Flipping bearish

Thoughts on the QRA, FOMC, and a list of stuff I'm shorting

The Treasury QRA, the FOMC, and US NFP make this a pivotal week for the market. There is a wide divergence between what US rates, FX, and equities are signaling in their expectations for this week’s outcomes, and this divergence presents a great opportunity for traders if executed correctly. I’m trading while on vacation this week so this post will be missing the supporting charts that take up more time to include.

Much of what is driving speculative assets such as crypto, crypto-linked equities, and unprofitable tech companies higher is the narrative that Trump is debasing the US dollar and the fiat-based system by undermining the Fed’s independence, trying to engineer interest rates lower, and driving investors away from dollar assets. This has been the premise for the American exodus trade - a theme that has delivered a lot of trading profits for me this year.

However, a lot of the reasons for selling the dollar and protecting against fiat debasement are on pause. Trump has backed off from his threats to fire Powell, and the White House has declared victory on tariffs via empty trade deals that they won’t be able to enforce. There has been increased speculation that Bessent will engineer Treasury yields lower by decreasing issuance of bonds and notes, but most banks are forecasting no significant change in tomorrow’s QRA (link to report at the end of this post) as the Treasury already has to contend with issuing an outsized $1.05T in debt over the next quarter, and a lot of the increase will already come from Tbills.

Meanwhile, inflation is picking back up on a YoY basis while the worst of the inflationary tariff effects have yet to show up in the data. Sure, these tariff effects are one-time only, but as long as they keep CPI and PCE elevated, they will keep the Fed paralyzed in their ability to cut rates. With each meeting that passes, the market keeps pushing out its expectations for cuts. SOFR futures for March 2026 are pricing in only 63 bp of cuts, back to the low for this cycle.

We may look back on this week as the turning point in the everything rally. The lifting of the debt ceiling means the Treasury needs to rebuild its TGA from $323B to $850B within a quarter, causing a significant reduction in USD liquidity in a short amount of time. If tomorrow passes with no dovish surprises from the Fed or the QRA, the market will find itself entering a regime where short term yields are rising, the dollar is rallying, and liquidity is receding - a cocktail of factors that will stop the risk rally in its tracks. The market is not pricing this scenario at all, with VIX at 15 and SPX forward P/Es at cycle highs.

I’ve managed to ride this bull market by riding longs for a while, but it’s time to get off the train and go in the opposite direction. In the paid subscriber section, I’ll go through a list of short trades I’m putting on today.