Cross-Border Flows, the Dollar Devaluation, and the Global Trade Rebalancing

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[music] [music] [music] [music] [music] [music] [music] [music] Ladies and gentlemen, welcome to

the Capital Flows live stream.

We have uh really interesting things to cover today as it relates to liquidity, the credit cycle, cross-border flows. You know, there's

cross-border flows. You know, there's been a lot of I'd say ideas, questions going around on the topic of macro liquidity, on the

topic of how exactly money functions in the system. And so, that is what I

the system. And so, that is what I wanted to cover today in this session, and we'll be walking through it, and myself and James will be going through

the slides and really discussing how we want to think about all of these bigger picture ideas as they relate to actually quantifying them with price.

Because I think a lot of times what ends up happening is we talk about these esoteric concepts of like dollar devaluation, money, liquidity, cap you

know, whatever it might be, and we never actually connect it to the tangible price action that we see.

And you know, one of the things that I said in the like tweet or report or something like that just recently [snorts] is

if you have some type of liquidity view and you're saying liquidity is contracting and the S&P 500 is melting up clearly liquidity isn't contracting and

people will say oh it's positioning or it's this or that that's fine.

You just have to quantify and prove that. You can't just say like oh well if

that. You can't just say like oh well if my view is wrong it just has to be some other factor or something like that. Maybe you

should just re-evaluate the view. And so

my entire goal and I do this for paid subscribers on the Substack and you know once you realize the value in it a lot of people you know start following the research

and realize they'll never go back is breaking down all of the drivers and also the percentage of attribution they have the amount of causal force they have on the

market. And when you know how much

market. And when you know how much positioning exists versus macro liquidity versus these other correlations everything begins to make a lot more sense. So I wanted to cover a lot of that in the stream today and

James thanks for coming on. I you know James has uh you know all of this background and experience especially in the you know running you

know tons of trades every single day across all these different markets and you know we really go back and forth a lot on these ideas cuz both of us are

really you know focused and involved in markets in a very similar manner and I think it'll just be good to go back and forth on this and to kind of ask some questions and really break it down

because I think you know James you have such a tangible perspective on things for okay well how does this impact my view and price and let's get past all of

this like fluff and esoteric stuff and really get down to why does this matter how does it connect to price and how does this inform my decision making. So

I think this will be kind of a a really helpful stream for everyone.

Yep. Good morning guys and uh yeah I think one of the best the most under talked about stuff is often time horizon and most of my career

was spent in such short time horizon minutia where uh the macro regimes and the bigger broader cross currency flow like none of

that mattered you know what I mean for me. So starting to pull back and trying

me. So starting to pull back and trying to um cross collateralize our skill sets if you will uh is is very helpful and I

think if if everybody kind of you know knows where they're at or along that time horizon perspective like you could really start to work in everything you're talking about more effectively.

So I think it's great.

Talk talk a little bit about right before I dive in talk a little bit about how exactly your time horizon has changed over the years and kind of the

experience you had how that kind of shaped you to what you're doing right now and how that is kind of like shifted over the years and now you're you're you're you're leaning on some of these other

factors and learning these new things.

What has that been like for you as as it relates to the macro research trading and that kind of progression for you?

Yeah well I I mean I started out in the markets at a very short time horizon scalping day trading type of mindset. So

after I left day trading kind of at the end of 2024 I mistakenly presumed it would be just as easy to swing trade or invest if you

will um the problem is I still looked at everything from such a short perspective and because of that I was basically using

leverage and my expectations were warped to expect certain movement and certain things and due to that I made a lot of mistakes. I

wasn't able to recalibrate myself so well. So I'm in the process of doing that. Um I'm going to talk about that later more on my stream which hopefully we could dive

into more today but like this idea of multiple Stanley Druckenmiller actually talked about this famously and we've discussed that but he trades across different time horizons right he has

different buckets and you have like that short term day trading bucket that kind of mid term whether you want to call it swing trading or multi month and then you have like the very long term multi

year thing and and you look at each of those buckets differently different things affect those different buckets and try to figure out like where can you find confluence or not no

confluence at all within them and that's where I'm living right now is trying to figure out how do I how do I move across those buckets shifting my expectations

shifting the inputs for each of them and kind of trying to find a way that sits sits best with me and I think I've been bad at that uh but I'm improving day to day. So

kind of learning from you and kind of what you're doing is really helping me understand the long bucket better which I can then come back to the short bucket and figure out how those melt together.

Yeah absolutely.

Uh sorry quick quick question.

Uh there's an echo when I talk it says I I don't know that's weird. I'm not sure if that's that's me or not but uh I think it's Jeremiah I think it or sorry uh it might be your mic

uh Oh yeah.

echoing echoing me.

Um so I just to to answer your question Mad Norb uh I left day trading because I had spent 11 years doing it day in and day out

just living on the structure of the markets and economic calendar and trading just lean hogs and cattle and lack ass and calendars and all that I was just so locked in for so long that I

got a little bit burned out. I was just like I wanted to

burned out. I was just like I wanted to step back and be able to think bigger think broader have longer term bets not have to wake up every single day at you know 5:30 and and be there for the open

be there for the settlements and all that. Um it is what I'm good at but I

that. Um it is what I'm good at but I believe deep down that I could take a lot of the framework and move it longer term time horizon and that's kind

of what the last year has been about.

Yeah. I think that in itself is very challenging cuz a lot of the you know even disagreements or misunderstandings we have in markets sometimes or divergence between views are time

horizon based as opposed to you know some other factor.

Uh and I think that you know I think that's why one of the reasons [laughter] why understanding how like I've spent a lot

of time quantifying how do I map these different time horizons and be able to move across them well and connect the information across them as well. And for

everyone who is you know brand new if if you haven't been on these live streams yet and kind of been in the the sections that that we have been kind of going through on the live streams

every single day I'm doing a live stream at 8:30 a.m. Mountain Standard Time and we're going through every single idea as it relates to the macro regime and all the asymmetric bets that I'm taking

James is talking about the ideas and bets that he's taking you know a lot of the stuff that we do overlaps obviously we talk and we go over things together.

But capital flows you know my entire goal for capital flows is to map the macro regime so I'm on the right side of it and find a few large asymmetric bets

that function as home run trades. That's

the entire goal. So if you understand that 80% of all the returns in markets happen from macro flows then you can begin to say all right I want to be on the right side of growth inflation liquidity.

And the entire goal of these live streams is laying out all of that. And

then within that we're saying okay well I don't want to just have the market return I want to be able to take large asymmetric bets because my view and this is just borne out by any investor or

trader who has exceptional returns you know exceptional returns come in life when you take concentrated bets.

If you're not taking concentrated bets then you're building some other business at scale right there's a reason why you have people like Stanley Druckenmiller who are taking concentrated bets

and then there's people like you know BlackRock who are just building financial products and trying to scale AUM. Two very different businesses.

AUM. Two very different businesses.

And my entire goal is to say okay let's pull all these factors together understand [snorts] the macro regime and be able to map that so that I can stay on the right side of it and take these

home run trades.

And so it again if you're brand new and you're trying to understand these factors these live streams happen every single weekday at 8:30 a.m. Every single

thing that I cover in this live stream will be linked and provided this entire chart deck that I'm going to go over today on all these macro liquidity factors all of them are going to be laid out and

you know given to you at Capital Flows Research later today 100% free. So all

of the decks charts models that I share today will be 100% free for everyone who's a subscriber I send it out to everyone for free.

And then if you really want to dig into these underlying factors and how they function and the connection to positioning trades and the the tangible expression as it would

connects to the market then there is a paid subscriber report that goes out every almost every day as well and that really digs into the attribution analysis of these different factors

connects them to risk management and all those different things. And so the entire goal of these periods of time is to help you build a foundation of knowledge. And we'll be you know James

knowledge. And we'll be you know James is going to be doing a live stream after we end here at 10:00 a.m. If you go to his channel I'll be on there, and we're going to cover some more of these things in depth from a lot of the stuff that

he's been doing.

And the idea is that, you know, we really want to take a step back from all of these short-term doom loop AI slop kind of things that we're seeing on the

internet right now and saying, "Hold the phone. Let's understand what does it

phone. Let's understand what does it mean to build a foundation of knowledge." And that means incrementally

knowledge." And that means incrementally stacking education and market experience so that in real time you're

understanding what is taking place and you and us, cuz we you know, we're going through all of this is the same thing that you guys are going through as well, we're able to stack that to make good

decisions. Cuz if you expect to make

decisions. Cuz if you expect to make exceptional returns and really good decisions by doom scrolling and clicking in and out of markets, then you have just the wrong

expectations about how the game works.

It takes an incredible amount of work, focus, dedication just to get at the seat at the table so you can take swings at bat. Just to get a seat at the table,

at bat. Just to get a seat at the table, it requires everything. It requires

complete focus and dedication and work.

And you know, that's why I think it's going to be, you know, a really good thing to be able to be in the live streams every single day and invest so that you can build that

base of knowledge. And the the place that I want to start is this idea of money. By the way, just I don't know,

money. By the way, just I don't know, I'm kind of backtracking for a little bit. If you are brand new and you

bit. If you are brand new and you haven't gone through the live streams that I went over this week, they're incredibly important. You can go to the

incredibly important. You can go to the Capital Flows Research website or the YouTube channel, whatever it is, and I published two reports. And these are the live stream links that I did over the

last 2 days.

These are so critical to go over because in this one I talk about the entire thesis for the credit cycle and how we're in a credit cycle melt-up right now. And here's all the talking points,

now. And here's all the talking points, here's the slide deck, here's everything. And then the two largest

everything. And then the two largest bets that I'm taking within the credit cycle, which is Oracle and per. And

those are the ideas about Those are the ideas about how exactly you want to take these large bets. And

my my entire play with these large bets right here is to have outperformance and exceptional returns. Cuz I don't want

exceptional returns. Cuz I don't want just S&P 500 returns. I want exceptional returns that are above that. And the

only way to do that is to take concentrated bets.

And you James, maybe talk about that a little bit more about how to think about the outperformance concentrated bets.

Like what should someone expect in that kind of like realm of thinking?

Well, I don't think enough people are thinking about that and that I want to hammer this point home to everybody that is watching is like the whole world is moving towards

information overload, firehose, volatility, uh just crazy geopolitical risk, catalysts everywhere. Uh

catalysts everywhere. Uh and your inclination is to control that volatility, suppress that volatility, figure figure out how

to smooth it out so that you can navigate your way through life and compound over time and whatever. And I

feel as if that's not what we're trying to do here. In fact,

it's like that Ryan Holiday, The Obstacle Is the Way. It's like, no. If

you want If you're a You know, everybody loves being contrarian, right? Well, the

ultimate bet here to be contrarian is to look the volatility monster, the the craziness monster that is is

upon us and going to increase and go straight at it and figure out how to use everything we have to our advantage, compound it all, and sharpen it down

into great risk-reward asymmetric bets so that you can get insane outperformance

potential at least.

Um and and wear the volatility along the way. Get paid for that risk. All right,

way. Get paid for that risk. All right,

that's the ultimate contrarian play here. So, drop this idea of suppressing

here. So, drop this idea of suppressing volatility. And in fact, the most

volatility. And in fact, the most contrarian thing you could do is welcome it, wear it, and figure out how to navigate through that. So, I think that's what you're trying to do. I think

that's where you're really trying to go.

And that doesn't mean you're just like being reckless. You're trying to take in

being reckless. You're trying to take in everything. That's why you say like you

everything. That's why you say like you need to live it, breathe it, do it every day, ultimate focus because if you can do that and work your way through the

eye of the the storm, um the other side is where like you you can kind of live an exceptional life.

Yeah, you know what? Let Let me Let me build on that again because I think that this This will connect to I think especially our trading style and how we think about things.

Wha- And this will This will We're going to take this very, you know, tangible idea and connect it all the way up to all of these bigger picture ideas with macro liquidity.

And you know, I'm going to share Where is this? I'm going to share TradingView chart here.

One of the things that James and I talk about is that there is a a fundamental difference in how A lot of people, what they're going to

do is they're going to say, "Let me try to get, you know, buy the S&P 500." And

you know, if you buy the S&P, let's say you get, you know, get long here or here, and then you start getting on sides, what people are going to do is that as soon as they get up here, that has become such a large position in

their portfolio if especially if they're using size and leverage, that it goes from moving their portfolio 1% every day to 2 or 3% every day.

And then they say, "Whoa, that's a lot of volatility. I don't want my portfolio

of volatility. I don't want my portfolio moving by 2 or 3% a day."

And then what they do is they scale back the position.

Even though even though if they bought down here and they're on sides up here and even if they place their stops here.

So, let's say Let's just Let's walk through an example that's very tangible.

Let's say you get long here and here. You're kind of averaging in or

and here. You're kind of averaging in or you establish a cost basis or whatever it might be. Right? Just in this range right here. And then you move on sides

right here. And then you move on sides and you get up to where we are right here.

Let's say you say, "Okay, well, I want to put my stops right here so that I protect my principal."

And now you're on sides or you you know, you're protecting your profits actually because if you got long down here. But

the idea is that most people, especially in the industry who are trying to suppress vol, even if they're up on their cost basis, even if they're up on their profits and they're protecting their profits, and

they're, you know, right here with their stops. They put their stops right here

stops. They put their stops right here and they say, "Okay, well, I can't lose more than this moment right here. I

can't lose more than that cuz I put my stops at this level or at break even or whatever it might be."

They will still have this and they will sell their position because they're like, "It's moving around my volatility too much." Even though you're up on your

too much." Even though you're up on your profits.

And I think that's one of the biggest things in the industry that everyone is so focused on is vol suppression cuz they're saying, "Well, now that I'm up here, my portfolio is moving around 2 or

3% even though I'm on sides and I don't have a drawdown on principal."

And what you will And even if, you know, you say you move up and you can say, "Okay, well, let's just say we move up."

Which that's my view. I think we're going to move up. You could even roll your stops right here and then you're up here.

And then, you know, you keep rolling, you know, keep rolling your stops, keep rolling your stops, and then maybe you'll come back down and get stopped out of break even or you take it off once you feel like the the view is beginning to deteriorate or something

like that.

That is fundamentally different than how the entire industry is set up because they are focused on, "Let me, you know, buy here with small size and

then once it becomes too big, I need to start scaling out of it." And they start selling their winners instead of adding to their winners cuz they're saying, "I need to decrease volatility in my

portfolio even if you're not, you know, you're at You're not at risk of losing your profits because you have your stops at a you know, break even. Obviously, you can have a gap or something like that, but

that's a different gap risk, right?

That, you know, when, you know, James and I think about all of these changes with the order book macro views and everything like that, a lot of times the the entire goal that we have and the

entire goal that traders have who are in the active space that are not under the same institutional constraints on, you know, some type of, you know, massive

pod or buy-side firm, especially if you work in the prop space and you uh you know, have the ability to do a lot of these things that we're talking

about, your entire goal is just to get on sides and hold a trade.

And that's very different than what most people try to do because they're just trying to bat singles. Whereas if I can just say it like, "Oh, can I just maybe get on sides a little bit and put my

stops at break even?" And oh, maybe I got stopped out there, maybe I can get on sides again and get my stops at break even. And then as soon as I get on

even. And then as soon as I get on sides, I put my stops at break even and if we run, then I hold this entire trade. You're going to have a lower hit

trade. You're going to have a lower hit ratio, but you are going to have a much higher risk reward. You'll take more volatility

risk reward. You'll take more volatility on the upside, but you're protecting your principal on the downside.

That type of risk-taking in itself, especially if you scale it across time horizons correctly and these macro views correctly, that is going to differentiate you

because when you wake up in the morning, your entire goal is you're saying, "How can I You know, there's a lot of intelligence intelligent people in the industry." And I love the Peter Thiel

industry." And I love the Peter Thiel quote where he talks about courage is in much shorter supply than intelligence.

And when when you have these types of moves, you know, James talked to this a little bit more and and just kind of your experience with this, especially going through this process of, you know, getting stopped out at breakeven,

getting stopped out at breakeven, and then getting on sides and then dealing with that volatility. Talk a little bit about your mindset through that, how you thought about that cuz you've run you know, especially short-term and across

multiple time horizons, so many of, you know, these trades across all futures.

Talk a little bit about how you think about this.

Yeah, I I want to kind of piggyback on your point here cuz I think this is all super important. It is like you're

super important. It is like you're saying, all right, so say you you you kind of average into that position, right? And it's working, you're on

right? And it's working, you're on sides, you have conviction and kind of maybe all the stuff you've been talking about here, right? Uh maybe you're along the Russell or Can you pop over to the

Russell real quick? Yeah. Um and you can share your screen if you want. Oh, yeah,

I don't I don't have my thing up yet, but um you can you can pop the Russell up and you can pop up this question this last question by Derek or Dirk Dirk Keller or

whatever. It's like this is this is kind

whatever. It's like this is this is kind of the point is you you spoke to this in your last stream yesterday, right?

Shouldn't we try to diversify idiosyncratic noise by spreading Basically, I I feel like a lot of this a lot of what we're talking about here is wrapped up into this

comment, right? It's It's Shouldn't we

comment, right? It's It's Shouldn't we be be trying to diversify idiosyncratic noise, which makes me think if I wanted to dumb that down, shouldn't we diversify to suppress volatility Right.

across many different things, which then pushes you back towards just being in market beta or whatever however you wanted to call it, right? And if you're looking for

crazy outperformance and you find a spot where you get into a position and your risk reward was defined and you have a lot of conviction on it and the price is

telling you that you are right, why rebalance? Why get out? What what's

why rebalance? Why get out? What what's

your point in doing that? Now, I think the systematic people, sure, whatever, maybe they're running a lot of money, they have this blah blah blah, but inherently they're doing the same thing.

They're program programmatically putting in a way to suppress volatility and hinder outperformance to whatever it is, increase their Sharpe ratio or what

whatever ratio of the day. And

to me, I'm like, "Why are you not allowing yourself to win?" Like this is something I've been talking about on my stuff is like I made a video the other day about the difference between getting

from that 100K mark to a million, right?

It's like you need to allow yourself to win. It is okay to outperform. There is no rulebook saying

outperform. There is no rulebook saying that you have to get there 12% at a time.

If you're going to offer me the chance to make 200% on a high conviction, well-thought-out, confluence risk reward asymmetric opportunity,

I want that. I don't I don't have to go on this stair-step low volatility Sharpe ratio way, and it's okay to do so. I am

allowed to do that. So, that right there is like, "Why are you not allowing yourself to win?" And then the second part of that is like people will often, and I dealt with this a lot, if I'm

losing somewhere else, right? One of the things I would do is I would remove some of my winners or I would like um trim

some of my winners to counterweight my losers to feel better. Right. You

know what I'm saying? I would I would take off a winning position that is that is doing well because of a well-thought-out plan because I lost in some other position just to suppress the

volatility and emotions that are going on with within me.

Right? And none of that is rooted in like your trade idea. It's all just this external forces and the need to conform and the need to do what is normal. And I

think what we're trying to do here is run away from that.

Yeah, I think that 100%. I think that on this comment here, and I think this is such a great question, right? When

should you diversify and when should you not diversify? Right? And I think one of

not diversify? Right? And I think one of the main things that I think about is if you are not going to operate in financial markets, then you and this is not advice, but your base case is

probably buy the index and go to the beach and hang by the pool and like, you know, just enjoy, you know, if you want to enjoy financial market or have a smaller account or something like that.

But if you want to outperform, you need to be able to have more information or insight to move down the

risk curve.

And the entire idea is that there is not inherently in a sense, you know, if or let me just say this.

Yes, you need to diversify all of these other factors if you don't know anything about any of these other sectors or factors. But if you spend

time developing knowledge around a specific outcome in a trade, then you can actually take less risk buying that

versus the index if you think that it's mispriced.

And that that is the entire goal of outperformance. You know, people are

outperformance. You know, people are going to say that well, anytime you buy a sector or an individual stock, it's always more risk and yes, you're getting paid for that risk. And I think there's an element of

risk. And I think there's an element of truth to that. However, what I would say is if you are moving to buy another sector or a stock, you should I would assume or you should, and if you're not, then you are going to

lose money over time, but if you are going to move down that inherent risk curve, the way that you decrease your risk and increase your return so that you actually outperform the index is by

having an informed view and developing an informational edge in that specific asset, which again, is why I laid out my

biggest bets are PER and Oracle, which again, when you have PER, I mean, this is the entire thing that I've been laying out year-to-date. When you have when you develop this informational edge

that I've been laying out, and again, you need to size your risk properly and manage your risk and go through all these things, you know, PER is up 100% from the lows and it's outperformed the index this

entire period of time.

Right? I mean, especially once I'm on sides, right? Once I'm on sides in PER,

sides, right? Once I'm on sides in PER, which, you know, again, if you were following me as a paid subscriber, I laid out during this entire period of time that I was getting long right here

and establishing a cost basis. Once I

get on sides, even though we're chopping during this period of time, I'm on sides and I'm not risking my cost basis. So, we're

chopping during this time, but I'm up over the index and outperforming. And

so, even though I have some vol in the upside, as long as I'm on sides and outperforming, then I'm happy, right?

And I'm taking more volatility for that, but I think that's just such a key thing to note with you have to have an informational edge as you move out that risk spectrum, which goes back to this

entire idea about this live stream and why we're even here because if you think that scrolling through, you know, the the more you move out the risk curve, the more you move out to that sector, a

stock, a very derivative even an option on a stock, the more information you need to have to stack that risk reward in your favor.

But if you're stacking those edges by just scrolling tweets and saying like, "Oh, this person says this. That

connects to my view. Oh, that doesn't you know." If you're just kind of just

you know." If you're just kind of just going through and just hoping to see something that might help you, that's not going to work. But if you're going intentionally and saying, "Okay, well, let me maybe go save these five tweets,

feed them into AI, come to these live streams, develop information about these factors," then what you are doing is you're stacking these different informational edges on top of each

other. And then you're setting yourself

other. And then you're setting yourself up for success for outperformance, and that's how you think about you know, if you're not doing that, then yes, you should be diversified and you

should just own the index and you should just, you know, you should be on a beach somewhere and not really um well, I don't know. I love the game.

I mean, I guess I could be on a beach somewhere, but I love everything that I'm doing right now. It's just so fun.

So, uh that's how I think about that.

James, what would you kind of add add to that or build on that?

I think that's a good way to wrap this up. And by the way, you could just move

up. And by the way, you could just move to San Diego and do this every day and have a beach.

It's It's not happening. I don't I don't want to go to San Diego.

You can compound edges over here, too.

[snorts] I'll be over there for the summer. I'll

be over there for the summer. I'll I'm

going to get a beach house for the summer. We'll We'll see what happens.

summer. We'll We'll see what happens.

Oh, snap. You heard it here first, guys.

[laughter] This is James' dream come true. Well, I'll

I'll be I you know, I'll I'll rent the bigger house that's right next to you.

We got a babysitter now.

[laughter] All right. [snorts] All right. Well,

All right. [snorts] All right. Well,

let's, you know, we we have you know, we we went over some factors as they relate to these ideas of trading, managing risk, these

larger macro views. And what you can see is that it's important to develop an edge, an informational edge consistently that allows you to differentiate yourself from everything from everyone

else. Just remember, think about what

else. Just remember, think about what everyone else is doing right now.

And think about how you can be different from them. Whether that's in how they

from them. Whether that's in how they consume information, how they trade, and how they go about this entire process of managing their risk. Always think about how you can be

risk. Always think about how you can be different.

And and again, if if anyone's just coming on the stream, you know, the entire goal of what we're doing today is stacking all of these edges and connecting it to markets. And everything

is going to be laid out on capitalflowsresearch.com. So, if you're

capitalflowsresearch.com. So, if you're not already, go be a just a free subscriber. Everything will be laid out,

subscriber. Everything will be laid out, this entire slide deck that I'm going to walk through for uh the entire breakdown of today. And

we're going to map the macro regime.

Yesterday, I went over the large asymmetric bets that I'm taking right now. And today, what we're going to do

now. And today, what we're going to do is dig more into the macro regime so that you have a better context for how to think about these bets on a bigger picture basis. And what I want to start

picture basis. And what I want to start with is this idea of money and an asset liability relationship.

Because a lot of times right now what we're seeing is the these narratives thrown out there about money's going to zero, dollar devaluation is always happening, all these things are all going to zero and

things like that. What I want to do is take a step back and say, let's understand what these different relationships for money, credit, and all these different factors are.

And then let's not just take them on a theoretical basis, let's connect them to markets so we actually have a tangible understanding of when we come in every day day and I see stocks up, bonds down, stocks up, bonds down, the dollar down,

whatever that might be, whatever that relationship might be. And I'll I'll even connect that to a model for you and give you that to you after the stream.

What you want to do is say, okay, I know why this is happening on a theoretical, fundamental, tangible, and positioning basis. And you stack every single one of

basis. And you stack every single one of those. Cuz right now in the industry,

those. Cuz right now in the industry, you have all the armchair economists, you have all the strategists who kind of come on TV, talk about their thing, and then go home. And then really what you have is traders who say, well, I don't

care about a lot of that stuff. Let me

just use technical analysis here and there and just see what happens. And

my goal is to say, let's stack all of these and have coherence across all of them. And here's the starting point.

them. And here's the starting point.

Every financial asset is simultaneously someone else's liability. Your bank

deposit is the bank's debt, right? Or

it's their liability. Your Treasury bond is the government's debt.

And the idea is that every single asset is is another person's liability, and money never functions in a vacuum. So,

just think about it. Your mortgage that you have on your house is a liability to you, but if you ask the bank, it's an asset to them.

And you say, well, how can it be an asset to the bank if it's a liability to me? And that's the entire point of an asset liability relationship is it's not just this thing on the

screen, it's a constraint on both parties.

And for example, you might have a 401k or you might have a brokerage account where you're saying, I need cash flow.

And you can have a mortgage that you're paying off every single uh month, and then you say, I have an extra million dollars, 500k, whatever it might

be, that I want to put into cash flowing assets so I can get cash every month.

And you could take that money, put it in a brokerage account, put it in a 401k, whatever it might be, and buy a mortgage-backed security ETF or mortgage-backed security fund, and get

cash flow from a pool of mortgages that banks issued to people just like you, and you could hold a thing of assets

getting cash flow, while at the same time you have a liability that is your mortgage on your house.

And what you have to do is every single person's asset is another person's liability. Any of the macro guys that

liability. Any of the macro guys that are actually running money and mapping all of these flows, they're going through the asset liability mismatch between every single

entity, whether that's the Treasury, commercial banks, the private sector, and everything like that.

Credit creation expands this web dynamically. When a bank makes a loan,

dynamically. When a bank makes a loan, it creates both an asset, the new loan, and a new liability, deposit, simultaneously. No physical money has

simultaneously. No physical money has been printed, purchasing power is created through accounting entries. So,

you know, when you think about money being created in the system that's actually flowing into the economy, it really comes down to commercial banks. Because yeah, this this is what

banks. Because yeah, this this is what happened during the entire period of Actually, let me see if I can go to Yeah, this chart right here. This is

what happened through the entire period of the 2010s right here, where you actually had the central bank expand its balance sheet during this

entire period of time, and there was no inflation.

So just think about that for a second. If the

Fed, quote unquote, printing money always causes inflation, then why didn't why didn't it during this entire period of time in the early 2010s?

So, this is a very important question to ask because if you have something that says, hey, the Fed expanded its balance sheet and inflation didn't result, you should then it begin to say, well,

why is that? Because everyone's telling me that if the Fed, quote unquote, prints money or expands balance sheet or does something like this, it always is printing money and it causes inflation. And if we have a

causes inflation. And if we have a situation where it doesn't do that, then you need to begin to say, hold the phone, maybe I don't understand this relationship as clearly as I thought.

And that actually allows you to refine something, refine your view so that you can actually have a more informed view and take better market risk.

And so, the idea here is that purchasing power is created through credit and liquidity in the system, and this means money

supply is really part of credit supply.

The idea of money flowing into the system is not just about the Fed, it's also about commercial banks increasing the amount of money or decreasing the amount of money in the

system. Just For example, if you have a

system. Just For example, if you have a commercial bank give you a mortgage, they're creating new money in the system inherently.

And you are paying them to use their money, and that is allowing you to have more money than you originally had. I

mean, the fact that you're taking out a mortgage usually means that you didn't have enough money in the first place to buy the house. A lot of people will buy cash

the house. A lot of people will buy cash these days that are more wealthy, but the majority of people in the United States when they buy a house, they are paying to use someone else's money,

which is creating more money in the system than they originally have.

And that creates an asset liability relationship. It expands and contracts

relationship. It expands and contracts with lending activity. In modern

economies, most money, one of the main components, is credit.

And so, this is why the entire in system is inherently reflexive and path dependent, which means when we're thinking about these different relationships,

they're always putting pressure on the they're always putting pressure on the macro economy. So, actually, you know,

macro economy. So, actually, you know, uh James and I were talking about this with uh the the house that he bought, and then also some other people that we've

talked to. Um everyone knows, you know,

talked to. Um everyone knows, you know, if you bought a house in 2020 or 2021, you got this like amazing interest rate with a low mortgage payment. And

basically, as inflation rose and you had that locked-in mortgage payment, you basically are in an amazing place, right? Because you have this low

right? Because you have this low mortgage payment, and you're not losing any money.

Right? You're actually making money in real terms because inflation has gone up and you have a fixed mortgage payment for the largest expense in your life.

And [snorts] the idea is that someone needs to in an asset liability relationship, the person that gave,

you know, James or another individual that mortgage that got locked in at a low rate, the fact that you have someone on the other side of that trade, they are

losing money on that trade. Even though

you're paying them every month, they're losing money on that trade because the mortgage is getting re-rated in terms of its value because you have now interest rates much higher.

And I think that that is a very clear expression of how on a macro basis, you can have one individual benefit when the market moves in a direction or the

economy moves in a direction, and the other person is not benefiting.

In the same way, you could have when, you know, when you have you you can have the opposite happen, where if you have an adjustable rate mortgage, again, that's like a lot of the world

that's not the United States. If you

have an adjustable rate mortgage, then if interest rates are going up, then that other person that has the liability that's holding the mortgage and getting paid from it every month, they're actually making more money.

And so, there's always this push and pull between the asset liability relationship in the system. And I have a, you know, visual here. Again, you'll

be able to get this. And [snorts] what you can see is that for, you know, the bank, you have, you know, different assets on one side, liabilities on another side, and that directly connects

to you and I, if you're not a commercial bank or anyone that's not a commercial bank, having a loan or deposit or whatever that might be.

And so, when we begin to connect this to the asset liability web, you know, and I just have M2 here, even though it's not the really the greatest proxy, but what you can see is there's different sources

and destinations of money in the system, and they don't always correlate with how inflation functions all of the time.

And I mean, you can even see, even though these go up in the the same direction, if you decompose these into, you know, more statistically helpful relationships to draw,

correlations and things like that, what you're going to see is a lot of different divergences. Those

different divergences. Those divergences, if you understand how they work in the system, that's how you can stack information to understand macro liquidity.

And so, there's two dimensions for everything in markets that price things. And if you understand these two

things. And if you understand these two ideas, you will be able to come into the market every single day and understand what's happening and why it's happening.

There are fundamentally two factors that are driving markets. Duration risk,

which is the uncertainty of real purchasing power over time, primarily driven by inflation. So, duration risk, which is owning like TLT, long duration

bonds, if inflate, you know, long duration bonds, TLT, is at the end of the day, primarily it is it is a reflection of long-term growth and

inflation, but it's risk in a risk-free instrument in terms of credit risk, but it has duration risk. Which means the government is not going to default on

their debt, but that debt that they're selling you, the real purchasing power of the dollars that it claims can decrease in value.

And what people need to understand is that the market is pricing both nominal and real changes in the system. So,

duration risk is about what's the purchasing power. So, when

people talk about, well, the dollar is going to zero, this is happening, that is happening, cool. What you need to do is quantify that with duration risk in the system and connect it to interest

rates, because inflation is always priced by interest rates. And the idea here is that the longer you wait for cash flows, the more exposed you are to inflation eroding their value over time.

It just has to do with the time value of money. This is why long bonds and growth

money. This is why long bonds and growth stocks get crushed when inflation rises.

So, when, you know, I have a I have a choice as an individual who wants to invest my money. I can invest it in T-bills and roll that every single month, and it would be 3 months or 2

months or whatever it is, and get paid for that, or I can go buy long duration bonds, and if interest rates are higher in long duration bonds, I can get paid more. However, if I buy

30-year bonds and instead of T-bills, then it is very possible that in over time, I lose money in real terms, even if I'm not losing

money in nominal terms. So, if I buy, you know, real or if I buy long duration bonds and they're paying me 5%, but then inflation is running at 6%, I'm going to lose money in real terms over time, even

though money is hitting my bank account every or brokerage account every single month or quarter or whatever the frequency is.

And so, the idea here is that duration risk is about the purchasing power of the dollars you receive. The other

factor is credit risk, and this is the uncertainty of nominal repayments. So,

this is primarily driven by growth. So,

just think about it like this, is credit risk, you know, duration risk is about am I going to have more or less purchasing power in the dollars that I'm receiving?

Credit risk is about is that person that is going to pay me those dollars, are they going to come through? So, is

that person that I receive I gave the mortgage to going to pay me, or are they going to lose their job and default on that mortgage?

And so, strong economic growth means more business is earn, consumers keep jobs, debts get repaid, recessions do the opposite, default spike and credit spreads blow out.

The idea here is that duration risk and credit risk are connected with growth and inflation, but every asset functions

in a asset liability relationship with credit risk and duration risk. With So,

at the end of the day, if you're buying or selling any asset, what you want to say is how much are my dollars getting devalued or increasing in value in in real terms

during this time. And so, if I buy a mortgage, if if I if I am the one that gives you a mortgage on your house, what I need to say is I I give you a 30-year mortgage,

what how much are my dollars being revalued or devalued during that time?

So, you know, actually, if we have disinflation in the economy, I can make money in real terms. I can actually make more money if inflation is not rising.

And then, I need to ask, okay, well, what's the probability that this person follows through and pays this this this asset. And so, every asset in

existence sits somewhere on the spectrum of the two risks. Changes in inflation expectations reprice the duration dimension, changes in growth expectations reprice the credit

dimension, and this is the lens that all capital flows through. Um

Give me 1 second, guys. I just need need to grab some water really fast. James,

if you want to chat for a second about kind of this idea and maybe your experience with it.

Yeah, so this this this Oh, understanding those uh two basic concepts, I feel like are where

I I suppose everything starts for just this understanding macro. And I feel like I had no personal

awareness of that. But once you kind of grasp it, which I feel I feel like simply put, it seems simple, but it just it's obviously

not so simple. But it really helps me set the stage for every bet I'm taking now is kind of understanding a bit like where we are in these regimes, how those

two things play off each other, and then kind of going from there. So, I think that slide you just had, and probably this one as well, is like probably the

most important slide of literally any.

Right? I mean, it's like kind of the foundation of all of your work, I suppose. Yeah, I I think I mean, all the

suppose. Yeah, I I think I mean, all the models that I've built over time are all about how much duration risk is in the market and how much credit risk is in the market. So, when I'm looking

at the S&P, how much of it is it being driven by duration risk?

So, for example, the majority of 2022 repricing was duration risk, not credit risk.

Because you had stocks and bonds selling off at the same time. So, the stock bond correlation every single day tells you if we are driving the market with duration risk or credit risk.

Because that connects to the regime that we're in, whether it's growth or inflation or what's driving everything. And here, I I just think

everything. And here, I I just think this is such a great, let me put these here. This is such a great

here. This is such a great representation of how you want to think about things. Credit risk is about are

about things. Credit risk is about are these people going to pay?

Right? Is the the high yield company going to pay? Is the emerging market debt, growth stocks, everything like that. Right?

that. Right?

On the duration risk side, it's all about, well, how much is my cash going to get devalued? Should I buy TIPS?

Should I buy long-term Treasuries? But

notice Notice here, I mean, you always have this in the middle of, you know, investment grade corporate, but here's the thing.

High yield still has duration risk in it. Sure,

there's more credit risk, but there is there is duration risk also in high yield credit as well, because if you have duration risk move out, you

know, actually, I really needed to share this chart. Um cuz this is probably This

this chart. Um cuz this is probably This is something that That's so good, by the way, this risk map.

Very very cool.

I need to find this chart, because the Trying to find it on Bloomberg. I'll

have to send it out, but one of the things that, you know, people aren't really going to talk about as much on this entire asset liability relationship is in the market overall right now, the

duration of high yield has been collapsing for about 5 years now.

So, basically, what people are doing in the market, what banks are doing, is for the high yield guys that are taking out money in the high yield space, what they're doing is they're giving shorter

and shorter debt terms for high yield.

Which means that they have more and more refinancing risk but the high yield market has less and less

duration risk. So, for example,

duration risk. So, for example, if you look at the high yield ETF, right? Like this has been moving in

right? Like this has been moving in lockstep with just equities.

And it has a lot less sensitivity to something like TLT, which has been, you know, still way below all-time highs.

Right? And notice that even when you have these sell-offs in TLT, and you have these duration repricings, sure, it drags on it a little, but it

reprices really fast.

And so, the entire idea is that the actual balance sheet of the economy is changing and it's something that again people don't really talk about as much but if

if you understand how high yield and high yield terms are changing in the market then you can understand okay I have this asset

liability relationship oh for banks when they're giving out loans what's the term of those loans in the overall economy how is that shifting and every every

larger macro player is modeling these I model all these flows all the time and we're looking at okay well how much duration risk and credit risk is there and then how are those things dynamically changing on the balance

sheet at all times and then we look at the market and say okay on the day today are stocks up bonds down what's happening and that is the dimension of this chart

right here and again this will all be available after the live stream today so if if you want to get this entire slide deck just go to capitalflowsresearch.com I'll send it out after the live stream

today and you get all of it and and again what I would do by the way all of these different ideas you can go through I wrote an entire paper on these if you go to to the

capitalflowsresearch website go to the educational primer section go to the credit cycle playbook and path dependent framework for capital flows if you read both of these it explains all of these

and if you are trying to connect it to the S&P 500 or bonds and interest rates and all that stuff there's primers here that connect those specific ideas that I'm covering right now with interest rates and equities

right here so if you're saying ah you know I don't really understand this go through all of these take a weekend spend all day thinking reading and getting through all

these different factors and you know get an understanding of how they function because that's what's going to allow you to come in and say oh stocks are up bonds are down that means

credit risk is decreasing in the market and duration risk is increasing oh well that's something I should really understand so duration risk and credit risk a very

easy way to look at them is look at where we at with inflation expectations via break evens or inflation swaps in orange right here and look at credit spreads and again I you know lay out let

me see if I can find the regime way I think what would be very cool is that previous slide if there was some sort of cool like visual slider you

could make through the different regimes like through the different four regimes and whether or not like I think all of those you know if it's in stagflation or

goldilocks or whatever seeing how those shift as you drag through the different regimes would be really cool oh totally yeah I'll build one of those for everyone and I'll I'll share that as well that's that's that's helpful um

this I mean this right here credit risk duration risk how this is connecting to credit spreads and inflation expectations now you can begin to understand

how where are we at this I don't I I didn't update to the data today but the data is I think one day old right now April 12th or a couple days old I guess

but the this this visualizes I show this all the time what regime we're in stagflation versus recession versus reflation and you know you can change

the look backs on credit risk and inflation risk and say oh I want them to 20 and let me look at where we're at here's credit spreads here's inflation risk oh here's how growth and inflation

are getting priced in markets and connected to markets so you can begin to see you know all these people are talking about these esoteric concepts and you just need to connect them to price

action and what you want to do is connect them across multiple look backs so you can actually connect it to your time horizon of your trades that's the entire key here

and so what you want to do is pull these factors together and have an informed understanding of the drivers and the time horizon once you stack those there's not this disagreement that

everyone is coming to again you know there there was kind of a lot of people have asked me about liquidity recently and saying well liquidity is contracting right now how does your view connect to idea that

liquidity is contracting and what I would say is you probably have a wrong view of liquidity because the equity market is rallying to all time highs and

let me pull up this other chart right here the equity market is rallying to all time highs which in itself means liquidity is expanding and yes part of that is positioning but when real rates are falling and we're

seeing the curve function the way that it is and capital is moving out the risk curve that tells you that you have a ton of money in the system and a credit cycle

melt up so by definition that view about liquidity contracting has been falsified as the equity market rallies in this way and not just the

equity market rallying but you have to recognize that we're seeing capital move out the risk curve and buy the highest risk sectors as well

you know here is a chart of the Goldman Sachs high yield debt sensitivity index which is just all the stocks with high yield debt and notice that they've been in a range this entire time I mean

there's a reason why I didn't turn bearish equities you know I took off a little bit exposure but overall I've been bullish equities this entire time cuz the highest you know yield

highest risk companies have been in a range and we've primarily been seeing a rotation and geopolitical risk as opposed to a recession pricing and the high yield index just made

multiple all time highs in a row and you're telling me that liquidity is contracting like it doesn't it it it's in itself a view that has been falsified and that is not

represented in markets and you can say well no man it's just a time horizon thing okay well connect it to the time horizon and let's say liquidity is expanding right now how does that set the if if you think that's going to set the stage for liquidity contracting then

you need to refine your view across multiple time horizons or you know not just move the goal posts right and I think that's one of the key things that you really want to quantify as it

relates to duration risk and credit risk and again it goes back to you want to connect these things to actual price action which you know let me actually go to one

of the ways that we do this and if you go to believe it's this article here's one of the articles that I wrote

recently for paid subscribers and this is below a paid section but one of the things is notice how this is just

an FX the FX return I believe your USD yeah your USD this was maybe a week ago now we break down I guess I break down but

my entire goal is breaking down how much of these moves in FX are from equity risk versus two year

differential risk and versus two year real rates versus liquidity versus all these factors and what you want to do is connect it and you should see how much and what

percentage of each is from each factor and these are only two factors you know I go over I think a lot more down here or in the previous article

on well which factors are driving which parts of the market and let me see I'm going to well

after this stream is over I'm going to write an entire report for paid subscribers breaking down these factors and I'll explain how you want to do them a little bit more but the entire idea is that you need to connect these factors

to the price action that's what everyone does if you're trading markets you can't afford to say well liquidity is contracting it's like well you just got stopped out of your short right or you just lost a ton of money being short of yes

right so you need to connect it with price action and if you're not then it's just kind of like a cool kind of popular narrative when we go to the yield curve and we say okay well I understand credit risk and

duration risk how do I further refine this the yield curve encodes the current macro regime so if you have bull steepening a lot of times that signals crisis or aggressive easing bear

flattening can signal late stage tightening bear steepening signals inflation fears bull flattening signals a growth scare right you have all these different factors where you have inverted curve

means you have short term funding costs exceeding long term rates you know it can squeeze out different banks it's not a predictor of a recession by the way anyone who says a yield curve inversion

is a predictor of recession probably hasn't traded in markets because when you go back and you try to run that trade every single time it just doesn't work just doesn't work try to if you try to take that view and make money with it

you lose money all the time there's sometimes it works but if you try to use that every time you'll lose money over time so that entire point is not to say

oh you shouldn't bet on a flattener or bet on the curve to invert or uninvert it just means that you probably should refine your view to account for the distribution of probabilities in the sample set that we have

so what you you know and again if you're trying to say oh well I don't really understand the yield curve come back to the entire educational primer section right here there is an entire yield

curve indicator right here yield curve model from TradingView there's an entire interest rate play trading playbook and a yield curve indicator where you can come right here

and see all the yield curve regimes right here which we've been in bear flattening for a little bit right here in twos tens, which tells you a lot about where we are right now. And again,

I'll break down how to think about this in the paid subscriber report later today. But, you

know, these are the types of things that you want to be watching. This model here is free. You can go over this model

is free. You can go over this model yourself, and it's right here. I mean,

the entire point of all the educational material on the Substack is that it's 100% free, so you don't have an excuse.

It just goes back to if you're going to invest the time to understand all these different factors. So, the yield curve

different factors. So, the yield curve is a key factor, and we're refining that. And you want to go through the

that. And you want to go through the different regimes and understand why is it happening, how should you think about the signal that it indicates, and how do you pull those moving parts together?

So, you have those factors that further refine credit risk and duration risk. And, you

know, you can see these different factors through time in inversions, disinversions, and those are always important to connect to connect to the system. One of the things, by the way,

if anything was more clear, I mean, during this entire period of time, everyone said if the yield curve inverts, it predicts a recession. We had

the yield curve invert right here, and we actually had it uninverted, and no recession was taking place until we had an exogenous shock of COVID, which, by the way, was totally different than the

macro environment we had previous in 2019, because there was no there was no COVID. There was not the the factor

COVID. There was not the the factor wasn't even the markets. So, it wasn't from a preexisting recession or something like that. It was from the fact that you have an exogenous shock

that's separate from that. And then, the entire move that we had where the curve inverted right here in 2022, the curve inverted not because of recession risk, but because of inflation risk.

And everyone said, "Oh, the curve is going to invert. The Fed just hiked rates. That means a recession is

rates. That means a recession is coming." And if you go back, actually,

coming." And if you go back, actually, during the entire period of this Substack, and even on Twitter, I actually posted so many times I was running steepeners um in in the curve at the time.

And basically saying, this entire idea that we're going to unin- First, they said it's going to invert and create a recession. And I was like, "Yeah, that's not going to happen." And then they said, "Once it

happen." And then they said, "Once it uninverts, we're going to have a recession." And I said, "Yeah, that's

recession." And I said, "Yeah, that's not going to happen, either." I mean, you can just go search my Twitter account like inversion uninver- Like, literally, like this is this is like taking candy from a baby. It's like,

"What are we doing, guys?" Like, this is not rocket science. Like, why why are we coming up with these just like random prescriptive narratives? And we

prescriptive narratives? And we uninverted, and if you know why we uninverted, because growth was actually accelerating, except instead of, you know, bull steepening out of it, there were some bull steepening points, but

overall, we had bear steepening actually out of the curve, which means that inflation and growth were accelerating.

And now we're in this period of time where we're uninverted, and we're chopping in this range, which actually makes sense if you connect it to inflation and real rates and the Fed and everything else that's happening.

So, again, all these ideas that we lay out about understanding what credit risk is, duration risk, connecting it to markets, connecting it to the yield curve, here are all the models for it.

All of this stuff is there's a coherence between the ideas and how you quantify them. And on the Substack, you have all

them. And on the Substack, you have all the ideas, you have all the models, you have all of the tools to connect them.

Now, it's just all up to you. And if you want them all connected in real time for you so that you can, you know, have all the real time understanding, then that's what the entire section of uh all the

paid section for subscribers are, because my entire goal that I have been working on, well, now for years, but especially with these new AI tools, is building agentic models that synthesize

every single factor and provide, you know, a level of insight that basically is not really in the industry right now.

And I just think that all these new agentic models are going to be so critical as we move through this period of time. And so, when we kind of pull

of time. And so, when we kind of pull these ideas together, we have the capital risk curve. Again, this is just the idea that I just shared with this chart about the risk curve and capital

moving out the risk curve, buying into high yield debt, and the idea is that we are still seeing capital rotate across the risk curve, but that comes back to understanding the

risk curve in the first place, which connects to in an expansion, capital rotates outward along the risk curve.

So, from T-bills to Treasuries, investment grade, high yield to equities, and alternatives, risk premiums compress as confidence builds, and this is reflexive. In a contraction, the opposite thing happens.

Capital moves inward. People buy

T-bills, Treasuries, things like that.

And we rerate things. And the steering wheel for this rotation is the perception of duration risk and credit risk.

And again, how do you quantify that?

One, stock bond correlation. Two,

cross-sectional momentum between stocks and bonds. And then three, the yield

and bonds. And then three, the yield curve regime. And if you're saying, "I

curve regime. And if you're saying, "I don't know what any of that means," just take what I just said, feed it into AI, go through all the educational primers on the article, and understand that as well. And if you're saying, "Still

well. And if you're saying, "Still doesn't make sense, and I need to see tangible explanations," the paid report for subscribers later today will go over all of that for where we are right now, and you'll get all the

tangible examples. So, that is how the

tangible examples. So, that is how the risk curve works. We're always moving back We're always moving back and forth across the risk curve. And you always

want to map both of those. And here's a visualization of how we are always functioning across this risk curve.

We're always moving back and forth, depending on where we're going. And this

is always dynamically taking place across different time horizons that you want to quantify.

And so, you can see, you know, you have these different periods of time where credit spreads are moving uh you know, kind of blowing out a little bit, and you have equity markets moving up or moving down, and you want to connect these periods of time with

growth and inflation.

And, you know, I have these other charts and breakdowns for where breaks actually happen.

And traditional credit cycles say, "Oh, we're going to have expansion, euphoria, contraction, and panic." Because,

you know, those types of models for the credit cycle are a bit backward-looking, and they miss structural vulnerabilities. Crises don't erupt from

vulnerabilities. Crises don't erupt from headline levels of debt. They erupt from mismatches between short-dated liabilities and long-term assets. So,

every single financial crisis doesn't come from, "Oh, debt levels are high." It comes because there's an asset

high." It comes because there's an asset liability mismatch. Let me just say that

liability mismatch. Let me just say that again, cuz that is probably when you see a chart on Twitter where they say, "Oh, debt levels are at all-time highs never seen before." And you think, "Oh, wow, I

seen before." And you think, "Oh, wow, I guess a recession's even more high higher probability of taking place right now than it did in the past."

It uh the probability of a recession has zero to do with the levels of debt that we're in, and more to do and everything to do with

if there's an asset liability mismatch in duration risk or credit risk.

And so, mapping those changes is actually how people get positioned into recessions, right? And so, the path for this matters

right? And so, the path for this matters enormously because it frames how much of a [snorts] of a shift you can actually have.

And that's going to be more valuable to understand versus, "Oh, are we in a stage of euphoria where sentiment is euphoric?" Well, I mean, based on whose

euphoric?" Well, I mean, based on whose silo in the social media cycle that we're in, right? That's what becomes difficult. And so, [snorts] these rate

difficult. And so, [snorts] these rate regimes really frame balance sheets, repricings, manageable stress versus forced liquidations that take place, and

and where we are in the overall path-dependent state of of stress.

And so, you know, one of the ways you can go through that is looking at the VIX versus the MOVE Index and some of those things.

You know, we've covered a lot in this session, and I have an entire section on the trade balance that I want to cover.

I'm going to cover it a bit more tomorrow, as well. But, I'm going to go through these slides. Again, these

slides will all be available afterward.

I'm going to go through these a little bit faster, but one of the things that we are going to cover tomorrow in the stream, and also connect to FX, is how do you connect cross-border flows and

trading balances in the world with all of the changes we are seeing between China, geopolitical risk, and everything like that. And a lot of this connects to

like that. And a lot of this connects to how are we framing surplus countries versus deficit countries. By the way, the US is a deficit country in terms of its trade balance. And how do these

flows move back and forth for cross-border flows? And how do you

cross-border flows? And how do you connect them to FX? And how does that connect to carry trades and everything like that?

That's one of the ideas that I'm going to go over in depth tomorrow. And again,

I'll I'll cover these slides again a little bit tomorrow. All these slides will be available, and you can kind of go over them a little bit more um later today when I send them out on capitalflowsresearch.com.

capitalflowsresearch.com.

When you have imbalances between deficit countries and surplus countries, that causes imbalances in savings and investments, and that's what causes a ton of

foreigners to buy US stocks versus other stocks. And, you know, we'll go through

stocks. And, you know, we'll go through some of this tomorrow, as well.

Savings versus investments, how that connects, how imbalances resolve, and then, you know, we'll go through the path dependency of that, connect it to FX, connect it to interest rates, and

everything like that. Um and again, this entire slide will be available to everyone. You can go through this on

everyone. You can go through this on your own. You can connect it to all the

your own. You can connect it to all the models. And then, today for paid

models. And then, today for paid subscribers on the Substack, and then also tomorrow for paid subscribers on the Substack, I'll map through how do we connect this to the actual changes we're

seeing on a daily basis to FX, and net out the attribution analysis.

And you can begin to see that all of these bigger picture ideas that we talked about at the beginning about what's money, what is credit, how do we connect it to where we are in the cycle, how do we connect it to price action,

how do we connect it to models, how do we move to attribution analysis, and then scenario analysis, and then a trade. This goes back to this entire

trade. This goes back to this entire idea of you want to stack these edges over and over and over in markets, which is impossible to do if you're just doom looping on Twitter,

and you're not consistently, I mean, even if you're not a person that you're saying, "Oh, I don't really like, you know, live streams or stuff like that." Then just go read all the

that." Then just go read all the educational primers on the Substack. If

you're someone who's like, "Ah, so reading is kind of difficult for me. I

don't do it a ton." One, read more. Two,

you know, spend time on these live streams every single day going through all these and spending time building models about how these are functioning. I mean,

the models are already all on the Substack already. So, you can just go

Substack already. So, you can just go through everything on the Substack. All

the educational primers are here in this main page. You can go through everything

main page. You can go through everything here. And by the way, I would really

here. And by the way, I would really encourage people, all this work is here.

And one of the things that James and I talk about, and and James goes over on his YouTube channel right here, is how do we take all this informational

edge and then stack it with the ability to actually extract returns from it and not screw it up. Cuz you can have all the best tools, all the best

models, all the best ideas, and you can still mess it up because you're not actually prepared mentally and emotionally to approach markets in a way where

you're extracting exceptional returns.

And I'll let James expand on that a little bit more here because we'll have a live stream on his on his uh channel, and we'll go over some stuff on his side a little bit, but James, I know we

covered a lot in this entire slide deck.

What would be some things that you want to go over a little bit more, some questions you have, or what would you kind of encourage and challenge people to do with these ideas that we're covering right now?

Yeah, I think I think it's constantly good to reiterate, like, a lot of this is a firehose, right? Like, yesterday I missed uh your live stream, so I got to it later on in the evening while

I was doing my stuff, and I'm trying to keep a story going, right? If you miss one here or there, whatever, but I try to keep a story going here in my head and constantly build on that and build on

that and build on that. And I just I have my screen up here. You could You could pop it on, and you could show like um we'll take Oracle for instance just cuz it's relevant, but like

this is something I just look at now.

And if you guys haven't like these two things are becoming you know, vital, I guess, to put the bigger picture together when it comes to

longer term time horizon stuff, right?

So, you have global flows is um I don't know what you want to call the the the the capital flows research regime. Uh what's the YC? Um

regime. Uh what's the YC? Um

What is that?

Yeah, the yield curve model. Yield

curve. Yield curve. Sorry, yeah, the yield curve regime, right? So, you have that running in the background, and then you have the um multi-factor like return uh attribution on the bottom here. So, you could start

to paint a picture in your head even on a single stock when you're building your story, kind of following along this arc, and then thinking about it for your

personal bets, right? Like, if you happen to be at Oracle, you could start to go have have Claude up on the side and be like, "All right, given this

return attribution, like, looking back at some of the examples from before, given that we're in this whatever bear flattener regime, what can be some of

the takeaways for me here for risk out into the future? How should I be positioning into that? How can I think how that, you know, comes into my personal trading

game plan and archetype and all that?

So, I really like this stuff. I think

you guys should go find them on the globalflows.website,

capitalflowsresearch.com, add them to your TradingView, and it should just be a thing that you have like, all the time, you know? It's

It's free, right? I I Like, I don't know what people what else people want. It's

like some of the best stuff you're going to find um when it comes to uh macro research and kind of building your knowledge arsenal. So, I just want to

knowledge arsenal. So, I just want to make sure this chart right here. I think this is I mean, this is a chart that I use all the time, this kind of thing.

If you're looking at this chart and saying, "Wow, that seems like a lot to really take in. I don't really understand it." Here's the best part

understand it." Here's the best part about it. You could take

about it. You could take one, just all of the corpus of knowledge, you could take the transcript from this, you know, podcast cuz it's on YouTube, and you can just take it and convert it.

You could take the all the educational primers I have, put it into a file, and then tell Claude code or AI, I mean, this is all free if you have a Claude code account or any AI account, or you

can just do it manually in the app, and say, "Hey, reference my TradingView chart, or reference my TradingView if you have Claude connected to TradingView now, and reference the corpus of knowledge that I

have in this file right here, and tell me what is happening and how I should think about it as it relates to the yield curve and the attribution analysis, and connect the two, and tell me how I should think about it."

Mhm.

You know, I mean, it's just again, it's never been easier, but, you know, it's it's it's wild even though everyone has all these tools with AI, strange how uh for some reason people are still lazy,

and nothing gets done, right? You know,

has has anyone else just felt like they've gotten more motivation now because AI's out? It's like, "Well, maybe some people." And they're just locked in, but I'm sure a lot of people are still saying like, "Oh, man, I got to go sit at my desk now and go do this

thing." Right? I mean, it's there's

thing." Right? I mean, it's there's still discipline and hard work required.

Right? And I think I could I could push you farther away, right? We were talking about this a

right? We were talking about this a little bit. It could almost push you

little bit. It could almost push you farther away, right? Yeah, because it's it's uh it's injected these new things where you're like, "Oh, let me put this in.

Let's see if this works. Oh, now I'm rebuilding my AI because it's not working. Now I'm just spending 20

working. Now I'm just spending 20 minutes trying to figure this out, and let's hope I can come to my desk and not spend $100 in tokens." I mean, I'm doing stuff that probably most people aren't doing, but let me spend $100 in tokens

to you know, re-fix what I just screwed up, and I haven't gotten anywhere today. You

know, I mean, it's you know, it's another level of challenge you have to accept, but, you know, it's a new level that you can get to, and it's just net Things have never been

more accessible to people who have high agency and are deciding not to be used by all of the extractive elements in the

economy right now, whether that's social media. I mean, it's just social media AI

media. I mean, it's just social media AI in my mind is just like I mean, just think about the people that first discovered fire. They're like, "Oh, wow,

discovered fire. They're like, "Oh, wow, man, this is really cool." And then they burn down a house, and they're like, "Oh, may- maybe maybe we should be careful with this, right?" And then I'm sure there was someone that's like,

"Never use fire again."

Right? And then [laughter] And then you're just like, "Oh, well, maybe we should use this to cook some food, guys.

Maybe we should use it." And then, you know, and then they kind of like figure out their lane, but there's always some guy that burns down a house. You know,

it's just you know, it's like, "Well, maybe you should just figure out how to use fire better, right?"

And I think that's just how it's going to be for every piece of technology that comes out. And the people who know how

comes out. And the people who know how to harness technology, cuz by the way, not everyone does, clearly, or else everyone would be incredibly wealthy and have much better lives,

but the fact that this is all accessible to everyone, and the biggest limiting factor is you. It's kind of funny. There

was this like video, I forget when this was, where uh um the you're it's going back and forth with like an AI, and he's like, "Uh what's the biggest problem that I face right here?" And it's just like, "Well,

right here?" And it's just like, "Well, they fixed a couple things with the model." And he's like, "What's the

model." And he's like, "What's the biggest problem that I face for uh like making this money that I'm trying to make?" And they like go through some

make?" And they like go through some other issues, and then they're just like, "What's the biggest problem I face?" And it's just like, "The only

face?" And it's just like, "The only thing left is you."

[laughter] It's It's like, you know, the the the final factor for why you're not successful is like you have this perfect playbook, and the the only thing that's left is you. The only explanation

for why you're not successful is you.

Right? And it technology just puts you face to face a little bit more, which is why this like delusion in AI is probably so popular with people cuz they're just like, "Well, make me make me feel better

about myself, right?"

I agree. Hey, um I'm going to jump and get ready for my stream. If you guys want to see more of globalflows, I'm going to have him over there for a little bit. Uh it won't be as long or in

little bit. Uh it won't be as long or in depth, but we're going to talk about some some other stuff. So, thanks for hanging out. I'll talk to you guys

hanging out. I'll talk to you guys later.

All right, sounds good. Thanks, James.

Um everyone else, as a final point, again, everything that I covered today, I'll be on James' stream in a little bit. You can go to his YouTube channel.

bit. You can go to his YouTube channel.

He's linked. Go to Go to my Twitter page. I just retweeted some stuff by

page. I just retweeted some stuff by him. You can go find him at James

him. You can go find him at James Rosendahl on Twitter. But again,

my entire goal, mapping the macro regime, we're going to cover it more today in the report that I sent out to everyone, go through all of the paid subscriber stuff. I'm sorry, free subscriber stuff.

stuff. I'm sorry, free subscriber stuff.

You know, don't even go through the paid stuff right now. I mean, just go through and show up at the live streams every single day, and, you know, once you're ready, you can go become a paid subscriber on everything that we're

going to cover.

But this entire slide deck, all the models that I shared in today's session, all the charts, every single thing that I shared today, I am going to send out for free on the Substack if you're a

subscriber at capitalflowsresearch.com.

So, just go there, become a free subscriber, go through all the educational primers, s- open a Claude code account, do it for a month, right?

Spend 100 bucks, and just say, "You know what? At the end Let me just go see what I'm going to accomplish. I'm going to go pay 100

accomplish. I'm going to go pay 100 bucks." And you can cancel it at the end

bucks." And you can cancel it at the end of the month, guys. I mean, if someone doesn't have a entire account right now when they're just trying stuff, I mean, you're just missing it, right? I

guarantee you, if you lock in on a Claude Code account, you can figure out a way how to make 100 bucks with Claude Code to cover.

And by the way, if you have some insanely amazing model that you build, I'll give you 100 bucks for it, right? If it's a model that adds value, and you say, "Hey, I built this strategy and this

model. I used Claude Code. I did this. I

model. I used Claude Code. I did this. I

did this. I did this. Could you share it with subscribers?" And or you would you

with subscribers?" And or you would you pay me for it or something like that? I

will 100% do that if it's high quality enough.

And I've done that with people. People

have shared models, and I'll share them on my Substack, and I'll say, "Hey, this guy, you know, easiest like literally easiest path forward if you're saying like I uh you know, I'm just trying to figure out all

this stuff and pay for my AI and pay for my data or something like that."

If you go create something, and it is using all the stuff that we're talking about, and it's exceptionally modeling markets, and it's actually adding value to people in a way that is

differentiated, if you do all of that, and you send it to me, and I think it's high quality enough, and again, you see all the models I build, if you can just build models like that, I'll pay you for them. I'll share them on my Substack.

them. I'll share them on my Substack.

I'll tag your Twitter. I'll tag your Substack. If you want to have something

Substack. If you want to have something that's good, then send me something that actually is showing that you're working and differentiating yourself.

And for everyone else you're saying, you know what? I'm just going to focus on

know what? I'm just going to focus on trading markets, synthesizing all these moving parts in real time, and and just managing my own risk, and you know, all this has been really helpful, but I'm trying to dig deeper.

And all the paid subscriber stuff, again, I'll go over it today in the report for paid subscribers, that's all laid out every single day on the Substack.

So, everything is laid out. If you have any questions, you can always shoot me a DM on Twitter or Substack or whatever it might be. I would encourage you to go

might be. I would encourage you to go through all the educational primers.

I'll be on James's stream in a little bit, and we'll be going over some other stuff over there, but these are the main ideas that I wanted to cover today.

We'll cover more on cross-border flows and FX tomorrow. And with that, everyone, thank you for joining the Capital Flows livestream. Share this

video or this link with someone that you think would really appreciate the analysis, and with that, I will see you guys soon.