Will Paradigm C, a.k.a. “Run It Hot” break the global bond market?

Happy Tuesday out there, Team 42. It's your skipper here, Darius Dahl, to present our Macro Minute for Tuesday, September 1st, 2026. As always, we'll start with the executive summary from today's lead-off morning note, so let's dive right in. Today's key macro question is, will Paradigm C, aka Run It Hot, break the global bond market? The short answer is no, because it will force an elongation of Besson's Bridge, followed by Paradigm D, aka default via debasement, in the form of your curve control from the Fed and potentially other monetary authorities from around the world. The alternative, Paradigm B, aka cut the deficits, is a much lower probability outcome given demands for populism amid disintegrating domestic political orders and a rising probability of large-scale kinetic conflict amid the disintegrating geopolitical world order. Clever marketing from DC and Silicon Valley that casts AI as a solution to or protection from these left-tail outcomes from the perspective of investors means sovereigns will do what it continued to do, whatever it takes, to prevent the AI CapEx bubble from popping. This means any near-term volatility stemming from our play-action past to set up the Run theme must be faded by every investor with a time horizon that extends past the next three to six months. By the dip, bubble risk is high. Transitioning to our 42-micro dashboard, as always, a wrap-up with a question from our community. This was not so much a question, but a great comment. Just want to share this broadly. It says, thanks, DD. Random post here, but just wanted to give Darius his props. I've been watching DD since the Stanford days, and I must say the best Darius Dell is one that is free to draw his own conclusions. I've gone from a trader who underperforms markets to a trader that keeps pace with the U.S. indices without taking on the risk. So I think they just, this investor sent a screenshot of their portfolio, their individual brokerage account as the purple line, which, as you can see, avoids the drawdowns that the S&P 500 and NASDAQ have when they crash and, generally speaking, keeps pace. Right now, it's in line with the S&P since this person joined our firm, slightly underperforming the NASDAQ. But as you guys all know, where KISS makes its money is by avoiding type two errors. Type two errors are the types of errors that come from you trying to fade trends in the marketplace, i.e. you don't participate in a raging bull market or you don't get to the sidelines and raise cash early into a trending bear market. And oh, by the way, on the trending bear market, as we've talked about in our recent macro scouting reports, the preponderance of evidence across the six key macro cycles are pointing us to anticipating a secular bear market on the other side of the ad capex bubble. We're not of the view that the ad capex bubble and the associated stock market performance ends anytime soon, but we are highly convicted with an overwhelming degree of supporting evidence that the next bear market is going to be a bear market that takes perhaps years to bottom and even to the bottom. Even many more years to return to its high watermark, similar to what we saw with the NASDAQ in 2000, NASDAQ peak in March 2000, bottom in October 2002, down 83% from the highs, and then spent the next 13 years to the late 2015, I want to say November of 2015, just to get back to where it was in March of 2000. Similar dynamic happened in the S&P 500 from 2007 to 2013. The S&P 500 peaked, in October of 2007, drew down 60%, and by March of 2009, and then spent the next four years recovering just to get back to the level that it peaked at in 2007. Every bear market that we've seen since that low in 2009, which has basically been every bear market of my entire career, which started during the global financial crisis near those lows, if you're 40, if you're somebody my age, if you're 40 years old, you've never seen a secular bear market. You've never traded through one. You've never, you've never invested through one. At 40, at 40, not 30, 40. And so everybody my age and below is about to get smacked in the face in the coming secular bear market, in my opinion. Obviously, folks I'm talking to above that age have some experience with the GFC, have some experience with the dot-com bubble. Some of you have experience with 73, 74 as well, in terms of that secular bear. But at the end of the day, you know, what we're designing, what we're trying to do here with KISS and Dr. Mo is to, when those secular bears come, and again, these aren't secular bears. These are quick V-bottom bears that were, you know, that were quickly recovered, you know, because of policy intervention that we don't think is a high probability outcome based on our deep dive fundamental research. You know, we want our portfolios to look like the purple line when the market crashes. We want our portfolios to look like the purple lines when the market crashes, particularly when the market is crashing for years at a time and taking even longer to return to its high watermark. So we're wrapping it there. Derry's still here. If that sounds like something you're interested in, this is definitely the service for you. If you're much more interested in trading every little wiggle in the market and having your portfolio go sideways over time, then definitely, definitely don't, definitely don't join us. So we're wrapping up there. Derry's still here presenting our macro for Tuesday, September 1st, 2026. Best of luck out there 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 on this content based 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.