Speaker 1Happy Wednesday out there, Team 42. It's your skipper here, Darius Dell, to present our macro minute for Wednesday, October 28th, 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? SK Hynix's Q3 results challenged the durability and severity of the current risk-off inflation market regime. The seven-fold increase in profits and multi-year backlog through 2029 to 2030 signals that memory prices have not yet peaked. This is bullish with respect to the medium term. The long-term capital misallocation risk here is that firms may be paying 2026 supply-constrained prices for goods and services that are expected to be delivered in a 2029-2030 supply-abundant global compute ecosystem. The secular deflation risk is real. What key macro data or policy signals supported our active themes or consensus expectations? The September new home sales data supported our play-action pass to set up the run and paradigm CAK run at hot themes. The housing market is unparalleled. The market is unparalleled. Highly unlikely to durably recover mid-paradigm C, absent direct policy intervention. What key macro data or policy signals challenged our active themes or consensus expectations? The September new home sales data challenged a consensus forecast of accelerating growth. And finally, what other key macro data or policy signals did we analyze in today's lead-off morning note? Number one, the FOMC is expected to hold at its October 27th to 28th meeting later today. Markets priced nearly a full December hike, and most FOMC participants have backed an additional 1.5 percent. The FOMC is expected to hold at its October 27th to 28th meeting later today. The key takeaway here is consensus appears to be slowly coalescing around our then-Prescian calls that A, Fed policy is clearly accommodative on an aggregate economic basis, and B, despite this condition, the Fed will not get carried away with rate hikes in this mid-cycle policy adjustment cycle. Where we expect consensus to catch up to 42 macro research next is in our expectation for surprisingly dovish policy throughout 2027 and 2028, i.e. the run game component of our play-action-pass-to-set-up-the-run theme. Number two, top-rated data set of bonds now yield 7 percent, up from 5 percent in early 2026. The Bloomberg Investment Grade Technology Index yields about 6 percent, up 140 basis points year per year. Meanwhile, credit default swaps for Broadcom, SpaceX, and Oracle have climbed to junk-like levels. The key takeaway here is that as marginal demand for capital to finance the AI infrastructure build-out has accelerated, the marginal price of money has increased. This dynamic, which signals the market is becoming increasingly discerning about prospective AI winners and losers, is likely to continue absent policy interventions such as the Fed-Treasury Accord 2.0. And finally, number three, physically destructive cyberattacks are rising across NATO. Pro-Russia hackers are targeting utilities and factories. Incidents struck Spain and about 20 other countries, mostly NATO members. Hundreds of attacks hit water plants, factories, and dams. The attacks stopped short of combat, which preserved the economy for a long time. However, concerns continue to rise over the next few years. For instance, the U.S. economy has serves deniability for state sponsors like Russia, Iran, et cetera. The key takeaway here is that we and luminaries such as Ray Dalio in the global macro field, Neil Hound in the field of democracy, and Dr. Peter Turch in the field of Clio Dynamics continue to warn about the rising probability of the U.S. descending into Paradigm E, aka major political realignment and total war. If you do not have a plan in all caps for your family and your wealth, make one. So as always, wrap up with a question from our community. This one's titled, don't miss the 10 best trading days per year. It says, so I have come across this line that there are 10 best trading days per year, and if you miss them, in over 20 years, you'll lose half your returns. Also, that the majority of these best days fall in bear markets. I know KISS hasn't really been around through a nasty real bear market, but I wonder how many of these best days would be missed by being sidelined. For example, how much of the post-COVID B-shaped recovery would KISS investors have caught? Of course, one would hope that KISS would have got us out of the market prior to the crash, but that seems like the kind of crash no one saw coming. I disagree with that, and we'll share that with you. Just an interesting stat that I came across that the buying holders like to say, but just wanted to get thoughts of the community. So I love this question. My industry, the global hedge fund industry, which we are making available to you at a very retail-friendly price point, exists because everything in the premise of this question is flat out wrong. I mean, I don't want to use a bad word, but it is B bull underscore, starts with an S, ends with a T. I'll let you fill in the blanks. And so let me start with the premise of the question that KISS may or may not be good at risk managing very fast, bear markets. In fact, it's very good at that. That's one of my core competencies and why we have so many clients across the global buy side relying on our risk management systems. So we go into our Dr. Mo signal for the SPY, which is the same signal that KISS would use for the stock allocation. We zoom in on COVID, which again was the fastest 35% decline in U.S. equity market history. Again, this is the fastest decline in the U.S. Our signals on a rolling out of sample basis would have gotten you out of the market on the 28th of February and back into the market on the 3rd of April. Again, 28th of February missed roughly about a 25% decline from there and back into the market on the 3rd of April ahead of what was obviously a multiple doubling of the market since then. So this is exactly why we use the systems we use. We KISS, Dr. Mo, they infuse what the buy side calls volatility targeting and dynamic position sizing, very complicated statistical processes that allow investors to spot risk as it develops as opposed to once it happens. Again, that's a big difference between spotting risk as it develops, i.e. getting out at the end of February in COVID versus, you know, oh, I'm down here and I'm wondering whether I should buy or sell or hold. And so obviously people kept selling because otherwise the market wouldn't have gone down. And so clearly lots of people were puking down 35% in their holdings because they did not have a system that could spot market risk on an ex-ante basis, both going into the drawdown, but also coming out of the drawdown. So investors need to be aware that, you know, these are some very powerful systems we're using. That's why our testimonials page looks the way it does. Spend some time on that if you're skeptical about what it is that we built here that has hundreds of institutions around the world and how it's all benefiting and staying on the right side of market risk, generally speaking. So, and one final thing I want to say, going back to this presentation, again, I hate that, you know, that this 10 best days in the market crap. I mean, if you learn one thing from Darius Dale throughout my near two decade career on Wall Street is that that 10 best days in the market crap is the most insidious form of, you know, I don't know, it's very self-centered, self-serving marketing that harms so many investors. I mean, think about how many people's lives are ruined in the dot-com bust. Think how many people's lives are ruined in the global financial crisis, all because of this, you know, self-serving buy and hold marketing garbage. It's garbage. Literally, the math does not bear that out. And this is the chart that proves it. So what this chart shows are four time series. You know, it's a rolling, trailing 30-year time series. It's the $100,000 portfolio over the trailing 30 years with, you know, different, you know, different categories of best and worst days excluded. So the red line shows how much your $100,000 would have grown to if you just had the S&P 100 total return over that time period. You would have made, you know, you would have $1.7, $1.8 million in your account 30 years later. Going to the black line, which excludes the top 20% of days and the bottom 20% of days, notice that the bull market marketing garbage does not exclude the bottom. They only exclude the top days to make the analysis supportive for their argument, which if you walked into a room on global Wall Street with such self-serving garbage masquerading as analysis, not only would you get laughed out of the room, people would post about how ridiculous that is on message boards. I mean, we'd be talking about that in our Bloomberg chat. Like, did you know so-and-so came in here with this ridiculous piece of paper that tells me that this person knows nothing about statistics, knows nothing about math, and obviously very clearly is here to sell you something. So anyway, for those of us who do statistics and math the right way, you'd obviously have to wincerize the sample in a, you know, in a near uniform basis just to make the point. And so if you wincerize the sample by excluding the top 20% and bottom 20% of days, you actually wind up with about a million more dollars. Let me get this out of the screen. My apologies there. You wind up with about a million more dollars. If you wincerize the sample by excluding the top 20% and bottom 20% of days, you actually wind up with about a million more dollars. You wincerize the sample by creating a positively skewed return distribution, which is what people in my industry get paid to do. This is why we have $6 trillion, not we, but the global hedge fund industry has $6 trillion of AUM and institutional investors are handing, forking, wheelbarrowing over their money, tripping over themselves to give them money at 2 and 20, 3 and 30 at accelerating rates. If you go back and look at Q2, it was the largest incremental net asset flow into the hedge fund industry that we've seen since just prior to the global financial crisis. A pause for just a moment. A pause for dramatic effect. And these are the world's largest institutional investors, pension funds, endowments, et cetera, that know exactly what they're doing as it relates to managing risk, unlike some, you know, I don't know, wealth management jockey traveling around the world trying to get you to give you 1% of your money every year to be in some buy and hold passive product. Yikes. Anyway, so if you exclude the, let me see, if you exclude the top and bottom decile days, again, you know, symmetric wincerization of the sample, you wind up with about a million more dollars. If you exclude the top 10% of days and the bottom 10% of days, you end up with more than double the money at $4.7 million. Again, you're excluding the top 10% of days and the bottom 10% of days. 10% of days. With that self-serving marketing garbage, they only exclude the bottom percent and, you know, sorry, they take out the top percent, which obviously if you take out the top, knowing that most of the big up days come in bear markets, you would also have to exclude the bottom percent too. And so when you exclude the top and bottom percent of decile days, you wind up with $4.7 million. And then, you know, this is what the hedge fund industry is designed to do, this blue line here. Again, it's very hard to achieve these results, but we show it in the chart for illustrative purposes. If you exclude the top 10% of days and the bottom 20% of days, which obviously means you're creating a positively skewed return distribution, which is what people like me and many of the funds that we serve across the global buy side that are charging their clients three and 30 to manage their money, that's what we're all getting paid to do. We're not getting paid to have this Gaussian log normal distribution. We're getting paid to chop off the left tail of the distribution and have a positively skewed distribution. If you have a positively skewed distribution by excluding the top 10% of the day, you're not getting paid to have this Gaussian log normal distribution. And bottom 20% of days in the S&P 100, you wind up with $4 billion. I didn't, from $100,000. Now, obviously, it's very impossible. It's almost impossible to do that. I mean, you have to be basically Jim Simons at Renaissance Technologies. But again, that is the value of attempting to and ultimately delivering on a positively skewed return distribution. But even if you did not generate a positive, if you knew your strategy was unable to generate a positively skewed return distribution, just by avoiding bear markets, just by avoiding what they call volatility drag, please look that up after this. Just by avoiding volatility drag, you wind up with either 50% more money or twice as much money. So I'll wrap it up there, let you guys get back to your days. But again, nothing chaps my butt more than this self-serving, very harmful to families around the world, this buy and hold marketing garbage. Again, that stuff works when there's no secular bear market. But when there's a secular bear market, think how many people's lives got ruined from that market. But think how many wealth managers around the world who got rich from it. And that is sick. You need to align your values, your firm, everything you do with your clients, not with your bank account. And there's so many people out there aligning their activities, their businesses with their bank account, and not with the interests of their clients that they're allegedly fiduciaries of. So obviously I'm hot and bothered by this. So I'll let you guys go get to my lunch break. Everyone have a wonderful day. We'll catch back here on Monday. I'm going to be in the studio. I'll see you guys later. Bye. I'm excited for meetings. So everyone have a wonderful day.
Speaker 2Cheers. Thank you.
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