Skiing in Whistler next week, so taking a short break from the notes. Back on the 16th.

I thought this would ultimately be the reason the U.S. would avoid invading Iran. Trump’s approval heading into the midterms will likely depend heavily on the cost of living, and now gas prices are rising. (@biancoresearch)

These next few charts make a compelling case for gold over bonds. U.S. deficits remain out of control, coming in at 5.8% of GDP in 2025. (BofA)

The Congressional Budget Office expects deficits to continue widening in the years ahead. (BofA)

Meanwhile, the Federal Reserve continues to monetize U.S. debt. (BofA)

Unsurprisingly, in the world described above, bonds have delivered subpar returns. (BofA)

Households are also feeling the squeeze. The rise of populism across many countries reflects that pressure, with incumbents steadily losing voting share. (BofA)

How quickly will military budgets grow in a world defined by increasing geopolitical conflict? (BofA)

The death of the dollar? Expectations of its demise still look largely exaggerated. (BofA)

Could the U.S. economy be reaccelerating? Job switcher wage growth has recently inflected higher. (Apollo)

Anthropic believes it is only beginning to disrupt its total addressable market.(@AndrewCurran_)

And what does this say about society? Adults are getting started later. (a16z)

Oil markets are currently pricing in a short-term disruption, as reflected in the current term structure. The move has been concentrated in near-term maturities, with prices for end-of-year contracts rising only about $3 per barrel.(@MikeZaccardi)

Goldman expects shipping through the Strait of Hormuz to resume next week, with operations fully normalizing by mid-April. (@MikeZaccardi)

Equity markets took their cue from oil and rebounded yesterday as investors faded the latest escalation. Being bearish can sound smart, but buying the dip and fading geopolitical risk has worked repeatedly in recent years. In reality, it is difficult to have a clear edge in moments like this.

Below is an excerpt from PauloMacro:

On the day of the Russia invasion, the S&P 500 gapped down but somehow finished up +1.5%, retested those lows, and then rallied into the end of the quarter. Only then did it absolutely crater through mid-2022.

and Oil spiked ~$8/bbl from $92 to $100, but gave it all back to close flat. The very next day, it was trading at $90—lower than the night before the invasion. Then, just 6 days later, it touched $130.

The big difference here? Russia was exporting 4-5 mb/d back then with zero actual supply loss; they actually pushed more crude onto the water throughout 2022.

Meanwhile the Middle East exports ~15 mb/d through Hormuz, and right now, flows have basically stopped. And unlike Russia, there’s no floating storage to act as a buffer.

That’s the whole story. We should probably stop getting so bogged down in the daily noise and focus on what's actually going down in the real world.

History doesn't have to repeat the 2022 playbook, but it’s definitely something to chew on.

Spiking oil prices have historically been capable of pushing the global economy into recession. (ISABELNET)

It was the best of times…

The past 3.5 years have been about as good as it gets for S&P 500 investors relative to the past 100 years. (@MikeZaccardi)

It was the worst of times… For Tech investors.

At the same time, this has been some of the worst relative underperformance for Tech investors in the past 50 years. (@MikeZaccardi)

Even with the recent outperformance, European equities continue to trade at a significant discount to U.S. markets. (@MikeZaccardi)

Euro area unemployment is at over 25 year lows. (@neilksethi)

This is wild. A house in Oshawa (Greater Toronto Area) sold at a $750k loss, changing hands for $1.05M just 3.5 years later.

Interesting story about one of the best Venture funds ever, you have never heard of (estimated 43-53x).

The fund produced both a 200-bagger and a 500-bagger inside a $12M vehicle fund.

Prediction markets are doing a better job pricing economic forecasts better than the pros:

For the federal funds rate forecasts 150 days (3 FOMC meetings) ahead, Kalshi’s mean absolute error is very similar to that of professional forecasters. But unlike the survey—which provides a snapshot every six weeks of a modal path—Kalshi offers a continuously updating full distribution

. . . We find the Kalshi median and mode have a perfect forecast record on the day before the FOMC meeting, which represents a statistically significant improvement over the fed funds futures forecast.

In other words, while all the forecasters start out about the same, Kalshi’s “continuously updating” forecasts get better and better over time, culminating in a “perfect forecast record” on the day before rates are officially declared. Plus, Kalshi did better than the futures forecast. (a16z)

ETF volumes reached 47% of total market trading yesterday, marking a new five-year high. This suggests investors are increasingly using ETFs for hedging and tactical positioning while maintaining their core exposures.

Korea’s KOSPI fell double digits overnight, triggering circuit breakers, and is now down over 15% in the past two sessions as the memory-chip selloff accelerates. Likely a speculative flush driven by leveraged Korean retail investors. (@zerohedge)

Retail participation in markets continues to surge. Average daily notional traded through Citadel between January 2 and February 13 is running nearly 60% above last year, about 25% above the prior peak in 2021, and double the 2020–2025 average.(Citadel)

January activity alone eclipsed the 2021 retail peak, and the data cited below only runs through mid-January. Market structure is changing. (Citadel)

At the Morgan Stanley TMT conference, Anthropic CEO Dario Amodei reportedly said the company is now running at a $19B revenue run rate, after adding $6B in February alone.

This is remarkable because Morgan Stanley recently published research showing how statistically unlikely the projected growth rates of AI labs actually are.

OpenAI has projected $145B in revenue by 2029. Historical data suggests no public company has sustained that level of growth for five consecutive years in the last 75 years. The forecast implies roughly a 9.5 standard deviation outcome.

These AI labs represent the largest capital bets in the history of capitalism. OpenAI alone expects to burn more than $200B before reaching breakeven.

In late-stage venture markets, AI companies are now consuming more than 50% of all capital raised. (Carta)

If the Korea memory selloff is the top (doesn’t feel like it is), it is interesting to contrast vs the dot com. By March 2000, many internet companies were already collapsing, yet the firms building the infrastructure of the internet kept rallying. Corning, Cisco, JDSU, and Sun Microsystems all made new highs later that summer.(Gavekal)

The dynamic below may help explain the recent Mag 7 underperformance. Cash flows that once funded buybacks are increasingly being redirected toward capex. The shift is now visible in the data. (Citadel)

Another strange datapoint. Since 2020, disability claims in the U.S. have surged dramatically. The question is whether this reflects long-COVID effects, labor market distortions, or the golden age of fraud. (@JeffWeniger)

Monday marked the 38th largest daily move in Brent crude prices since 1990. (DB)

Traffic through the Strait of Hormuz collapsed as insurers refused to provide shipping coverage. The U.S. Development Finance Corporation has stepped in to backstop coverage where Lloyd’s of London pulled back. Either the U.S. gains market share or the solution involves more money printing. Is this a larger gambit to disrupt the London insurance market? (FT)

Signs of liquidity stress have appeared this week as traditional safe havens like gold and Treasuries both declined simultaneously. (John Authers)

In hindsight, heavy energy exposure would have been an excellent trade. More importantly, energy remains one of the few assets that meaningfully diversifies a traditional 60/40 portfolio. It may deserve a permanent core allocation. (@warrenpies)

Strange data out of China. BYD sales are collapsing. Capacity utilization has fallen below 50% and sales are down 41% YoY. That is not noise. (@alojoh)

As flagged last week, Consumer Staples are trading more expensively than the Mag 7. The nuance is cash flow. The Mag 7 are deep in an investment cycle, and the market is starting to question the return profile of that capex. Still interesting. (@MikeZaccardi)

Over the past 30 days, the S&P 500 is down 1.4%, yet the average stock has moved 10% in absolute terms. The index looks calm. Underneath, it is anything but. (@BarbarianCap)

Consensus is still calling for double-digit earnings growth. That optimism is already priced in. With the S&P 500 flat on the year and the Nasdaq down, there is little room for disappointment. (@MikeZaccardi)

The next two weeks are seasonally strong for the S&P 500. (@neilksethi)

European wholesale gas prices jumped more than 20% today. In historical context it is a blip, and still below January levels. Pricing implies the market expects a short conflict. Summer contracts remain far cheaper. Warmer weather is a relief valve.(@DanielKral1)

Historically, geopolitical conflicts have had limited lasting impact on the S&P 500. Markets discount duration, not headlines. (BCA)

This is a granular look at the data but includes some non geopolitical events.

Investors are punishing U.S. sectors most exposed to AI-driven automation. The market is betting that vulnerable business models will struggle to adapt, even if current fundamentals remain stable. (ISABELNET)

Financials were hit last week amid renewed scrutiny of the Private Credit complex. Contagion fears are resurfacing. (BofA)

The average tenure of companies in the S&P 500 keeps falling. Creative destruction is accelerating. AI will likely compress that cycle further. (Apollo)

Despite the noise, fears of a broad rotation out of U.S. equities have not materialized. Capital is rotating within, not necessarily leaving. (Apollo)

Stan Druckenmiller’s positioning:

• Long Korea, Japan, and Brazil

• Long copper on AI demand and tight supply

• Long gold on geopolitics

• Short bonds

The portfolio is no longer AI beta. He is bearish on the dollar but constructive on U.S. growth with disinflation.

He also admits to puking weekly from stress during drawdowns.

A U.S. strike on Iran dominated headlines over the weekend as conflict escalated across the region. Difficult to watch on a human level.

Markets were already on edge. Nvidia delivered another textbook beat and raise, yet the stock fell 5.5% on Thursday, its worst single day decline since April 2025. The move dragged down the Nasdaq and S&P 500 alongside broader AI beneficiaries. The week was further punctuated by Block announcing a 40% workforce reduction, a headline that captured attention well beyond fintech.

Global equities once again outperformed the U.S. Utilities led. Financials lagged.

Rates rallied. U.S. 10Y yields fell 14 bps and Canadian 10Y yields declined 9 bps. Commodities and precious metals extended their rally, with oil and gold responding as expected to rising geopolitical risk.

Oil initially spiked 13% higher at the open before grinding lower as investors sold the headline. History offers perspective. Excluding 2020, the largest one day % increases in Brent Crude by close were:

16/09/2019: 14.6% following the Abqaiq attack
06/08/1990: 14.1% after the Kuwait invasion
23/03/1998: 13.8% on an OPEC output cut
07/01/1991: 13.7% during Desert Storm
14/01/1991: 13.6% during Desert Storm

The path forward for oil hinges on the degree of disruption in the Middle East. If the Strait of Hormuz were fully blocked, some estimates suggest prices could move into triple digits. (@KevRGordon)

According to Goldman Sachs, the impact on fair value for a one month disruption to flows through the Strait could look like this:

+$15 for a full one month closure with no offsets
+$12 for a full one month closure using 4 mb/d spare pipeline capacity
+$10 for a full one month closure using spare capacity plus a 2 mb/d SPR release
+$4 for a 50% one month closure using spare capacity
+$1 for a 25% one month closure using spare capacity

The Strait of Hormuz is a critical passage, connecting the Persian Gulf to global markets. Most of the crude flowing through it is destined for Asia.

The Strait is the largest maritime oil chokepoint in the world.

Saudi Arabia, Iraq, and the United Arab Emirates stand to lose the most from shipping disruptions, with a significant portion of exports heading to China (GS)

It is not just crude. Roughly 5 million barrels per day of refined products, including LPG, pass through the Strait. Unlike crude, there are limited alternative pipelines. Strategic reserves outside OECD Europe, Japan, and South Korea are constrained. (@DeItaone)

There are also broader commodity implications. A meaningful share of global seaborne trade in key inputs transits this corridor. It is not all about oil. (@kpler)

Geopolitically, the United States has now intervened in 2 of the 3 countries with the largest proven oil reserves. Some speculate this is about resource leverage versus China, particularly given tensions around rare earth supply chains.

The majority of Iranian oil exports do flow to China. (@zerohedge)

Venezuela and Iran are important suppliers. But oil is fungible. Barrels reroute. Incentives adjust. The idea of permanently controlling flows is far more complex than it sounds. (@AlexanderPayton)

In the short term, positioning and headlines drive price. Over the medium term, resolution of this conflict, spare capacity, SPR policy, and global demand elasticity will matter far more than a single weekend spike. This podcasts provides an hour of discussion on the topic.