Speaker 1Happy Tuesday out there, Team 42. It's your skipper here, Darius Dell, to present our Macro Minute for Tuesday, October 27, 2026. As always, we'll start with the executive summary from today's lead-off morning note, so let's dive right in. What did we learn today that will likely have the greatest impact on your portfolio? The reaction of President Lula's re-election in Brazilian financial markets supported the durability and severity of the current risk-off inflation market regime. Irrespective of what happens in next week's wealth tax ballots in California, Colorado, and Washington, significant redistributive policies such as wealth taxes and trust busting are most likely coming whether you agree with them or not. In fact, we view any failure of tax-to-rich efforts next week as increasing the odds of a tidal wave of significant redistributive policies in 2028 because voters will finally realize that their divided and conquered votes don't matter anymore due to decades of corrupt campaign finance deregulation. The odds of populist cross-party cohesion may skyrocket in this scenario. President Lula's re-election is likely to have the greatest impact on the future of the country. If you need some supporting evidence on that, there's about 10,000 pages of Ray Dalio, Peter Turchin, and Neil Howe books that you should probably study before you have an adverse reaction to what I just said. Once you study those 10,000 pages from those luminaries, then you're allowed to have an adverse reaction to what I just said. What I'm trying to do is protect you and your family's wealth from these macro headwinds that we think are increasingly probable. Anyway, getting back into the data, what key macro data are policy signals supported by our active themes or supported our active themes or consensus expectations? The September core capital goods, new orders, durable goods, new orders supported data supported our resilient US economy and paradigm CAK run at hot themes. Japan's September SEP services PBI data supported the consensus forecast of accelerating inflation. What key macro data policy signals challenged our active themes or consensus expectations? The September core capital goods, new orders, and durable goods, new orders data did not support the consensus forecast of accelerating growth. And then finally, what other key macro data policy signals do we analyze in today's lead-up morning note? Number one, in the latest show of support for our jobs recovery theme, Microsoft plans buyouts for roughly 60,000 staff to cut costs and reshape its workforce for AI. Also, Microsoft earnings tomorrow will test whether AI spending continues to pay off in the form of incrementally booming revenue and earnings growth. It probably will, but we're not so sure that backward-looking results and make-believe CapEx guidance will matter until markets see the whites of the eyes of any politically induced slowdown, and data center construction, which we view as an increasingly probable risk per the advent of the next week's election results. Number two, more on the Anthropic S1 filing. So quarter-over-quarter revenue growth slowed from roughly 140% to 145% between the second quarter of 2026 and the third quarter of 2026. Additionally, three tech firms' cloud marketplaces drove 48% of the first half of 2026 sales as concentration risk, and as a concentration risk as some rivals build models. Meanwhile, net losses hit $42 billion in 2025 and $81 billion in the first half of 2026. All told, we view Anthropix and OpenAI, the world's two largest closed-source LLM providers, as the most likely poster children of the eventual AI burst. Per our Cold War 2.0 theme, China's lower-cost, more abundant compute-- sorry, more abundant compute open-source LLMs are highly likely to win the AI race absent government intervention. And then number three, France's dependence on foreign bondholders has contributed to recent volatility. Non-residents own roughly 60% of French debt near a decade high. All told, investors must keep an eye on the 30% of US treasuries that are owned by foreigners. Although, while investors must keep an eye on the 30% of treasuries that are owned by foreigners, it's the 60% that are owned by investors whose demand is elastic that matters most to asset markets from a policy response perspective. As always, I'll wrap up with a question from our community. This was titled LMN Dumb Question. And before I even read the question, let me remind everybody that in this community, there are no dumb questions except for the ones that have already been answered by our educational resources. Click on the hamburger menu in the top right. You can check out our KISS FAQ, Dr. Mo FAQ, Forth Turning FAQ, the glossary that explains all of our models, how they work together, our general macro risk management concepts, basically everything you need to know to be a top flight institutional risk manager on global Wall Street, the macro class, which summarizes all that charts and webcasts, and then our cognitive biases FAQ, which is basically everything you need to know to protect your portfolio from yourself. We are our own worst investors. We're our own worst enemies as investors. Our brains are literally hardwired to make terrible investment decisions. Most people don't realize that. When you study the legions of Nobel Prize winning research that we've studied throughout my career, you realize very quickly that our brains don't work for investing. You need to reprogram your brain to be a good investor. And that's way more important than anything you're going to learn in the macro class, the glossary, the Forth Turning FAQ, the Dr. Mo FAQ, the KISS FAQ. You can figure out how to shut down your fast brain, your reptilian brain. You can figure out how to generate the investment results that you want across market cycles. So getting back into this, the question reads, irrespective of what happens in next week's wealth tax ballots in California, Colorado, and Washington, significant redistributive policies such as wealth taxes and trust busting are most likely coming, whether you agree with them or not. Does trust busting in this context mean antitrust action against large companies? Or does it mean somehow breaking up or taxing family or estate planning trusts? Or both? My assumption, based on everything that we've been reading, if you think about the work that we're seeing out of the budget lab, the Penn Wharton budget model, obviously a lot of the work we cite in terms of building these core fundamental research themes in terms of where are we in this broad, you know, seculum cycle that's been dictating and governing financial markets, I would argue, since the GFC, but certainly since COVID. In our view, we think we'll most certainly see large-scale antitrust action against these large monopolistic companies. I mean, there's absolutely no reason that Meta needs to own WhatsApp and Instagram or Google needs to own YouTube and Android. And, you know, this is ridiculous. We know it's ridiculous. But, you know, it's not for me to decide. It's not that it's not, you know, I'm not here voicing opinions. We're just explaining that, hey, we've seen this movie play out many times before, not just in the United States economy. We've seen this play out before many times in history when you get to a certain point in income and wealth inequality and the wealth pump has been on for as long as it's been on in this in this economy. You know, there's hundreds of societies that have gone through this program, all looking different, you know, obviously different points in human history. But the results are typically the same. You tend to wind up with more cohesion, more social economic, more socioeconomic integration. And the only way you can wind up in those outcomes is by redistributing income and wealth, such as, you know, breaking up large companies and maybe even in raising the estate tax. The debt tax is definitely something we think is going to come home to roost. And so ultimately, you think about the implication of some of these policies. Let's say California, you know, they legislate the wealth tax into existence next week. It's $100 billion of wealth that California's roughly 200 billionaires, 300 billionaires are going to have to come up with. So are they going to sell stocks? Are they going to sell bonds? Are they going to take cash out of money markets and drain liquidity from funding markets and the repo market around the world? I don't know. But we're telling you that this stuff will impact asset markets. If you see more and more and more of this stuff, then you're going to ultimately have a real issue from a secular bear market standpoint, which is, in our opinion, a very high probability outcome anyway on the other side of this AI CapEx bubble as the canal, railroad, consumer goods, and IT CapEx levels have proven. So we'll wrap it up there. Jerry Still here presenting our Macro Minute for Tuesday, October 27, 2026. Best of luck out there today. We'll catch you back here tomorrow.
Speaker 2Cheers. 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/disclaimer.
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