Fed had “pledged its support to maintain the stability of Government securities.”

One problem. The Fed had made no such pledge.

Fed Governor Marriner Eccles, furious at the White House's false claim, leaked the FOMC's own minutes to the press on his own authority. In his words, "The fat was in the fire.”

The standoff became public. And it forced a resolution.

On March 4, 1951, the Treasury and the Fed issued a joint statement. They had “reached full accord with respect to debt management and monetary policies to be pursued in furthering their common purpose and to assure the successful financing of the government’s requirements and, at the same time, to minimize monetization of the public debt.”

Read that last part again slowly.

“Minimize monetization of the public debt.”

The Fed would no longer be the government’s ATM. It could set interest rates independently. It could fight inflation without asking permission from the White House.

That one agreement laid the foundation for everything we know as modern central banking.

It was, quite literally, the birth of Fed independence.

And for the next half century, it more or less worked.

Until it didn’t.

🤥 How the Fed Broke the Deal

For decades after the accord, the Fed mostly stayed in its lane.

It raised rates when  inflation ran hot. It lowered them when the economy slowed. It held a modest portfolio of short-term Treasuries to manage the money supply, and it left the bond market alone.

Then came 2008.

When the housing bubble burst and the financial system nearly collapsed, the Fed did something it hadn’t done since before the accord. It started buying massive amounts of government debt.

They called it quantitative easing, QE for the Wall Street crowd. A fancy term for the Fed creating money out of thin air and using it to buy Treasury bonds and mortgage-backed securities directly from the market.

Incidentally, I’ve written all about QE before and how money printing works. If you want to learn about that or revisit the concept, you can find that article right here:

The goal? Push long-term interest rates down. Make borrowing cheaper. Or as they like to say, stimulate the economy.

The Fed’s balance sheet, which had sat below $1 trillion for its entire history, pretty much doubled overnight. Then it doubled again.

QE1. QE2. Operation Twist (another fancy term for buying long-dated bonds and selling short-dated bonds, get it? Twist). QE3.

By 2014, the Fed held over $4 trillion in bonds. Four times what it held before the crisis.

Now, officials promised this was merely temporary. Emergency measures for emergency times. They would shrink the balance sheet back to normal once the crisis passed.

To be fair, between 2017 and 2019, the Fed did let some bonds mature without replacing them. The balance sheet dipped from $4.5 trillion to about $3.8 trillion.

Then the repo crisis of 2019 occurred, and the Fed immediately stopped QT and started QE again, buying bonds to “stabilize the credit and Treasury markets.”

This was a trickle of buying in comparison to the last time.

But then WHAM-O!

The COVID “crisis”.

And the Fed went right back to the Big Boy Bond Buying Playbook. The super duper special edition.

In a matter of months, the balance sheet exploded from $4 trillion to nearly $9 trillion. The Fed was buying $120 billion in bonds every single month. Treasuries and mortgage-backed securities, gobbling them up like my bulldog snarfs down ground beef.

But wait.

Remember the accord? “Minimize monetization of the public debt.”

In 2020, the federal government ran a $3.1 trillion deficit. In 2021, another $2.8 trillion. And the Fed was right there, buying trillions in government bonds, effectively financing those deficits with newly created money.

That is pure monetization. Full stop.

Now, nobody at the Fed would use that word. They’d say they were “ensuring the smooth functioning of Treasury markets” or “supporting the economic recovery.”

But let’s be honest here for a moment, shall we?

The government spent. The Treasury borrowed. And the Fed printed money to buy that debt.

Exactly the same as the 1940s. Exactly what the 1951 accord was designed to end.

And we all know what came next.

Massive inflation.

Consumer prices surged to 9.1% in June 2022. The highest in 40 years. Just like the post-war period, all that money creation eventually showed up in the price of everything.

So the Fed pivoted again and started raising rates aggressively and shrinking its balance sheet. Quantitative tightening, the almighty QT.

But here’s the thing.

Even after years of QT, the Fed’s balance sheet today is still over $6.6 trillion (see the chart above). That’s more than six times its pre-crisis level.

And look at what it holds.

60% in notes and bonds. Long-term government debt.

31% in mortgage-backed securities. The Fed is still one of the biggest players in the housing market.

Makes you wonder why prices just refuse to come down, doesn’t it? Like this maaaaay be a factor in that?

And just 4.4% in Treasury bills. Short-term, low-risk, easy to roll off.

In other words, the Fed’s portfolio looks nothing like what it did before 2008. It’s stuffed to the gills with long-term government debt and mortgage securities, exactly the kind of holdings the 1951 accord was meant to prevent.

The accord said the Fed would stop being the government’s financier.

And yet, here we are, seventy-five years later, with a Fed that’s holding $6.6 trillion of the government’s paper.

The deal didn’t stick.

🥸 What Warsh Actually Wants

Stage right, enter Kevin Warsh.

Some of you know that I took a good hard look at Kevin Warsh recently, a whole article was dedicated to his nomination. If you’re new, you can find that article here:

TL;DR for today’s purposes: Warsh served as a Fed Governor from 2006 to 2011. He was there for the financial crisis. He watched QE get launched in real time.

And he didn’t like it.

When the Fed launched QE2 in November 2010, Warsh was its fiercest internal critic. He told his FOMC colleagues point blank, "If I were in your chair, I would not be leading the Committee in this direction."

He ultimately voted yes, bowing to Bernanke, and one week later he published a Wall Street Journal op-ed laying out exactly why he thought it was a mistake. Three months later, he resigned.

His argument?

Large-scale bond buying was dangerous. It blurred the line between monetary policy and fiscal policy. And once you start, it’s almost impossible to stop.

He was right on all three counts.

Now, as Trump’s nominee to replace Powell, Warsh has put forward his biggest idea yet. A new accord between the Fed and the Treasury.

Here’s what he said on CNBC just six months before the nomination:

“If we have a new accord, then the Fed chair and the Treasury secretary can describe to the markets plainly and with deliberation, ‘This is our objective for the size of the Fed’s balance sheet.’

Did you catch that key phrase? Plainly and with deliberation.

Truthfully, nobody really knows the plan. How big should the Fed’s balance sheet be? $4 trillion? $3 trillion? Nobody’s said. How fast should it shrink? Nobody’s committed. What should it hold? Long bonds? Short bills? MBS? The answer changes depending on who you ask.

Warsh wants to end that ambiguity.

His proposal, as best as anyone can piece it together, has a few moving parts.

First, define a target size for the Fed’s balance sheet and communicate it clearly. No more guessing. No more “data dependent” hand-waving. A number, a timeline, and a plan.

Period.

Second, coordinate with Treasury on debt issuance. If the Fed is going to shrink, Treasury needs to adjust how much and what kind of debt it sells. You can’t have one arm of the government dumping bonds while the other arm is pulling back from buying them. That’s a recipe for a market seizure.

Third, and this is the big one, shift the Fed’s holdings from long-term bonds to short-term Treasury bills. Get out of the mortgage market entirely. Stop holding 10-year and 30-year government debt. Buy bills that mature in weeks or months, not years or decades.

Deutsche Bank ran the numbers. Under Warsh, T-bills could go from less than 5% of the Fed’s portfolio to as high as 55% over the next five to seven years.

That would be a fundamental transformation of how the Fed operates in bond markets.

Somehow, Warsh insists this is not a return to pre-1951. He’s not proposing that the Fed finance the government’s spending. He’s arguing the opposite. That a clear framework would actually restore the Fed’s independence by getting it out of the business of holding trillions in long-term government debt.

And Treasury Secretary Scott Bessent appears to be on board. He’s made similar comments about the Fed maintaining QE for too long and has argued that large-scale bond buying should only happen during “true emergencies.”

So, on paper, this sounds pretty good. Right?

Restore the spirit of the original accord. Shrink the balance sheet. Get out of long-term bonds. Let markets set rates.

But yeah, not everyone is buying it.

And why would they? I mean take one more look at where we actually are.

About $50 billion to $6.6 trillion. Short-term bills to long-term bonds and mortgage securities. From a solemn pledge to minimize monetization to an explosive $3.1 trillion in deficit financing in a single year.

The numbers got bigger. The tolerance got smaller. And the debt got a whole lot harder to walk away from.

Same fight. Totally different math.

🐂 The Bull Case vs The Trap

Let’s lay out both sides. Because this is one of those debates where smart people completely disagree.

The Bull Case

Supporters of a new accord argue it would do three things.

One, it ends the era of QE as a default tool. If the Fed commits to a smaller, bill-heavy balance sheet, it can’t just fire up the printing press every time markets get nervous. Emergency bond buying would require an actual emergency, not just a bad week in stocks.

Two, it restores real price discovery in bond markets. Right now, the Fed holds so much long-term debt that it distorts the entire yield curve. Mortgage rates, corporate borrowing costs, and government bond yields are all influenced by the Fed’s massive presence. Pull that out, and markets can finally do their job.

Three, it gives investors clarity. No more wondering if the Fed will surprise everyone with another round of QE or suddenly accelerate QT. A written framework, jointly announced with Treasury, would let everyone plan accordingly.

Bessent has made exactly this point. In a world where the Fed’s balance sheet actions are predictable and mapped to Treasury’s debt issuance plan, markets get less volatile. Borrowing costs stabilize. Confidence improves.

Sounds great…in theory.

The Trap

Others see something quite different. Alarming, in fact.

Tim Duy, chief US economist at SGH Macro Advisors, put it bluntly. He called the new accord “less about protecting the Fed and more like a yield curve control framework.”

Good ol’ yield curve control. YCC to pros around here.

It’s what Japan has been doing for years. The Bank of Japan explicitly targets long-term interest rates, buying whatever it takes to keep them where it wants. It’s the most extreme version of a central bank financing government debt. And it has decimated the yen.

Now, Warsh would say his proposal is the opposite of YCC. He wants the Fed to step back from the bond market, not step deeper in.

But here’s the thing.

If the Fed and Treasury are publicly coordinating on balance sheet size, debt issuance schedules, and the composition of holdings, where does monetary policy end and fiscal policy begin?

Good question.

Krishna Guha of Evercore ISI thinks that this framework could give Treasury a “soft veto” over the Fed’s tightening plans.

I mean, what if the Fed wants to shrink faster but Treasury says the market can’t handle more bond supply?

Yeah, we’re going to have to go ahead and ask you to not do that.

Thaaaaaanks.

And there’s an even bigger problem.

As many of you know, I’ve been highlighting that the US government is running deficits of over $2 trillion a year. Interest on the national debt has crossed $1 trillion annually. The Congressional Budget Office projects it will hit $1.8 trillion by 2035.

Can any Fed chair, even one who genuinely believes in independence, really say no to a government drowning in their own debt?

The 1951 accord worked because deficits were manageable. The government could afford to pay market rates on its borrowing. Today, with $36 trillion in debt and $1 trillion in annual interest costs, the math is starkly different.

If long-term rates rise because the Fed steps back from the bond market, the government’s borrowing costs explode. And if borrowing costs explode, the pressure on the Fed to step back in becomes overwhelming.

The trap.

Restore market discipline, and the government can’t afford its own debt. Keep suppressing rates, and the currency keeps getting debased.

There’s no clean off ramp. There never was.

💰 Investment Implications

OK so let’s bring this one home, shall we?

What does all of this actually mean for you and your investments?

Scenario 1: The Accord Works as Advertised

Warsh and Bessent pull it off. The Fed shrinks its balance sheet in an orderly way. Treasury adjusts issuance accordingly. Long-term rates rise modestly as the market takes over price discovery, but it’s gradual and manageable.

In this world, bonds take a hit in the short term as rates adjust higher. But over time, the bond market becomes healthier. Real yields reward savers. The dollar strengthens as the market gains confidence in fiscal discipline.

There’s one little catch though. This requires Congress to actually balance the budget.

Uh huh. They’ll make Area 51 a theme park before they do that.

Scenario 2: The Accord Is Window Dressing

The new accord gets announced with a lot of fanfare but changes little in practice. The Fed shifts some holdings toward bills but keeps a massive balance sheet. Treasury keeps issuing debt at the same pace. The coordination is real, but the discipline isn’t.

Markets shrug. Yields stay range-bound. Nothing really changes. The can gets kicked further down the road.

I would say that this is actually the most likely outcome, if we’re being honest. BofA’s analysts said as much, projecting “minimal market impact” from a new accord.

Scenario 3: The Math Forces Their Hand

This is the one that keeps me up at night.

Rates rise. Deficits keep growing. Interest costs spiral from $1 trillion to $2 trillion+. And at some point, the government simply can’t afford to pay market rates on its debt.

So the Fed steps back in. New name, new framework, same result. The central bank buys government bonds to keep rates manageable, and the currency pays the price.

This is the scenario where hard assets win. Gold, silver, Bitcoin. Things that can’t be printed, debased, or diluted by a government that needs to finance its own survival.

And if you’ve been reading this newsletter for a while, you know I believe this is the most probable path over the long term. Not because anyone wants it. But because the math demands it.

What to Watch

Warsh’s confirmation hearings. Pay attention to what he says about the balance sheet and any specifics about a new accord.

The first FOMC meeting under new leadership. Actions speak louder than frameworks.

Treasury’s quarterly refunding announcements. If issuance shifts meaningfully toward bills, the accord is real. If not, it’s just talk.

The yield curve. If long rates start moving higher without the Fed intervening, that’s the market testing whether independence is genuine.

And the price of gold. Because gold has a way of telling you the truth about currency debasement long before anyone in Washington admits it.

Here’s what stays with me.

In 1951, a Fed governor leaked confidential minutes to the press because he refused to let the government use his institution as a printing press. That act of defiance created the most important boundary in modern finance.

Seventy-five years later, we’re having the same conversation. Different names. Different numbers. Same fundamental question.

Can a central bank say no to a government that can’t afford to hear it?

Warsh says yes. Maybe he means it. Maybe he’s the guy who actually draws the line.

But the debt is $36 trillion. The deficits are $2 trillion a year. The interest alone is $1 trillion and climbing.

And every single time in history that a government has found itself in this position, the answer has been the same.

Print.

The names change. The frameworks change. The accords change.

But the math?

That never changes.

That’s it. I hope you feel a little smarter knowing about the 1951 accord, why it matters more than ever, and what a new version could mean for your money.

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Talk soon,

James✌️

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Today’s Bullets:

• The Paper Bitcoin Question

• Paper vs Physical

• The Basis Trade

• What Actually Happened?

• The Gold Precedent

• Investment Implications

Inspirational Tweet:

If your timeline looks anything like mine this week, you’ve seen some version of this argument everywhere.

“Paper Bitcoin is destroying price discovery.”

or maybe,

“One Bitcoin, many claims.”

And my favorite…

“Wall Street broke Bitcoin.”

And I honestly think this is a conversation worth having.

After all, Bitcoin has been steadily dropping for months, from $125K to $60K. It’s been rough to say the least.

When moves like that happen, people want answers. And the “paper Bitcoin” narrative offers a clean one: Wall Street created too much synthetic exposure, and it’s suppressing the real price.

Parts of that are true.

The question is, which of these products create exposure without touching actual coins, and can derivatives actually affect short-term price discovery? Negatively and/or positively?

Great questions that deserve serious consideration and answers, ones that we will sift through, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a look into the world of paper Bitcoin with this Sunday’s Informationist.

Partner spot

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

In my latest report, The Debasement Trade, I walk you through:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

Download the report here:

Download

📰 The Paper Bitcoin Question

Let me show you two numbers.

As of mid-January, spot Bitcoin ETFs held approximately $120 billion worth of actual Bitcoin in cold storage. Remember, because they are spot ETFs, these funds are required to hold real Bitcoin equal to the value of their shares.

When money flows in, they must go and buy actual coins on the open market.

Real coins. Really purchased. Locked away.

And that’s just the ETFs. Billions of dollars worth of Bitcoin trade on exchanges like Coinbase and Binance every day, held by individuals and institutions alike. But since the ETFs report their holdings publicly, they give us the clearest window into institutional physical demand.

As for non-physical Bitcoin, in January derivatives markets carried roughly $125 billion in open interest across futures and options. These are much of the paper claims everyone is talking about.

Paper claims on an asset that has a hard cap of 21 million coins.

Paper claims exceeding all the ETF physical holdings.

And it gets wilder from there.

See, in the same month, Bitcoin derivatives were trading at roughly $196 billion in volume vs. spot BTC trading about $26 billion. That’s a 7.5-to-1 ratio.

In other words, for every dollar of real Bitcoin changing hands, seven and a half dollars of paper Bitcoin were trading alongside it.

So when people ask whether “paper Bitcoin” is affecting price discovery, the answer is obviously yes. At that scale, how could it not?

But here’s the thing.

Not all of that paper works the same way. Some products, like the spot ETFs, require actual Bitcoin to be purchased and held. Others, like CME futures, never touch a single satoshi.

And one of them, a massive trade most people have never heard of, explains a huge chunk of the ETF outflows (money leaving the Bitcoin ETFs) that made headlines all through January.

Understanding which is which changes how you read every headline about this selloff.

The “record shorts.” The ETF outflows. The liquidation cascades. All of it looks different once you see the mechanics underneath.

How?

Let’s walk through each of them, one by one.

⚖️ Paper vs Physical

Read more

🙌 The Informationist takes one current event or complicated concept and simplifies it for you in bullet points and easy to understand text.

🫶 If this email was forwarded to you, then you have awesome friends, click below to join!

Subscribe now

👉 And you can always check out the archives to read more of The Informationist.

Today’s Bullets:

• Who Is Kevin Warsh?

• The Hawk Who Cried Inflation

• The Day Debasement Investors Panicked

• The Four Doors of Government Debt

• Investment Implications

Inspirational Tweet:

Well said Halston, well said. Especially…

“Federal Reserve independence” means independent from YOU. Not from Wall Street. Not from billionaire dynasties.

That line hit really me when I read it this morning.

Because here’s what just happened.

President Trump nominated Kevin Warsh to be the next Chair of the Federal Reserve. Powell’s term ends in May. If confirmed, Warsh will be at the helm of the most powerful financial institution on Earth.

The financial media is buzzing. Is Warsh a hawk or a dove? Will he cut rates to please Trump? Will he protect Fed independence?

All interesting questions.

But I’m going to argue they might be the wrong questions.

There’s something bigger at play here. Something that doesn’t change no matter who sits in that chair. And Friday’s market action gave us a hint of what it is.

And so, who exactly is Kevin Warsh? What’s his actual track record? Why did precious metals just have their most violent day in years? And what does any of this mean for your portfolio?

All good questions, and ones we will answer, nice and easy as always, here today.

So grab a big, hot cup of coffee and settle into your favorite seat for a candid look at the new Fed Chair nominee in this Sunday’s Informationist.

Partner spot

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

In my latest report, The Debasement Trade, I walk you through:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

Download the report here:

Download

🏦 Who Is Kevin Warsh?

The day is September 20, 2008.

The global financial system is in free fall. Lehman Brothers collapsed five days ago. AIG is hemorrhaging. And Morgan Stanley, one of the last remaining investment banks, is circling the drain.

Inside the Federal Reserve, a 38-year-old governor named Kevin Warsh has a problem.

Morgan Stanley, his former employer, is about to fail. The firm needs access to Fed emergency lending to survive. But investment banks can’t access the Fed’s discount window. Only bank holding companies can.

And Warsh has another problem: he worked at Morgan Stanley for seven years. An ethics wall is supposed to prevent this exact type of conflict.

So what happens?

Warsh gets a waiver. The Fed clears him to deal directly with his former employer. The very next day, Morgan Stanley is converted into a bank holding company, gaining access to Fed facilities. And just like that…

The firm survives.

Ben Bernanke later wrote that Warsh’s “political and markets savvy and many contacts on Wall Street would prove invaluable.”

I’m not interested in re-litigating the ethics. In a crisis, you use the people who know where the bodies are buried. Warsh knew. And the reality is that he delivered.

But hold that image: a baby-faced 38-year-old Fed governor negotiating the survival of his former employer while the system burns.

It tells you everything about who Kevin Warsh is.

The Path to the Room

How does someone end up in that room?

Warsh grew up in a little town called Loudonville, just outside of Albany, in upstate New York. This was the wealthy side of the tracks, mind you, where the big houses were. I know because I grew up in Clifton Park which was a firmly middle class area on the other side of Albany. I sometimes drove past these houses on my way to the hockey rink, wondering just what the people did for work to be able to live like that.

It wasn’t finance, I’ll tell you that. Virtually nothing of the sort in those parts.

In any case, Warsh left Albany for undergrad at Stanford, continued on to Harvard Law, then spent seven years at Morgan Stanley doing M&A.

This is where he learned finance and how Wall Street actually works.

In 2002, he moved to Washington, DC. President Bush hired him as a White House economic policy adviser. For four years, he watched how policy gets made. Who matters. How the game is played.

In 2006, Bush nominated him to the Fed. He was 35. The youngest Fed governor in history.

Two years later, he was saving his former employer.

The Cantillon Connection

Now here’s where Halston’s tweet becomes relevant.

In 2002, Warsh married Jane Lauder, granddaughter of Estée Lauder. Her father is Ronald Lauder, net worth approximately $4.7 billion. Ronald Lauder has been one of Trump’s longtime allies and donors.

This is the Cantillon Effect in human form.

If you have never heard that term or want a refresher on what it means, I wrote all about it recently. You can find that newsletter here:

For the TL;DR types: Richard Cantillon was an 18th-century economist who observed that new money doesn't arrive everywhere at once. It enters at specific points. The people closest to those entry points benefit first.

Now think about Warsh’s trajectory:

elite education → Wall Street deal flow → White House access → the Fed itself → marriage into a billionaire dynasty

The circle reinforces itself. The people closest to power marry into wealth. The people closest to wealth gain access to power.

“Federal Reserve independence” means independent from voters. Independent from you.

It doesn’t mean independent from the people who’ve always run it.

After the Fed

In any case, Warsh resigned in 2011, seven years early. He’d grown uncomfortable with QE, the Fed’s bond-buying program. He was quite outspoken about how he thought it would distort markets and cause inflation.

You think?

Of course, he voted for it anyway, because Bernanke demanded consensus. Then walked out.

The detail that matters most: he soon became a partner at Stanley Druckenmiller’s family office. Druckenmiller is one of the greatest macro investors alive. Warsh has spent the last decade learning how the smartest money thinks about Fed policy.

And that, my friends, is who Trump just nominated.

🦅 The Hawk Who Cried Inflation

Throughout his Fed tenure, Warsh was known as a hawk. He prioritized fighting inflation, favored tighter policy, and worried about easy money.

He was also wrong. Repeatedly.

The Receipts

March 2008. Bear Stearns just collapsed. The Fed is cutting rates.

Warsh’s take: “On the inflation front, there is little reason to be confident that inflation will decline.”

What happened: inflation collapsed as the economy cratered.

September 2008. Lehman just failed. The global system is teetering.

Warsh’s take: “I’m still not ready to relinquish my concerns on the inflation front.”

Actual risk: deflation. A deflationary depression.

April 2009. Worst recession since the Great Depression. Unemployment approaching 10%.

Warsh’s take: Still warning about inflation.

Actual inflation: 0.8%.

Bernanke was frustrated. In his memoir, he vented about “holders of the unreasonable opinion that we should be tightening even as the economy and financial system are in a precarious position.”

Make no mistake, he was talking directly about Warsh.

The Conversion

So Warsh spent 15 years as a hawk. Opposed QE. Resigned in protest.

Then Trump started looking for a Fed chair.

Suddenly, a different tune.

In July 2025, Warsh appeared on CNBC criticizing Powell for not cutting rates fast enough. He called for ‘regime change’ at the Fed.

“It is very puzzling to me how you could think that we should do emergency rate cuts last September, and now all of a sudden you sit there like a hawk,” he said. “That’s not good for the institution.”

The hawk became a dove. Right when it mattered for getting the job.

He’s now arguing AI will boost productivity and reduce inflation. Convenient cover for the rate cuts Trump wants.

So which Warsh shows up as Fed chair? The inflation hawk who resigned in protest? Or the Trump ally calling for rate cuts?

On Friday morning, the markets gave us who they believe will show up.

And it was violent. How?

Keep reading. This story gets even better.

💥 The Day Debasement Investors Panicked

Fed funds futures barely moved on the Warsh news.

But somewhere else, chaos erupted.

Read more

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Today’s Bullets:

• What Just Happened in the JGB Market

• Why Japan’s Debt Bomb is Different (And Worse)

• The Yen Carry Trade and the Global Trap

• The BOJ’s Iron Triangle

• Investment Implications (And What to Do About It)

Inspirational Tweet:

While the mainstream media spent the week obsessing over Davos soundbites, Trump’s Greenland comments, and whatever they consider “news” these days, serious investors were focused on something else entirely.

The open rebellion in Japan’s bond market.

That’s right. The 40-year Japanese Government Bond just spiked above 4% for the first time in over three decades. Liquidity in the world’s second-largest bond market has never been worse. And the Bank of Japan is now at its highest interest rate since 1995, with more hikes coming.

Why should you care?

Because Japan has been serving a bottomless punch bowl to global markets for 30 years. Free money for anyone who wanted it.

That era is ending. And when it fully unwinds, the ripple effects will be felt in every portfolio on the planet.

So, what does this mean for US markets? For your 401(k)? For the Fed?

All good questions. And ones we’re going to answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat, because we have a lot to cover and it is extremely important, as we explore the end of Japan’s free-money era with this Sunday’s Informationist.

Upcoming Appearance

The Age of Debasement

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

On January 28 at 1PM CST, join me in this online event as I present my latest report, The Debasement Trade, and take live Q&A.

Hosted by Unchained, this event will cover:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

Wednesday, January 28 at 1PM CST — online, free to attend.

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😵‍💫 What Just Happened in the JGB Market

OK, so what’s actually happening in Japan right now?

In short: the bond market is staging an open rebellion. And the numbers are staggering.

Japan’s 40-year government bond yield just spiked above 4.2% for the first time in over 30 years. The 30-year Japanese government bond (JGB) hit 3.6%. The 10-year is at 2.25%, more than double where it was just a year ago.

Just look at that spike on the right side of the chart.

A country that’s kept rates at or near zero for decades just saw its longest-dated bonds blow through 4%. In a matter of hours.

For the long-time readers of The Informationist, you know I’ve been covering the Bank of Japan saga for years now. Back in 2023, I wrote about the BOJ’s “experiment” with yield curve control, warning that it couldn’t go on forever. Last summer, I asked whether the yen was about to hyperinflate.

Well, the experiment is over. And the results are in.

If you need a refresher on yield curve control and how Japan is using it, you can read a full breakdown here:

Here’s what happened this week.

The BOJ raised its policy rate to 0.75% in December, the highest since 1995. At this week’s January meeting, it held steady in a split 8-1 decision, but one board member actually proposed hiking to 1%.

Governor Kazuo Ueda made it clear: “We will keep raising rates in line with improvement in the economy and inflation.”

In other words, they’re not done. Analysts now expect rates to hit 1% by mid-2026, potentially higher if the yen keeps weakening.

And even at 0.75%, real rates (rates minus inflation) are still deeply negative. Japan’s inflation is running north of 3%, meaning savers are still losing purchasing power even after the hike.

But here’s what really has traders spooked: as Kobeissi highlighted above, liquidity in the world’s second-largest government bond market has never been worse. The $7.6 trillion JGB market is showing classic signs of stress.

Why does this matter?

Because Japan’s government bond market is the benchmark for pricing trillions more in corporate debt, mortgages, and derivatives across Asia. When liquidity deteriorates this severely, prices become erratic. Buyers disappear. Volatility explodes.

And that’s exactly what we’re seeing.

📉 Why Japan’s Debt Bomb is Different (And Worse)

Now you may be asking, why is this happening now?

The answer involves some math that most PhD economists still drinking the Modern Monetary Theory funny juice prefer to ignore.

A little ice in that drink: Japan’s gross debt-to-GDP ratio stands at over 250%. That’s the highest in the developed world. Not Greece. Not Italy. Japan.

The numbers: $9 trillion in debt against an annual national output of $4 trillion.

And the largest owner of Japanese debt in the world?

You got it. The BOJ itself. It owns roughly 50% of all Japanese government debt.

And here’s what’s wild: that’s actually down from 55% in 2022. The BOJ is quietly stepping back. Meanwhile, foreign investors have also been bailing, with their holdings dropping to just 12% of the total. The lowest since 2019.

So who’s left to buy? Great question.

For decades, this didn’t matter much. The BOJ could print yen, buy its own bonds, and keep yields suppressed near zero. Japanese savers dutifully stuffed their money into JGBs despite earning nothing. The system worked because inflation was nonexistent.

That’s no longer the case.

Japan is now experiencing something it hasn’t seen in 40 years: persistent inflation.

In the words of John McClane:

Because when you have inflation, bond investors start demanding compensation for it. They want positive real yields.

And here’s the trap.

If JGB yields keep rising, the Japanese government’s interest expense explodes. At over 250% debt-to-GDP, even small yield increases translate into massive budget impacts. Every 1% increase in borrowing costs adds over 2.5% of GDP to annual interest expense.

Read that again slowly.

Japan cannot afford higher interest rates. But the market is demanding them anyway.

Sound familiar? It should. We discussed this exact dynamic in the context of the US Treasury recently, that you can find here:

The difference is that Japan is further down this road. Much further.

And now we have a new wrinkle. Japan’s recently elected Prime Minister, Sanae Takaichi, is rolling out what she calls “Sanaeconomics” (yeah, an answer to Abenomics, the policy that started all this). Her platform includes a ¥21.3 trillion ($140 billion) stimulus package, food tax cuts, and a snap election on February 8.

In other words, she’s doubling down on fiscal spending at the exact moment bond vigilantes are waking up.

This feels a lot like the UK’s “mini-budget” crisis of 2022, when Liz Truss proposed unfunded tax cuts and the gilt market promptly collapsed. The BOJ had to intervene to prevent pension funds from blowing up.

We covered this situation back then, you can read the full free article here:

The big difference is that Japan’s debt situation is far worse than the UK’s ever was.

So what does this mean for you and your portfolio?

Here’s the thing. Japan has been serving a bottomless punch bowl to global markets for three decades. Free yen for anyone who wanted it. Borrow for nothing, invest anywhere, profit.

Now that punch bowl is being carted off. And the party is ending.

If you want to understand how this could ripple through US Treasuries, your 401(k), and every risk asset on the planet, keep reading.

Read more

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Today’s Bullets:

• Iran’s rial in real time

• What kills a currency

• The escape hatch

• Why this matters to you

Inspirational Tweet:

Bitcoin just traded at 104 billion Iranian rials.

Read that number again. One hundred and four billion.

Now look at that chart. See that vertical line on the right side? That’s not Bitcoin mooning. That’s a currency dying.

We’ve talked about hyperinflation before. Back in Informationist Issue 63 (seems like forever ago, now), I walked you through the history. Weimar Germany, Zimbabwe, Venezuela. The causes, the warning signs, and what you can do to protect yourself.

But that was theory. Case studies from dusty history books.

This? This is happening right now, as we speak. And the data coming out of Iran over the past few weeks is a masterclass in what it actually looks like when a currency dies, and where people run when it does.

So what exactly is happening over there? How did the rial collapse so fast? And why should you, sitting comfortably here in the US, care about a currency crisis half a world away?

All good questions, and ones we will answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a real-time case study of currency death with this Sunday’s Informationist.

One note before we dive in: what's happening to ordinary Iranians right now is heartbreaking. Families watching their life savings evaporate. People in the streets out of desperation. But I'm not going to make this political or opine on sanctions, regime change, or US foreign policy. That's not my lane. What I am going to do is show you the mechanics of how a currency dies. Because those mechanics are universal, and they hit closer to home than you might think.

Upcoming Appearances:

The Age of Debasement

The cracks in the foundations of money are becoming harder to ignore. Persistent deficits, rising debt, and central bank behavior are quietly reshaping how investors think about preservation and risk.

On January 28 at 1PM CST, join me in this online event as I present my latest report, The Debasement Trade, and take live Q&A.

Hosted by Unchained, this event will cover:

• Why debasement is structural, not cyclical

• How inflation and financial repression challenge familiar portfolios

• Why gold tends to move first—and bitcoin often moves further

Wednesday, January 28 at 1PM CST — online, free to attend.

Register Now

🇮🇷 Iran’s Rial in Real Time

Late December 2025. Tehran.

The head of Iran’s central bank, Mohammad Reza Farzin, abruptly resigns. Protests erupt in the streets of Tehran, Isfahan, Shiraz, and Mashhad. The Iranian rial smashes through 1.48 million to the dollar on the black market.

And most of the world barely notices.

But here’s the thing. What happened in Iran isn’t just another emerging market blowup. It’s a textbook case of how currencies actually die. And if you understand what happened there, you’ll understand a whole lot more about what could happen anywhere.

Let me show you what I mean.

First, the numbers. According to Iran’s own Statistical Center, point-to-point inflation hit 52.6% in December. Food prices? Up 72% year over year. Medical costs? Up 50%.

And we thought the Fed was bad…Good Lord.

A little context: the academic definition of hyperinflation is 50% per month. And it appears Iran just hit that threshold.

But tell that to the grandmother in Tehran watching her life savings buy a fraction of the groceries it did six months ago.

Here’s a chart of the rial on the black market:

See that acceleration on the right? That’s the past three years. The rial has been in an accelerating death spiral, losing over half its remaining value as the collapse picked up speed.

But here’s where the story gets juicy.

If you looked at the official exchange rate over this same period, you’d see something bizarre. A flat line at 42,000 rials per dollar. Just sitting there. Unchanged. For years. While the black market rate climbed relentlessly higher.

42,000 official. 1,400,000 real.

That’s not a gap. That’s a canyon.

So what was going on?

Back in April 2018, as the rial was sliding and protests were erupting over prices, Rouhani’s government created what’s called the “preferential rate.” They fixed the dollar at 42,000 rials for essential imports like food and medicine.

The stated goal was to shield ordinary Iranians from the pain of sanctions.

The actual result? The greatest arbitrage opportunity in the history of arbitrage opportunities.

Think about it. If you’re a connected insider with access to the official rate, you buy dollars at 42,000 rials and sell them on the black market for 600,000. Then 800,000. Then a million. You’re printing money. Legally.

And who had access to this magical money machine?

The Islamic Revolutionary Guard Corps (IRGC) and their connected cronies. The IRGC has long dominated Iran’s economy, and according to Chainalysis, they now control roughly half of Iran’s crypto flows too. The guys who profited from the arbitrage scheme figured out digital assets as well.

Shocking, I know.

Meanwhile, ordinary Iranians watched food prices double while their wages stayed flat. The 42,000 rate was supposed to help them. Instead, it made the connected rich and everyone else poor.

The rate became fiction. A lie the government told everyone while insiders looted the country.

But it all caught up to them eventually.

In late December, Governor Farzin resigned. The government announced it was abandoning the preferential rate system entirely. And the collapse accelerated.

Seven years. The 42,000 fiction held for seven years while reality diverged further and further. Then one day, it snapped.

And *poof*

The rial went up in smoke.

So what actually kills a currency? What turns a slow decline into a death spiral?

🪦 What Kills a Currency

OK, so we’ve seen what happened in Iran. Now let’s talk about why it happens.

You might think the answer is obvious: sanctions, money printing, corruption. And sure, Iran had enough of those to plant a banana republic garden.

But here’s what I’ve learned studying every major currency collapse of the past century, from Weimar to Zimbabwe to Venezuela to Lebanon:

The thing that actually kills a currency is loss of confidence.

That’s it. That’s the whole game.

Money printing doesn’t kill currencies. Argentina has been printing for decades. Still standing. Deficits don’t kill currencies. Japan’s debt-to-GDP ratio makes the US look fiscally responsible. Yen still works. Sanctions don’t kill currencies. Cuba’s been sanctioned since 1962. Peso still circulates.

All of those things are pressures. They erode trust. They weaken the foundation. But currencies can survive enormous pressure for a very long time.

As long as people still believe.

What kills a currency is the moment when enough people decide, all at once, that they need to get out right now.

Let me show you exactly how it works.

Read more

🙌 The Informationist takes one current event or complicated concept and simplifies it for you in bullet points and easy to understand text.

🫶 If this email was forwarded to you, then you have awesome friends, click below to join!

Subscribe now

👉 And you can always check out the archives to read more of The Informationist.

Today’s Bullets:

• What Actually Happened in 1971?

• The Mechanics of the Wage-Productivity Gap

• Why This Won’t Fix Itself (The Math of Debasement)

• Investment Implications (And What to Do About It)

Inspirational Tweet:

What in the world happened in 1980?

Good question, Art of Purpose. Good question.

But here’s the thing.

The chart shows productivity and wages diverging around 1980. But that’s just when the effects became visible. The cause happened nine years earlier.

On August 15, 1971, to be exact.

That’s the day President Nixon did something that would fundamentally reshape the relationship between work, money, and wealth for generations.

But what exactly did Nixon do? Why did it cause this divergence? And what does it mean for you and your money today?

All good questions, and ones we will answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee, and settle into your favorite seat for a look at the moment that US money changed with this Sunday’s Informationist.

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In a recent talk at the Old Parkland debate chamber in Dallas, Parker covered:

• Why bitcoin is fundamentally asymmetric, grounded in first principles

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If you want a clearer framework for thinking about bitcoin’s opportunity and the risks of overlooking it, this is the talk to share with friends and family.

The full session is online, free to attend:

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🤑 What Actually Happened in 1971?

If you’ve been reading The Informationist for a while, you’ve heard me point to this date before. I’ve referenced it in discussions about the Cantillon Effect, currency debasement, and wealth inequality.

But we’ve never really gone deep on what actually happened that day and why it matters so much. So let’s do that today.

First, let’s look back up at that chart and what it is actually showing us.

From 1947 to about 1979, wages and productivity grew together. Workers produced more, and workers got paid more. Simple. Fair. Logical. The way it should work.

Then something changed.

From around 1980 and on, productivity kept climbing (up 80% through 2009), while wages pretty much flatlined (up just 8% in that same period). For some reason, American workers kept getting better at their jobs but they somehow stopped sharing in the gains.

So what happened?

To understand, we have to travel back to a sleepy Sunday evening in August, 1971. The night that President Richard Nixon interrupted regularly scheduled television programming to make an announcement.

The show he interrupted was Bonanza, of all things. Oh so poetic in so many ways.

President Nixon called it the “New Economic Policy.”

History would call it the “Nixon Shock.”

For those of you who have not been around these parts and heard me or others talk about it, here is what he did:

Nixon unilaterally ended the convertibility of the US dollar to gold.

Wait, what?

See, since 1944, under the Bretton Woods Agreement, the dollar was tied to gold at $35 per ounce. Other countries’ currencies were then tied to the US dollar.

So the dollar became the center of the system.

Not because every single dollar bill had a matching gold bar with its name on it, but because foreign governments could turn US dollars into US gold at that fixed price if they wanted to.

But then Nixon reneged on that agreement.

Imagine you go to Las Vegas and hit the Bellagio casino. You trade your dollars for chips, and you play. The whole system works because you trust that when you’re done, you can walk up to the cashier and trade those chips back for real money. The chips aren’t valuable in themselves. They’re valuable because of what they represent: a claim on something real.

That’s what the dollar was. A chip backed by gold.

It was a constraint. A limit. A tether to reality.

If the US wanted to spend far beyond its means, it could print dollars. But that created a massive risk that other countries could call its bluff and ask for gold instead. They could walk up to the cashier window. That threat helped keep the system honest.

Then the late 1960s hit.

The US was funding a massive war overseas at the same time it had big spending programs at home. Dollars flooded out into the world. Foreign governments started getting nervous.

France, led by Charles de Gaulle, kept going to the cashier window, exchanging their dollars for gold. Other countries quietly followed.

America’s gold stockpile started draining. Suddenly, too many players were cashing in their chips.

Nixon had a choice: cut spending dramatically, or break the link to gold.

Of course, he chose Option B.

On August 15, 1971, he closed the gold window. The cashier window slammed shut. No more gold for your dollars.

But here’s the thing: the chips didn’t disappear. The US just told the world, “You can’t redeem these for gold anymore. But don’t worry, they’re still good money! You can still use them to buy stuff.”

Somehow, the game kept going.

And we’ve all been playing with those chips ever since.

Just like that, with a stroke of a pen, the dollar went from being backed by gold to being backed by... well, nothing. Just the “full faith and credit” of the US government.

We all know what a crock that ‘full faith and credit’ is today.

The dollar has become what economists call “fiat” currency. Latin for “let it be.” Money by decree. Money because the government says so.

And just like that, the constraint was gone.

Look at this chart:

Before 1971, the US Debt line is relatively flat. Not perfect, but constrained. After 1971? Debt doubles in under a decade to $800 billion by 1980 and then launches like a rocket ship higher from there.

Why?

The government could now spend without limits. And spend it did.

But here’s what they don’t teach in schools: when you remove the constraint on money creation, you fundamentally change the relationship between work and wealth.

How, you ask?

Let’s walk through that next.

🔧 The Mechanics of the Wage-Productivity Gap

So the constraint was gone. The government could create money at will.

But here’s the question: if more money was flowing into the system, why didn’t wages keep up with productivity? Where did all that new money actually go?

The answer lies in something called the Cantillon Effect, named after an 18th-century Irish-French economist named Richard Cantillon.

And understanding it will change how you see everything.

FYI, I have written all about the Cantillon Effect before, and if you want to read a deeper dive on that, you can find it right here:

For the TL;DR crowd, the bottom line is this: when new money enters an economy, it doesn’t arrive evenly, like rain falling on everyone at once. It enters at specific points and flows outward from there.

Like water falling on a roof of a tall building, pooling in certain areas at the top, the penthouses, then collecting into drains that send it directly to specific collection tanks, and then whatever is still left over trickling off the sides of the building and winding all the way down to the street.

Unfortunately, this is pretty much how the Fed’s money printing system actually works.

Like so.

The Federal Reserve creates new money. But it doesn’t mail checks to every American. Instead, that money enters the economy through the banking system. Banks get it first. They lend it to large corporations, hedge funds, private equity firms, and government contractors. These players use it to buy assets: stocks, bonds, real estate, companies.

What happens next? Asset prices rise.

Only later, after some of the money has worked its way through the system, does it trickle into the broader economy. Businesses eventually raise wages. But by then, prices have already adjusted upward.

Take a moment and look at this visual:

Like the water pooling and collecting and being diverted until a small trickle is left to make its way to street level, the rain of new money is the same.

Those closest to the money spigot (banks, financial institutions, large corporations) get to spend new dollars before prices adjust. They buy assets and then the prices rise. As a result, their wealth increases.

Those furthest from the spigot (wage earners, savers, retirees on fixed incomes) get the new money last, if at all. By the time it reaches them, prices have already risen. Their purchasing power has decreased.

Same new dollar. Opposite outcomes. (And while it’s not the only factor, it’s a big one.)

This helps explain why productivity and wages diverged after 1971.

Workers kept producing more. But the gains from that productivity flowed to asset owners more than wage earners. New money created by a now-unconstrained Fed inflated stock prices, real estate values, and bond portfolios. It made the rich richer.

Meanwhile, wages stagnated in real terms (adjusted for inflation). The average worker’s paycheck might have grown in nominal dollars, but their purchasing power barely budged. Housing got more expensive. Healthcare got more expensive. Education got more expensive. And eventually everything, including insurance and groceries, too.

The productivity gains were real. But the wage gains lagged so severely, they were almost an illusion.

And here’s the hardest part: It’s a well known and unfortunate outcome of how the system works, but there is no incentive to change it.

New money doesn’t enter evenly. It enters through specific channels. And that creates winners and losers over time.

But why won’t they just fix the problem? Make it fair for everyone?

Well, the problem is not just the system itself, the problem is now math.

📉 Why This Won’t Fix Itself

At this point, you might be thinking: Okay, I get it. The system is tilted. But couldn’t the government just... stop? Couldn’t they balance the budget, pay down the debt, and return to some kind of fiscal sanity?

I used to wonder the same thing.

Then I watched the last 30 years of American politics.

The US federal government currently has over $38 trillion in debt. That’s roughly $114,000 for every man, woman, and child in America. More than 130% of GDP. The interest payments alone now exceed $1 trillion per year, more than we spend on defense.

And it’s accelerating. We’re adding north of $2 trillion to the debt every single year. Not paying it down. Adding to it.

Now here’s where it gets fun.

Just this week, President Trump proposed increasing the defense budget to $1.5 trillion for 2027. That’s up from $901 billion in 2026. A 67% increase. In one year. To build a “Dream Military.”

Meanwhile, the House just passed a bill to extend Obamacare subsidies for three more years, with 17 Republicans crossing the aisle to vote with Democrats. The Senate says it’s dead on arrival, but the pressure is on. Neither party wants to be blamed when premiums double.

You know what neither party is proposing?

Spending less.

Republicans want to spend on defense and tax cuts. Democrats want to spend on healthcare and social programs. Both will tell you with a straight face that their spending is essential and the other side’s is reckless. Both will add trillions to the debt without blinking.

This isn’t a partisan observation. It’s just math.

In my lifetime, we’ve had Republican presidents, Democratic presidents, split congresses, unified congresses, budget deals, sequesters, debt ceiling showdowns, government shutdowns, and approximately ten thousand politicians promising fiscal responsibility.

The debt went from $1 trillion to $38 trillion.

And here’s the part that most people miss. It’s not just the debt. It’s the money itself.

In August 1971, when Nixon closed the gold window, the total M2 money supply in the United States was about $710 billion. That’s all the money in circulation: cash, checking accounts, savings deposits, everything.

Today? M2 sits at $22.3 trillion.

That’s a 31x increase. Over 3,000% more dollars sloshing around the system than before the constraint was removed.

Look at that curve. Especially what happened in 2020. The Fed printed nearly $5 trillion in two years. They called it "emergency measures." Problem is, the emergency is long over, yet the money is still here.

Now think about what this means for your savings.

The M2 money supply has grown at roughly 6.6% annually since 1971. Your savings account? About 4% if you’re lucky. Maybe 5% in a high-yield account.

You’re not keeping up. You’re falling behind. Every year.

This is why the price of everything feels like it keeps getting further out of reach. It’s not that houses and healthcare and education got 31 times better. It’s that there are 31 times more dollars chasing them.

About the math and incentives, the US has a few limited options:

Option 1: Austerity. Slash spending. Raise taxes. Run budget surpluses for decades. Pay down the debt the old-fashioned way.

This would require cutting Social Security, Medicare, defense, and virtually every government program simultaneously while raising taxes on everyone. It would be brutally painful. It would cause a severe recession. And it would require politicians to tell voters they’re getting less while paying more.

When one party wants $1.5 trillion for defense and the other is fighting for endless healthcare subsidies? When the debt ceiling debate becomes a hostage negotiation every two years?

Yeah, not happening.

Option 2: Raise Taxes. This is the one that sounds reasonable until you do the math.

The federal government currently collects about $5 trillion per year in revenue. We’re running deficits of $2 trillion or more. To close that gap through taxes alone, you’d need to increase revenue by 40%.

But here’s the problem: when you raise taxes significantly, you don’t just collect more money. You change behavior. Businesses invest less. Entrepreneurs take fewer risks. Capital flows to lower-tax jurisdictions. High earners restructure, relocate, or retire early. The tax base itself shrinks.

This isn’t theory. France tried a 75% top tax rate in 2012. The result? Wealthy citizens fled to Belgium and Switzerland, revenues disappointed, and they abandoned it within two years.

And we’re watching it happen in real time right here at home.

California and New York are experiencing capital flight just from the threat of new tax policies. Hedge funds are relocating to Florida and Texas. Tech founders are moving to Miami and Austin. High-net-worth individuals are restructuring their residency before the tax bills even pass. The mere possibility of higher taxes is enough to send productive capital running for the exits.

These aren’t hypotheticals. These are moving trucks.

And even if you could squeeze more revenue out of the economy without killing productivity, you’d still need Congress to agree on who pays. Tax the rich? They have lobbyists, accountants, and private jets to Florida. Tax corporations? They pass it to consumers or move headquarters offshore. Tax the middle class? Good luck winning reelection.

The reality is that federal tax revenue has averaged around 17-18% of GDP for decades, regardless of the top marginal rate. Whether the top rate was 90% in the 1950s or 37% today, the government collects roughly the same share of the economy. It’s called Hauser’s Law, and it suggests there’s a natural ceiling to how much you can extract through taxation.

So even in the best case, raising taxes might nibble at the edges of the deficit. It won’t solve a $2 trillion annual hole. And it certainly won’t touch $38 trillion in accumulated debt.

Not happening.

Option 3: Default. The US government simply refuses to pay its debts. Treasury bonds become worthless. The dollar collapses. Global financial system implodes. Every pension fund, bank, and foreign government holding US debt gets wiped out. Civilization-ending stuff.

Definitely not happening.

Option 4: Debasement (aka the Soft Default). Create new money to service the old debts. Let inflation quietly shrink the real value of what you owe. The debt stays the same in nominal terms, but the dollars it’s denominated in become worth less and less.

This is the only option that doesn’t require political courage.

This is the only option that doesn’t show up clearly on anyone’s bill.

This is the only option that lets politicians keep spending while appearing to “manage” the debt.

Which option do you think they’ll choose?

They’ll print. They always print. They have to print.

This isn’t cynicism. It’s a reinforcing pattern.

Every major economy in history that has wound itself into this position has eventually chosen debasement. Not because they wanted to. Because it was the only door that wasn’t barricaded shut.

The Fed will insist that they’re committed to price stability. They’ll raise rates and publicly condemn inflation. And when the next crisis hits (and it will), they’ll print trillions more. They did it in 2008. They did it in 2020. They’ll do it again.

It’s not a conspiracy. It’s an incentive structure. The people making these decisions don’t suffer the consequences. They own assets. They’re on the right side of the Cantillon Effect. They’ll be fine.

The question is: will you?

Because here’s what happens if you do nothing.

If you keep your savings in dollars, in a bank account earning 2, 3 or even 4% while the money supply grows at 6.6%, you’re losing ground every year. Not dramatically. Not in a way that shows up on a statement. Just slowly, invisibly, like a leak you don’t notice until the basement is flooded.

Here’s an illustration of the effects of a 2.6% gap between interest on savings and money expansion:

The result of compounding that effect over decades is simply devastating.

As for the wage-productivity gap we started with…

That’s not mere history to be studied. It’s still happening. It’s happening to you right now. Every year your paycheck buys a little less house, a little less education, a little less healthcare, a little less retirement.

And it is not an accident. That’s the system working as designed.

💰 What the Wealthy Already Know

Here’s something that honestly took me years to understand. Even being on Wall Street and in the ,middle of the money making machine.

I cut myself some slack because my parents (who were from extremely poor neighborhoods in NYC) never talked about money or investing. They were not taught about the system themselves. And so, it took me a few years being around all those people, who were taught it (by their wealthy parents and friends) and did understand the game, to catch up.

In hindsight, the lesson was so simple: Rich people don’t get rich by earning more dollars. They get rich by owning things that go up when dollars go down.

Read that again.

This is the secret hiding in plain sight. The wealthy don’t save in cash. They save in assets. Stocks, real estate, businesses, land, gold. Anything that absorbs the new money rather than being diluted by it.

They’re not smarter than you. They just understand the game.

When the Fed prints, asset prices rise. When asset prices rise, owners get richer. When owners get richer relative to workers, the gap widens. It’s not complicated. It’s just not taught.

If you’ve been reading The Informationist for a while, you’ve heard me talk about this before. I’ve written about the debasement trade. I’ve quoted Ray Dalio’s “cash is trash” thesis more times than I can count. I’ve pounded the table on gold, on Bitcoin, on positioning for what’s coming.

So, I’m not going to repeat all of that today.

But I do want to say something about this particular moment, because I think it matters.

Right now, gold is trading at all-time highs of $4,500 and silver has ripped to the nosebleed level of $80 per ounce. Central banks around the world are accumulating gold at a pace we haven’t seen in decades. The market is telling you something.

Meanwhile, Bitcoin is lagging. The Magnificent 7 tech stocks are hovering at all-time highs. And the Fed is signaling uncertainty about rate cuts in 2026.

What do you do with that?

Here’s my honest answer: I don’t know exactly what happens next. Neither does anyone else.

Maybe the stock market corrects 20% this year and drags Bitcoin down with it. Maybe inflation spikes again and the Fed reverses course. Maybe we get a soft landing and everything grinds higher.

I’ve been doing this for over 30 years, and if there’s one thing I’ve learned, it’s that short-term predictions are a fool’s game.

But here’s what I do know.

The debt isn’t going away. The deficits aren’t shrinking. The incentives haven’t changed. Whether it’s this year or next year or five years from now, the trajectory is the same: more money creation, more debasement, more wealth transfer from savers to owners.

That’s not a prediction. It’s simple arithmetic.

So I don’t try to time it. I position for it.

I own gold because it’s been a store of value for 5,000 years and central banks are buying it hand over fist. I own Bitcoin because it’s the first digitally scarce asset in history, and over the long arc, it has tracked money supply expansion almost perfectly. I own real estate because property absorbs inflation and generates income in depreciating dollars. I own equities because businesses reprice their goods and services as the currency weakens.

Do these assets go down sometimes? Absolutely. Bitcoin could drop 40% tomorrow in a risk-off selloff. Gold and silver can and likely will be volatile. Real estate is illiquid. None of this is a straight line.

But that’s exactly why this is about discipline, not prediction.

The point isn’t to catch every move. The point is to be positioned correctly for the long game. To own things that benefit from debasement rather than being destroyed by it. To stop thinking like a saver and start thinking like an owner.

Dalio calls it the “beautiful deleveraging” (when it works) or the “ugly deleveraging” (when it doesn’t). Either way, the playbook is the same: you don’t want to be holding the currency. You want to be holding the assets.

I don’t know what the Fed will do this year. I don’t know if Trump’s $1.5 trillion defense budget passes or if the ACA subsidies get extended or if we have another debt ceiling crisis. I don’t know which party will control Congress after the midterms.

But I know the direction.

More debt. More deficits. More printing. More debasement.

So, let me bring this full circle.

We started with a simple question: what happened in 1971?

Now you know.

Nixon severed the dollar’s link to gold, removing the constraint on money creation. The government and Fed gained the ability to print without limit. That new money flowed to asset owners first, inflating their wealth, while wages stagnated in real terms. The productivity gains were real. The wage gains were an illusion.

This wasn’t a bug. It was a feature. And it’s still running.

The gap between productivity and wages isn’t closing. The debt isn’t shrinking. The printing isn’t stopping. Gold at $4,500 tells you everything you need to know about what the market thinks is coming.

You can be angry about this. I was, for a long time. But anger doesn’t pay the bills. Understanding does.

So take what you’ve learned today. Look at your own balance sheet. Ask yourself: am I positioned like an owner, or like someone hoping the system will be fair?

Because the system isn’t fair. It never was.

But now you know the rules.

And now you can play the system, too.

That’s it. I hope you feel a little smarter knowing what happened in 1971 and why it still matters today.

If this piece helped you see things differently, share it with someone you care about. A friend, a family member, a coworker who’s frustrated that they’re working harder and falling behind. Sometimes the most valuable thing you can give someone is clarity.

And as always, feel free to hit reply and let me know what you think.

Talk soon.

James ✌️

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Today’s Bullets:

• What Is TLT (And Why Should You Care)?

• The Mechanics of Short Selling

• The Most Crowded Trade on Wall Street

• Investment Implications (And What to Do About It)

Inspirational Tweet:

If you have not already heard or read about it, there’s a trade that hedge funds have piled into, deeper than any time in at least 15 years.

They’re calling it “the most crowded trade on Wall Street.”

But it’s not some random meme stock or AI moonshot. It’s the most important government bond ETF in the world.

The ticker? TLT.

The trade? Betting that long-term interest rates will stay high, or go even higher.

The problem? When everyone crowds onto one side of a boat, even a small wave can cause a big shift.

So what exactly is this trade? How does shorting it actually work? And what exactly does this crowded positioning mean for your portfolio?

All good questions, and ones we will answer, nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a look at the most crowded trade on Wall Street with this Sunday’s Informationist.

Partner Spot

Bitcoin Is the Greatest Asymmetry

As billions of people compete for a fixed supply of 21 million coins while fiat currency supplies continue to expand, bitcoin’s risk-reward profile stands apart. On January 7 at 10 AM CT, join Unchained and Parker Lewis for an online video premiere exploring the forces shaping bitcoin’s opportunity today and what current market and policy conditions may mean going forward.

A talk originally given on December 10th at the Old Parkland debate chamber in Dallas, Parker covers:

• Why bitcoin is fundamentally asymmetric, grounded in first principles

• How probability—not short-term price—shapes the risk-reward profile

• What current market conditions and Fed policy mean for bitcoin in 2026

If you want a clearer framework for thinking about bitcoin’s opportunity and the risks of overlooking it, this is the talk to share with friends and family.

Tuesday, January 7 at 10 AM CT — online, free to attend. Register now:

Register Now

💸 What Is TLT (And Why Should You Care)?

Before we get into the trade itself, let’s make sure we’re all on the same page.

TLT is the ticker symbol for the iShares 20+ Year Treasury Bond ETF, managed by none other than BlackRock. It’s one of the easiest and most popular ways for investors to get exposure to long-duration US Treasury bonds. Specifically, bonds with maturities of 20 years or more.

Why does this matter?

Because long-term Treasury yields are the heartbeat of the entire financial system. They influence everything from your mortgage rate to corporate borrowing costs to how much the US government pays to service its growing mountain of debt.

Here’s the simple relationship between those bonds and the TLT share price: when long-term yields rise, TLT falls. When yields fall, TLT rises.

Translated: when interest rates rise, TLT falls and vice-versa.

That’s it. TLT is essentially a bet on the direction of long-term interest rates.

With nearly $48 billion in assets under management and about 550 million shares outstanding, TLT is the single most liquid way for most investors to express a view on the long end of the yield curve.

So when institutional traders want to bet that rates are going higher, or hedge their portfolios against rising yields, they often do it by shorting TLT.

Which brings us to a question I am often asked by regular everyday non-professional investors.

What does it actually mean to “short” something, and how does it work?

📉 The Mechanics of Short Selling

OK, so everyone keeps hearing about “shorts” and “short interest” and “crowded trades.” But what does shorting actually mean?

If you do not understand this, you are not stupid, it’s a bit confusing to anyone who is new to the idea.

So, let’s start from scratch.

Put simply, when you short something, you’re betting that it goes down instead of up.

But how do you actually profit from a decline? You can’t just buy something and hope it falls. The mechanics are completely opposite. You have to borrow shares, sell them immediately, and hope to buy them back later at a lower price.

Sounds straightforward enough. But there’s a big detail and risk to be aware of for any short seller.

See, when you buy a stock the normal way, the worst that can happen is it goes to zero. You lose 100%. Done. But when you short? Your losses are theoretically unlimited. Because there’s no ceiling on how high a price can go.

And it gets worse. If the trade moves against you, your broker can force you to close the position at the worst possible time. And if that happens to a bunch of short sellers at the same time, you get a feedback loop that can send prices parabolic.

This is exactly what happened to Melvin Capital after it rang up massive losses from shorting GameStop (GME) in 2021. And believe me, they weren’t the only casualty from that trade.

As you know, hedge funds are notorious for shorting stocks. Hence the label ‘hedge’ fund.

Remember last week’s newsletter? Where we talked about hedge funds piling on massive leverage in their portfolios? Right. This is part of that.

If you want to go back and peek at exactly how, here is the link to that issue:

TL;DR: Hedge funds are using about $700 billion is securities lending primarily for short selling right now.

Now you may be asking, where do the borrowed shares come from? Who’s on the other side of this trade? And what does any of this have to do with your 401(k)?

Let me show you exactly how it all works. Take a few minutes to look at this infographic first:

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Today’s Bullets:

• What Is Hedge Fund Leverage?

• Repo Borrowing: The Overnight Money Machine

• Prime Brokerage: The Big Bank Credit Line

• Securities Lending and Derivatives: The Hidden Web

• The LTCM Parallel: When Leverage Breaks

Inspirational Tweet:

The New York Fed quietly dropped this chart the day after Christmas, and I almost spit out my egg nog.

Not really, I don’t drink that stuff. Almost as nasty as that chart. 😝

Look at those lines.

Hedge fund borrowing has tripled over the past decade. Repo borrowing alone is approaching $3 trillion. Prime brokerage is nearing $3 trillion more. All three sources of leverage are at or near record highs.

Of course, the Fed is publishing data that’s already a few months old. The updated numbers are even worse. Combined, hedge funds have now borrowed over $7 trillion.

And here’s what concerns me: most of this borrowing is financing a handful of crowded trades, using overnight loans that have to be rolled every single day.

If that sounds like a recipe for disaster, well, we’ve seen this movie before. It was called Long Term Capital Management. And it nearly broke the entire financial system.

So how exactly are these funds borrowing all this money? How does their leverage actually work? And should you be worried about what happens to your portfolio if and/or when it all unwinds?

Good questions, important ones. And we will answer each of them, nice and easy as always, here today.

Now, a quick note: this is the last Informationist of 2025, and I wanted to make it a good one. It’s a bit longer than usual, with more graphics than normal. I’ve been working on a new visual style to make these complex topics easier to digest, and I think you’re going to like them.

So, with that, pour yourself a big cup of coffee, settle into your favorite chair, and take your time with this one. No rush. Because we are closing out the year by getting you smart on the mountain of leverage hedge funds are piling up and why it could matter for your own portfolio someday soon.

Partner spot

Bitcoin Is the Greatest Asymmetry

As billions of people compete for a fixed supply of 21 million coins while fiat currency supplies continue to expand, bitcoin’s risk-reward profile stands apart. On January 7 at 10 AM CT, join Unchained and Parker Lewis for an online video premiere exploring the forces shaping bitcoin’s opportunity today and what current market and policy conditions may mean going forward.

A talk originally given on December 10th at the Old Parkland debate chamber in Dallas, Parker covers:

• Why bitcoin is fundamentally asymmetric, grounded in first principles

• How probability—not short-term price—shapes the risk-reward profile

• What current market conditions and Fed policy mean for bitcoin in 2026

If you want a clearer framework for thinking about bitcoin’s opportunity and the risks of overlooking it, this is the talk to share with friends and family.

Tuesday, January 7 at 10 AM CT — online, free to attend. Register now:

Register Now

🤓 What Is Hedge Fund Leverage?

Let’s start with the basics, shall we?

Leverage is simply using borrowed money to amplify your bets. If you put down $100 of your own money and borrow $900 more, you’re leveraged 10:1. If your investment goes up 10%, you don’t make 10%, you make 100% on your original money.

Beautiful, right?

But here’s the thing. If that investment goes down 10%, you don’t lose 10%. You lose everything. Your entire investment. Gone.

This is the double-edged sword of leverage. It magnifies gains and losses.

Now, you and I might use a little leverage when we buy a house with a mortgage. Maybe we put 20% down and borrow the rest. That’s 5:1 leverage, and banks are pretty comfortable with that.

Hedge funds? They play a different game entirely.

According to the latest data from the Office of Financial Research, total hedge fund borrowing hit a record $7 trillion in Q3 2025. That’s up 160% since 2018.

And gross leverage among hedge funds recently hit 294%, a five-year high.

Put simply, for every dollar of actual investor capital, hedge funds are controlling nearly three dollars of assets. Some funds, particularly those running certain arbitrage strategies, are leveraged 50:1 or even 100:1.

Good Lord.

But not all leverage is created equal. As you can see in the chart, hedge fund borrowing breaks down into three categories: repo borrowing (green), prime brokerage (gray), and other secured lending (gold).

Let's walk through each one, so you understand exactly what these funds are doing and how.

And then we will walk through how it can all affect you.

🧐 Repo Borrowing: The Overnight Money Machine

See that green section of the bars that’s been growing relentlessly? That’s repo borrowing, now sitting at $3.1 trillion and climbing.

So what exactly is repo?

I’ve spoken quite a bit about repos before, but for those of you who are new around here or for anyone who wants a refresher, it’s pretty simple.

Repo is short for repurchase agreement. It’s essentially a short-term collateralized loan, but structured as two transactions.

Let’s say a hedge fund owns Treasury bonds (many own a lot of them). Now it ‘needs’ cash to make more investments. So it enters a repo: it “sells” Treasuries today and agrees to buy them back tomorrow (or in a few days) at a slightly higher price. That price difference is effectively the interest on the cash it borrowed.

The hedge fund gets cash today, the lender holds Treasuries as collateral, and then the transaction reverses at maturity.

Simple enough.

But here’s where it gets really spicy — and dangerous for everyone.

Read more

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🫶 If this email was forwarded to you, then you have awesome friends, click below to join!

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👉 And you can always check out the archives to read more of The Informationist.

Today’s Bullets:

• What Is 23/5 Trading (And Why Now)?

• The $17 Trillion Force Behind the Move

• Seven Outcomes You Need to Know

• What This Means for Your Portfolio

Inspirational Tweet:

The stock market is on the verge of changing in a way it hasn’t in over a century.

And Wall Street is losing its mind over it.

One major bank’s trading desk called it “literally the worst thing in the world.”

Perhaps that sounds a bit dramatic, but it definitely raises some questions.

Like, who actually benefits from a stock market that never sleeps? And, is this about serving investors better, or is it just all about fees, fees and more fees for you and me?

Well, we are going to dig into this and more today, because this actually will affect you and your portfolio, whether you are on board with it or not.

So go ahead and pour yourself a big cup of coffee, and settle into your favorite chair as we explore what happens when the world’s largest stock exchange decides that eight hours of rest is seven hours too many with this Sunday’s Informationist.

Partner spot

Bitcoin in 2025: A Year in Review—A shifting landscape in law, liquidity, and legacy

Was 2025 just underwhelming, or did bitcoin quietly lay the groundwork for an extended bull run?

Watch and listen to Conner Brown, James Lavish, and Preston Pysh join Unchained for a high-signal breakdown of the forces that defined bitcoin this year.

They’ll cover:

• How 2025’s macro and liquidity shifts reshaped bitcoin’s market footing

• The policy developments in Washington that carried the most weight

• What this year’s inflection points reveal about bitcoin’s long-term direction

If you want clarity on what 2025 really meant for bitcoin—and how to think about the road ahead—this is the event.

It’s all online and free to attend!

Watch Now

🤓 What Is 23/5 Trading (And Why Now)?

Last week, Nasdaq filed paperwork with the SEC to extend trading hours from 16 hours (including current after-hours trading) to 23 hours per day, five days a week.

If approved, the new schedule would launch in the second half of 2026.

Before we get into what’s changing, let’s look at how it works today.

The Current Structure:

Right now, Nasdaq operates three daily sessions during weekdays:

• Pre-market: 4:00am to 9:30am Eastern

• Regular market: 9:30am to 4:00pm Eastern (the famous opening and closing bells)

• Post-market: 4:00pm to 8:00pm Eastern

That’s 16 hours of trading.

Then the markets go dark. From 8pm to 4am, eight full hours, there’s no trading on major US exchanges.

Sure, some off-exchange venues like Blue Ocean ATS allow overnight trading for those who really want it. But these are small, super illiquid, and most investors don’t even know they exist.

For all practical purposes, US equity markets sleep from 8pm to 4am.

The New Structure:

Under Nasdaq’s proposal, here’s what changes:

• Day session: 4:00am to 8:00pm Eastern (same window as today, just consolidated into one session)

• Maintenance break: 8:00pm to 9:00pm Eastern (one hour for clearing, testing, and settlement)

• Night session: 9:00pm to 4:00am Eastern

The trading week would kick off Sunday at 9pm and wrap up Friday at 8pm.

That’s 23 hours a day, five days a week.

One hour of rest. That’s it.

Good Lord.

The opening bell at 9:30am and closing bell at 4pm would remain, but they would be more symbolic than functional. And the trading action around them? That looks to be nothing like before.

How?

Well, let’s have a peek into the history of US exchanges first, shall we?

First of all, official market trading hours on major exchanges like the NYSE and Nasdaq have barely changed in over 100 years.

If you’ve even seen the movie Wall Street with Michael Douglas and Charlie Sheen, then you know that, traditionally, trades were placed in person on trading floors by brokers scribbling orders on paper. When I was a clerk on the floor of the NYSE in 1994, this is exactly how we did it.

Chaos. Mayhem. Absolutely physically exhausting.

Markets closed because humans needed to go home and rest. The closing bell wasn’t merely symbolic. It was logistical. And back in the old old days, someone had to feed the horses.

Flash forward, and telephones eventually replaced shouting across the floor. Then computers replaced telephones. Now algorithms execute millions of trades per second without a single human involved.

And yet, somehow, we’ve kept the same basic schedule that made sense when Teddy Roosevelt was president.

The machines don’t need sleep. The question is: do we? Or more precisely, do the exchanges care whether we do?

And why is this happening in 2026 and not 2006 or 2016?

Three reasons, and only one of them is about you.

First, the plumbing is finally ready. The Depository Trust and Clearing Corporation (DTCC), the central hub that settles stock trades, is scheduled to roll out 24-hour clearing for equities by the end of 2026. Without that infrastructure, extended trading would be a mess of unsettled trades and counterparty chaos.

Second, the competition is heating up. The New York Stock Exchange announced its own plans for 22-hour trading earlier this year, with initial SEC approval already in hand. Cboe Global Markets is also pushing into extended hours.

Bottom line, Nasdaq can’t afford to sit on the sidelines here.

Third, and this is the big one, there’s $17 trillion worth of demand knocking on the door.

But we’ll get to that in a moment.

First…

Not everyone is celebrating.

Wells Fargo’s trading desk sent a note to clients that called it “literally the worst thing in the world,” arguing it “single-handedly gamifies the stock market even more than it has already become.”

Ouch.

Their concern? Liquidity. Or rather, the lack of it.

See, most trading volume already clusters around two windows: the market open and the market close. That’s when institutions are most active, when spreads are tightest, and when price discovery actually works.

Look at this chart.

Called the “U-shape” pattern, it’s one of the most well-documented phenomena in market microstructure research. Volume spikes at the open, drops during the middle of the day, then spikes again at the close.

Stretching trading hours doesn’t magically create more liquidity. It just spreads the existing liquidity thinner across more hours.

As Wells Fargo put it: “Most of the complaints that I hear on market structure are about how bad volumes are as most comes in around the open and close. And the industry move is to then elongate the trading day even further? This makes no sense at all.”

Good point.

But here’s the thing: this isn’t realy what Wall Street wants.

It’s about what $17 trillion of foreign capital wants.

Let’s talk about that, because it is critical to the equation and will undoubtedly impact US investors, too.

🧐 The $17 Trillion Force Behind the Move

Here’s a number that may explain exactly what’s driving this continued move to extending more and more hours of trading in US markets: foreign investors now hold approximately $17 trillion in US equities.

Not total foreign investment in all US assets. Just stocks.

According to the latest Treasury data, foreigners now own about 18% of the entire US stock market, a record high. And that number has been climbing steadily for years.

Now here’s the question that answers why Nasdaq is doing this: what do those investors want?

Read more

🙌 The Informationist takes one current event or complicated concept and simplifies it for you in bullet points and easy to understand text.

🫶 If this email was forwarded to you, then you have awesome friends, click below to join!

Subscribe now

👉 And you can always check out the archives to read more of The Informationist.

Today’s Bullets:

• The 10-Year Treasury Sets The Mark

• Term Premium Awakens

• The Treasury’s $10 Trillion Problem

• Investment Implications (And What to Do About It)

Inspirational Tweet:

If you’ve been following the news lately, you’ve likely heard real estate brokers and some politicians proclaim, “If the Fed cuts rates, mortgages will get cheaper!”

Except the Fed did cut rates and mortgages are still expensive.

As are car loans and credit card rates.

So what gives?

See, there’s something the talking heads on TV don’t tell you. When the Federal Reserve cuts rates, they’re cutting the overnight rate—the rate banks charge each other for one-day loans.

Your mortgage? Your car loan? Your credit card?

Those may or may not respond to that overnight rate at all, as we are seeing now.

But why is this happening? What’s driving the disconnect? And what can you do about it?

All good questions, and ones we will answer—along with some others—nice and easy as always, here today.

So, pour yourself a big cup of coffee and settle into your favorite seat for a look into the great Fed rate-cut illusion with this Sunday’s Informationist.

Partner spot

Bitcoin in 2025: A Year in Review—A shifting landscape in law, liquidity, and legacy

Was 2025 just underwhelming, or did bitcoin quietly lay the groundwork for an extended bull run?

On December 17 at 1 PM CST, Conner Brown, James Lavish, and Preston Pysh join Unchained for a high-signal breakdown of the forces that defined bitcoin this year.

They’ll cover:

• How 2025’s macro and liquidity shifts reshaped bitcoin’s market footing

• The policy developments in Washington that carried the most weight

• What this year’s inflection points reveal about bitcoin’s long-term direction

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🤫 The 10-Year Treasury Sets The Mark

Let’s start with the basics, because understanding this is crucial to understanding why Powell’s rate cuts aren’t helping you at all.

The Federal Funds Rate is what the Fed directly controls. It’s the overnight rate, or the rate banks charge each other for very short-term loans, typically hours to days.

Great for bankers. Great for hedge funds doing overnight repo (borrowing dollars against their US Treasuries) trades.

Not so relevant for you.

Because when you borrow money for years or decades, like a mortgage or car loan, lenders need compensation for duration risk. I.e., the risk that inflation, fiscal chaos, or some other disaster eats into their returns over that longer period of time.

The 10-Year Treasury is where that risk gets priced.

And here’s the critical point that the TV talking heads forget to explain: the Fed does not control the long end of the yield curve through the Fed Funds Rate.

Bond investors do.

The Fed can set the overnight rate wherever it wants. But the 10-Year yield? That’s determined by millions of investors around the world making bets about inflation, government debt, and economic risk over the next decade.

And right now, those investors are demanding more compensation. Not less.

Take a look at this chart to see what I mean:

Starting in September 2024, the Fed began its rate-cutting cycle. You can see the blue stepped line clearly marching downward—50 basis points in September, 25 in November, 25 in December. The Fed has cut a full 100 basis points.

Now look at the white line. That’s the 10-Year yield.

It did the exact opposite.

When the Fed started cutting in September, the 10-Year was sitting around 3.6%. By January, it had climbed to nearly 4.8%.

The Fed cut 100 basis points. The 10-Year rose over 100 basis points.

That’s not supposed to happen. In a normal easing cycle, long-term rates fall along with short-term rates. That’s kind of the whole point of cutting rates, to ease financial conditions across the entire economy.

But we’re not in a normal easing cycle.

And what does this mean for you?

Take a look at this chart of the 30-Year Fixed Mortgage Rate this fall:

The Fed cut rates in September 2025. They cut again in November. And again in December.

And the 30-Year mortgage? It’s sitting at 6.31%. Barely moved. In fact, look at December—after the latest Fed cut, mortgage rates didn’t budge at all.

So much for relief.

The spread between the 10-Year and Fed Funds is now at its widest level since November 2022.

What does that mean

It means the bond market is sending a very clear message: We don’t believe you, Jay.

But why? Why are bond investors refusing to follow the Fed’s lead?

😤 Term Premium Awakens

The answer comes down to something called the term premium.

This is the extra yield investors require to lock up their money in long-term bonds instead of rolling over short-term bills (Translated: Short Term Bills mature quickly, often in days or weeks, and so an investor most keep buying them over and over to stay invested, aka rolling over).

And so, think of the extra yield required as a “risk fee” for duration (longer investment period).

Normally, if investors believe inflation will stay low and the government will manage its finances responsibly, they don’t need much extra compensation. Term premium stays low or even negative—meaning investors are actually paying for the privilege of locking in rates.

But make not mistake: that era is over.

Take a look at this chart:

This is the Adrian, Crump, and Moench Term Premium model from the New York Fed. It’s the gold standard for measuring this.

You can see the term premium peaked at over 5% in the early 1980s—when inflation was raging and Volcker was jacking rates to the moon. Then it went on a 40-year slide, eventually going negative in the mid-2010s through 2020.

Wait, you may be asking, why did it go negative?

Good question, and the answer is: Quantitative Easing. The Fed was buying trillions in long-term bonds, artificially suppressing yields. Investors didn’t need extra compensation because the Fed was their backstop.

But look at what’s happened since 2020:

The term premium has gone from minus 1.2% in 2020 to plus 0.71% today.

That’s a 190 basis point swing.

This explains most of the “mystery” of why the 10-Year hasn’t followed the Fed down. Investors are demanding more compensation to hold long-term government debt. Not less.

But why are investors suddenly demanding more compensation?

Two main reasons: inflation expectations and fiscal dominance.

On Inflation

When the Fed cuts rates while inflation remains above target, bond investors get nervous. Lower rates typically stimulate the economy and can reignite inflationary pressures.

But it’s not just rate cuts that have investors concerned.

On December 1st, the Fed officially ended Quantitative Tightening. And just this month, they announced they’re resuming bond purchases, $40 billion in T-Bills to start, with an ongoing program of around $20 billion per month after that.

Now, you’ll hear plenty of debate on Twitter about whether this is “traditional QE” or “reserve management” or “Not-QE QE” or whatever term makes the Fed feel better about itself.

Let’s be honest here, shall we? Something the Fed seems to struggle with lately.

That fact is, the term they use is merely semantics. Or perhaps purposeful obfuscation is a better description.

Here’s what matters: The Fed is expanding the money supply. Period.

When the Fed buys bonds, they create new dollars out of thin air to do it. That’s literally how it works. Whether you call it QE or reserve management or “liquidity support” doesn’t change the mechanics. More dollars chasing the same goods and assets equals inflation.

Bond investors see this and realize: They’re cutting rates AND printing money? Inflation isn’t dead, they’re fueling it.

On Fiscal Dominance

This is quite honestly the bigger issue. Fiscal dominance occurs when government debt levels become so large that monetary policy becomes subordinate to fiscal policy. The Fed can no longer act independently because the government’s borrowing needs overwhelm everything else.

I know many have heard this from m before, but for those who are new around here or who haven’t heard me talk about the debt spiral, it’s simple:

The US now has $38.5 trillion in debt. Annual deficits are running $2 trillion. Interest payments alone are approaching $1 trillion per year. There’s no political will to cut spending, none. And the Treasury has to refinance roughly a third of that debt every single year.

And here’s the best part: Why do you think the Fed just announced they’re buying T-Bills again?

It’s not because the economy needs stimulus. It’s because the Treasury needs help.

The Fed has become the Treasury’s backstop. Its enabler. Its co-dependent partner in fiscal recklessness. This is fiscal dominance in action. The Fed subordinating its inflation mandate to the government’s borrowing needs.

And if we are pointing the finger here, it isn’t at the Treasury either, as they’re just charged with managing the government’s wildly out of control budget.

The true villain here is Congress, the body that spends all this money.

In any case, bond investors see this and think: The Fed isn’t independent anymore. They’re just printing money to help the government run deficits. And we’re going to demand higher yields to compensate for the inflation that’s coming.

The bond vigilantes, dormant for decades while the Fed ran QE and suppressed yields, are sleeping no more.

And it’s the Fed who has jarred them awake.

💣 The Treasury’s $10 Trillion Problem

OK, but why specifically does the Treasury need the Fed’s help?

Take a look at this chart:

See that 2026 bar? With the 2025 debt maturing, the US Treasury will have over $10 trillion in debt maturing in 2026 alone. That’s about a third of all marketable Treasury debt.

In. One. Year.

Here’s the problem.

For years now, the Treasury has been playing a dangerous game. When rates were near zero during COVID, the smart move would have been to “term out” the debt, i.e., issue lots of long-term bonds and lock in low rates for decades.

Did Janet Yellen do that?

Nah. Instead, she leaned heavily on short-term T-Bills.

Why? Because T-Bills are easy to sell. Money market funds gobble them up. There’s always demand. And it made the interest expense look lower in the short term.

Brilliant financial engineering. World-class can kicking. Or…absolute idiocy. 🤡

Because T-Bills mature fast. Weeks to months. That means the Treasury has to constantly refinance. And when rates are higher (like now), that refinancing costs more.

It’s like having an adjustable-rate mortgage on $10 trillion. Fine when rates are low. Disastrous when they’re not.

The Treasury’s weighted average interest rate on debt has climbed from 2.3% five years ago to over 3.3% today. Net interest payments are now $1 trillion per year. More than we spend on defense.

And so, now the Treasury faces a choice.

Option 1: Keep rolling short-term debt and pray rates come down.

Option 2: Start issuing more long-term bonds to “term out” the debt and reduce rollover risk.

Here’s the catch with Option 2: If they issue more long-term bonds, they’re flooding the market with supply. But:

more supply at the same demand = lower prices = higher yields

They’re trapped.

Some of you may be asking: What if the Fed does Yield Curve Control, like Japan has done for so long? Can’t they just force long-term rates lower?

Good question.

And the answer is yes—technically, they can. Under Yield Curve Control (YCC), the Fed would commit to capping the 10-Year yield at some target level, say, 2%. Any time the yield rises above that target, the Fed steps in and buys bonds to push it back down.

But think about what’s actually happening here. The Fed becomes a bond trader themselves, actively manipulating the market and artificially suppressing rates.

And how do they buy all those bonds?

By printing even more money.

So yes, YCC can push long-term rates lower. But it does so by massively expanding the money supply. And what happens when you massively expand the money supply?

More inflation.

This is the trap. The Fed can either:

1. Let bond investors set rates (and watch yields rise), or

2. Suppress rates through YCC (and create even more inflation)

There’s no free lunch here. Either way, the purchasing power of your dollars gets eroded. In scenario one, you pay higher interest rates. In scenario two, you pay through the silent tax of inflation eating away at your savings.

Japan has been doing YCC for years, and what do they have to show for it? A currency that has lost over 50% of its value against the dollar since 2012. Last year, the yen hit 40-year lows.

YCC isn’t a solution. It’s just choosing which way you want to get squeezed.

The bond market sees all of this. The vigilantes understand the math. The Fed is trapped, the Treasury is trapped, and there’s no way out that doesn’t involve debasing the currency.

And that’s exactly why they’re demanding higher yields.

🏰 Investment Implications (And What to Do About It)

So what does all this mean for everyday Americans?

For borrowers: Rate relief isn’t coming yet. Even if the Fed cuts another 100 basis points, your mortgage rate, car loan rate, and credit card rate are tied to the 10-Year, not Fed Funds. And the 10-Year isn’t going down until the market believes inflation is truly dead and fiscal sanity has returned.

Neither seems likely. In fact, fiscal insanity seems to be accelerating.

That said, high inflation makes dollars cheaper when you are paying back those loans.

For savers: High rates on short-term instruments like money markets and T-Bills may persist even as the Fed cuts. Enjoy the yield while it lasts, but understand that inflation does eat away at your real returns.

For investors: This is where we can make up some ground, if done properly.

Take a look at this long-term chart of the 10-Year yield:

See those red arrows? For 40 years, from 1981 to 2020, the 10-Year yield was in a relentless downtrend. From over 15% at the peak of Volcker’s 1980s inflation fight, it fell and fell and fell, eventually bottoming below 1% during COVID.

Every time yields spiked, they made a lower high. Every time they fell, they made a lower low. It was the greatest bond bull market in history.

That trend has now broken.

Look at the right side of the chart. The 10-Year isn’t making lower highs anymore. It’s making higher highs. The 40-year downtrend line has been decisively cracked.

This isn’t a blip. This is a regime change.

We’ve gone from a world of structurally falling rates to a world of structurally rising rates. From a world where the Fed controlled the narrative to a world where bond investors are taking back control.

What works in a world of higher, stickier rates, persistent deficits, and a Fed that’s printing money to help the Treasury stay afloat?

Hard assets.

When governments run deficits they can’t afford and central banks print money to finance them, currencies get debased. It’s the only way out of the debt trap.

They won’t default. They’ll inflate.

The United States has three options:

1. Default (won’t happen)

2. Austerity (politically impossible)

3. Debasement (the only option)

They will choose door #3. They always do. In fact, with the Fed’s new T-Bill purchase program, they’re already choosing it.

Gold has protected wealth through every currency debasement in thousands of years of being a store of value. It doesn’t produce cash flows. It doesn’t have earnings. It just maintains purchasing power while fiat currencies march toward zero.

Bitcoin is this generation’s digital hard money, it’s more portable, more divisible, more verifiable, and absolutely scarce. Its monetary policy can’t be changed by any government, any central bank, any emergency. There will only ever be 21 million.

Though it is volatile as it is yet in its adoption phase, it is a long-term store of value.

Was about real estate? They’re not making more land, and desirable zip codes always find demand.

Bottom line: the 10-Year yield rising while the Fed cuts isn’t a bug. It’s a feature. The market is telling you that the future has more inflation, more debt, and more money printing than the Fed wants to admit.

So I personally own hard assets as a large percentage of my portfolio.

Gold and Bitcoin.

Mostly Bitcoin.

Because I personally don’t trust the Fed.

I don’t trust the Treasury.

And I don’t trust the incentive system we have in place for our so-called leaders.

I trust math. And I trust scarcity.

And you should too.

That’s it. I hope you feel a little bit smarter knowing about the disconnect between Fed Funds and the 10-Year, why the term premium matters, why the Fed just started buying bonds again, and what it all means for you and your money.

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Talk soon,

James✌️