Are Bessent and Zervos cooking up a Fed-Treasury Accord 2.0?

Happy Monday out there, Team 42. It's your skipper here, Darius Dell, to present our macro minute for Monday, September 28th, 2026. Hope everyone had a great weekend. So as always, we'll start with the executive summary from today's lit off morning note. So let's dive right in. Today's key macro question is, are Besson and Zervos cooking up a Fed-Treasury accord 2.0? Short answer is probably. For what it's worth, we've been explicitly forecasting greater coordination between the Fed and Treasury since we first published our investing during a fourth term of regime analysis in the summer of 2023. No change to this data-driven, robustly researched view. The key supporting evidence is Treasury Secretary Scott Besson named Jeffries analyst David Zervos as an advisor. Quote, Zervos brings 35 years of experience across global financial markets, central banking, and macroeconomic analysis, the Treasury said on Monday. For what it's worth, Zervos backed Fed cuts last year and labeled former Fed Chair Jerome Powell as a, quote, anti-Trump operative. This comes amid Bloomberg reporting that Treasury senior ranks have seen heavy turnover since Besson's early 2025 arrival. Seven Senate-confirmed officials, including the Deputy Secretary and two undersecretaries, have departed the agency for the Partnership for Public Service. So what does this all mean for your portfolio? Zervos noted the post ends in April, which signals these being tapped to lead or contribute to a specific project. We suspect that this project will involve an expansion of the Treasury's buyback program at a minimum and at a maximum, the development of a Fed-Treasury, the Fed-Treasury Accord 2.0, which may seek to truncate the 75-year-old regime of independent monetary Policymaking that the original Fed-Treasury Accord of 1951 ushered in when it ended nine years of yield curve control that capped T-bill yields at 0.375% and T-bond yields at 2.5%. The double layer of irony here is that the next Fed-Treasury Accord may see the program reinstated simply because Secretary Besson, who had a front row seat to George Soros' breaking of the Fed-Treasury Accord, the Bank of England and the British Pound in 1992, does not agree with the market's appropriate repricing of Treasury bond yields. Recall that the 42-macro 10-year nominal Treasury yield fair value model currently pegs the equilibrium rate at 6.18%, which is 94 basis points higher than the current value of 5.24%. If our model continues to be right, asset markets are likely headed for a positive liquidity supply shock in 2027 that investor consensus is not appropriately positioned for, according to our position. Why? Because of investors' myopic focus on the midterm elections, 650 diesel, and the Fed's tardy response to the backup in R-Star, which are three salient risks that would dissipate the second the Trump administration develops the humility required to admit defeat in the straight four moves. So some interesting comments today on that as well. So I'll let you guys review that on your own time. As always, we'll wrap up with a question from our community. This one's titled Secular Bear Market, Global or U.S.-Centric? It says, is the predicted coming second of the bear market global or U.S.-centric? So in our view, it's highly likely that it will be a global secular bear market if only because we've seen a tethering together of the global industrial cycles because of the large-scale AI infrastructure build-out. So we're ordering chips from Taiwan that are being designed in Silicon Valley that are being further designed in the Netherlands with lithography machines that are being created and shipped with Japanese material. I mean, this whole thing, the entire world is currently engaged in a sort of an arms race, if you will, on AI. And so it's highly likely that once we get to the other side of the secular world market, in our view, which we will, our current base case scenario is that it peaks in the second half of 2027 or in the first half of 2028 for a variety of different reasons, cycle-based reasons, as well as our views on the political cycle. If that's true, then ultimately we're going to see a coordinated, correlated decline across many of these countries. And so we're going to see a coordinated decline across many of these countries. So in our view, you're not going to be able to hide out in global equities. Global equities may go down less than U.S. equities to the extent that positioning is not as crowded or as lopsided. But the reality is, if you're trying to make money in a secular bear market, let me stop you right there. You should not be trying to make money in a secular bear market. Bulls lose lots of money in secular bear markets. Bears lose lots of money in secular bear markets. They typically feature very sharp rallies and recoveries that ultimately fade and give way to new lows. And so, you know, everybody loses tons of money except for the people who are in cash patiently waiting for the new bull to develop. So reorient your thought process on that to the extent that you're licking your chops trying to figure out what cheap stocks to buy in the coming secular bear market. That will be a very, very grave mistake for you, your family, and your portfolio. So wrap it up there. Darius Tahir presenting our Macro Minute for Monday, September 28th, 2026. Best of luck out here today. We'll catch you back here tomorrow. Cheers. If you enjoyed this content, please remember to like and subscribe. Thank you. This content is for informational purposes only and does not constitute an offer or a solicitation. Reliance upon the information in this material is at the sole discretion of the viewer or listener. Investing involves risks. Any reference to a company, issuer, or investment strategy is for instructive purposes only and does not constitute investment advice. For full disclosures, visit 42macro.com. Backslash disclaimer.