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The Congressional Budget office, released its latest report on the US economy a couple of weeks ago, on Fed 11th. The main conclusions are: (1) The federal budget deficit for fiscal year 2026 is projected at $1.9 trillion, equivalent to 5.8% of GDP. Deficits are expected to grow over the decade, reaching $3.1 trillion by 2036 (6.7% of GDP). (2) Over the 2026–2036 period, deficits are expected to average around 6.1% of GDP, well above the historical 50-year average of 3.8%. (3

2026 is a Mid term election year. The same way that in general election years, the market follows a pattern, in years like this one, it tends to follow a similar path than prior mid term years. You can see that in the chart below. It’s more volatile than the average year; tends to peak in April and bottoms around October, right before Election Day on November. This is, of course, an average of all years on record after 1945, and it may be different this time (famous words), b

The Supreme Court ruled 6-3 yesterday, that President Trump exceeded his authority by imposing sweeping global tariffs under the 1977 International Emergency Economic Powers Act (IEEPA). The Court held that IEEPA allows the president to “regulate importation” during a declared national emergency but does not authorize imposing tariffs, which are taxes, a power the Constitution assigns to Congress. This strikes down the centerpiece of Trump’s second-term trade agenda: the broa

One of the major pillars of investing is losing strength. The banaced portfolio, where investors allocate 50-60% in equities and 40-50% on bonds to counterbalance risks and smooths returns through diversification, rests on the fact that correlations between stock and bonds are negative enough that the combination lowers volatility for the overall portfolio. The problem? The chart below shows a study from the IMF where the correlation of U.S. stocks and bonds is trending highe

Business Development Companies, commonly known as BDCs, are the publicly traded proxies of the private credit funds. One of the big ones, Blue Owl inc, has halted redemptions on one of its private credit funds OBDC II, with 13% of its portfolio in loans to the software sector, which is proned for disruption by AI, and fundamentals have weakened recently. In the chart below you case Blue owl BDC vs the S&P500. You can see the 52% drawdown it has accumulated. Of course this cou

The Bank of Japan continues with the reduction in its monthly purchases of Japanese Government Bonds (JGBs). This process, often referred to as tapering or quantitative tightening, began earlier, with a key initial plan announced in July 2024 to gradually reduce monthly purchases from around 5.7 trillion yen to about 3 trillion yen by January-March 2026, via quarterly cuts of approximately 400 billion yen. In June 2025, during its Monetary Policy Meeting, the BOJ conducted an

The last employment report in the U.S., published last week evidenced a problem with the U.S. labor market: no job growth in any sector of the economy with the exception of healthcare. On the top chart below, you can clearly see that. How is the sector doing in terms of market returns? You can see that on the bottom chart by subsectors, all of them have been below the broad index (S&P500) for the past 12 months. How is thr current earnings season going for them? Early preview

The Energy sector is waking up. The sector is experiencing robust performance amid rising global demand, policy shifts toward “energy dominance” emphasizing fossil fuels, nuclear, and geothermal, and challenges from grid constraints, permitting delays, and infrastructure needs. Renewables continue to dominate new capacity additions, accounting for over 90% in 2025, but policy shifts will likely moderate that trend back to fossil fuels. Energy has been the top performer in the

Six weeks into the new year and AI related companies are sragging the market. They are using most of their Free Cash Flow (please see first chart below) to finance data centers and AI related research, and still need to tap the credit markets to fullfill all those commitments. In the second chart below, you can see the impact on the economy predicted by several studies on AI. Look at the Horizon column. They’re talking about decades to hit the real economy meaningfully, while

The stars are aligning for Trump when it comes to the future of oficial interest rates. first the unemployment report on Wednesday where the overall number was not bad, but showed enough weakness, particularly after the adjustments, to reaffirm the narrative of soft employment, and yesterday the inflation report showed CPI slightly better than expected, but just enough to set the stage for the Fed to conclude that tas should be lower. Are the number being “tortured” to confes

Let’s take another look at the rotation out of the U.S. narrative. For years, investing out of the U.S. has been a bad decision, as returns have been far superior than most international markets fueled by technology, and AI in particular. But there was also the currency component. Hedging the dollar has made little sense for most institutional investors as there was al yield pickup between U.S. short rates and European, or Japanese rates, for example. But as the valuation gap

Global Equity indices are showing investors that the real performance to be made, at least so far this year, is out of the US. Peru, Mexico, Colombia or Japan have had a espectacular start of the year and are already showing double digit returns while the US has barely moved after a couple of strong years. Is that a dollar play or a valuation play? Or is it both? Is it a sign that the AI hype is taking a breather? It may seem so, as the valuation gap between the S&P500, which

The U.S. unemployment report will be published today. The consensus estimate points to a 4.4% unemployment rate, which is considered full employment for a developed economy. But the real story is the another employment report, the non farm payrolls. It measures the change in the number of people employed during the previous month, excluding the farming industry. But it needs to be adjusted once in awhile, to take into account jobs created by new businesses, and job losses due

Alphabet has announced a new bond sale to raise money for data centers. It’s going to be a 100 year bond, which contrary to short term hype, may indicate that Google sees data centers business as a long term project, that will need to go through the typical tech cycle. This is positive long term, but it shows there is a disconnect between the short term hype amd the long term value. They want to raise $15bn, at least initially and it appears that the initial demand is for $90

Japan concluded a snap general election yesterday for all 465 seats in the House of Representatives, the lower house of its parliament. Prime Minister Sanae Takaichi, who became Japan’s first female prime minister in October 2025, called the election just over 100 days into her term to secure a stronger mandate for her policies.  Takaichi achieved a historic landslide victory, winning 316 seats on its own.  She has pledged for stimulus and tax cuts, estimated to create a 10 t

On Wednesday, the U.S. will publish its unemployment report. The market Consensus expects a 4.4% unemployment rate, which continues to be structurally low, despite being on the rise recently. The participation rate is expected to be around 62%, which means that the U.S. still 38% of the active population that is not looking for a job. But perhaps the most interesting factor helping the employment numbers is that the pool of people that are eligible to work is shrinking. You c

Bitcoin seems to be preparing for another crypto winter. 16% nose dive this week, below $70,000, and more than 45% from its peak in October. This is Bitcoin Achilles heel: out of the three qualities needed to be considered money, the storehold of wealth is a key one, and the historical high volatility episodes that Bitcoin has experienced, brings a lot of doubt about its ability to be considered money. There are a lot of speculators in crypto, and even though the U.S. govern

The economic machine continues to move away from equilibrium. Silver is experiencing manipulation and wild swings, falling 40% in 5 days, while Bitcoin took a nose dive to $61k yesterday and is trying to find a floor, even when it seems to be trading below the cost of mining. And then the correlation between the yen and the rate differential between the 10 year U.S. treasury bond and the 10 year JGB, has broken. You can see how both diverge in the chart below. This is very im

The AI world is starting to look a lot like the real estate market in ghost cities in China. An incredible push in data center infrastructure, to the tune of $600Bn (see chart below), built for an expectation of demand that may not be there, at least in the short term. The usage for model trainings could be there, but the revenues associated with the use of those models, may not be present yet. And there lies the problem, the mismatch between the debt used to build those data

The month of January was positive for the S&P500. The January barometer tells us that the year should be positive as well, with a probability of 70-80%. It has been particularly strong for small caps which went up between 6-8%. There may be a rotation in size going on in 2026. What has started as a laggard, continuing a trend from 2025, is the software sector. As you can see see in the chart below, the drawdown that’s started at the beggining of the 4th quarter last year, con