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Dear all,
When I look at the markets today, I see a story that feels almost cinematic.
It is not just about numbers flashing on a screen or percentages written in headlines - it is about forces colliding, extremes stretching the limits of the system, and echoes of history returning to remind us that cycles always repeat.
This is not just analysis; it is a narrative, and it is unfolding before our eyes.
📈 Liquidity Meets Fear
The most striking feature of this year is the relentless flood of money into ETFs.
More than $800 billion has already poured in - an astonishing $5 billion every single day.
If this continues, we are on track for $1.2 trillion in inflows by the end of the year.
That number has never been reached before.
Think back to 2021, when the frenzy of the reopening trade brought in $900 billion across the entire year, fueling a +27% rally in the S&P and more than +21% in the Nasdaq.
That was remarkable, but what we are seeing now is even larger, even faster, and potentially even more destabilizing.
This time, however, the story is not one-sided. While passive investors are piling in with record enthusiasm, hedge funds are building record short positions.
Their exposure on the S&P 500 futures has ballooned to $180 billion, representing 27% of all open interest. These are the highest levels in two and a half years.
The last time positioning looked like this, in September 2022 and again in March 2023, the market faltered quickly - falling -8% and -9%.
But markets often twist expectations.
In 2019, similar bearish extremes led not to a collapse but to a violent +12% rebound within three months as shorts were forced to cover.
What we are seeing today is a duel between relentless inflows and concentrated short bets.
Two tectonic plates grinding against each other, building pressure. And as history has shown, the release of such pressure never comes quietly.
💵 Debt, Deficits, and the Dollar
Beneath the surface of these flows lies a deeper reality.
The United States cannot sustain elevated yields and a strong dollar while simultaneously running record fiscal and trade deficits.
The math does not work, and the market knows it.
We have seen this movie before.
In the mid-1980s, US 10-year yields hovered around 10%, and the dollar surged to heights that threatened global stability.
The world responded with the Plaza Accord of 1985, a coordinated intervention to weaken the dollar.
The consequences were dramatic: over the following three years, the dollar fell -46% against the yen and -33% against the Deutsche Mark, while Treasury yields collapsed from 10.8% in 1984 to 7.5% in 1986.
Policymakers did not choose that outcome freely - it was forced upon them.
Today, with twin deficits once again ballooning and debt loads heavier than ever, I believe the same playbook is already being written.
Yields will be suppressed, the dollar will be pressured lower, and what will look like growth on the surface will in fact be inflationary financial repression.
The truth is, policymakers don’t really have choices here. Debt dictates the path, and history provides the precedent.
🥇 Gold’s Moment of Truth
This backdrop explains why gold is shining with a brilliance we haven’t seen in decades.
Up 35.5% YTD, gold is on pace for its best year since 1979, when it surged +126.5%.
During the 1970s, gold compounded at an extraordinary +30% annually, while the S&P 500 barely managed +1.6%.
That was a decade of inflation, energy shocks, and political turmoil, and gold proved itself as the ultimate store of value.
The lesson has not changed.
Today, Americans are paying about $0.19 per kWh for electricity.
Yet, when priced in gold, electricity is actually cheaper now than in 1980.
This is the essence of what gold does: it preserves purchasing power across time, across crises, across policy errors.
Fiat currencies erode because they can always be printed. Gold cannot. It holds energy and value intact.
And that is why central banks, investors, and even nations turn to it whenever the cracks in the financial system widen.
To me, gold is not just a hedge - it is the anchor in a storm that is gathering strength.
🌍 The Awakening of Emerging Markets
Another part of this story that excites me is the quiet but powerful awakening of Emerging Markets.
For fifteen years, EM currencies have been chained by the strength of the dollar, weighed down by commodity cycles and global imbalances.
But this year, the EM FX index has broken out of that downtrend for the first time in over a decade.
The last time we saw such a breakout was in 2003, when the Brazilian real soared +47% against the dollar and MSCI EM equities climbed +56% in just one year.
That move marked the beginning of a four-year bull market that delivered +370% returns for EM equities.
Today, I see conditions aligning in a similar way: rising commodities, a weakening dollar, and capital searching for opportunities outside of the crowded US markets.
Emerging Markets may be overlooked now, but they carry the seeds of one of the most compelling investment stories of the decade ahead.
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