Will Republicans be forced to "tax the rich"?

Happy Wednesday, at 1342, a skipper here at Darius Delta, present our macro-minute for Wednesday, August 19th, 2026. Hope everyone's having a great week. So as always, we'll start with the executive summary from today's little off-morning note. So let's dive right in. Today's key macro question is, will Republicans be forced to tax the rich? The short answer is highly unlikely. Paradigm D, aka print the demand for marketable treasury securities, remains the highest probability outcome over the long term. The U.S. sovereign has the debt disease, i.e. paradigm A, and is compounding this increasingly acute problem by running record non-war, non-recession budget deficits. Several millennia of economic history have proven there are only three acceptable treatment options for the debt disease. Number one, cut, which is we call paradigm B. Number two, grow the economy paradigm C, our current paradigm, and print paradigm D. The alternatives, which are default in total war, i.e. paradigm E, are far more costly. Paradigm C, aka run it hot, remains the least bad option to deal with this political quagmire. Paradigm B, aka cut the deficit, remains a politically painful alternative. Paradigm D, aka print the demand, remains the highest probability outcome after paradigm C concludes. In fact, we consider the Fed's 175 basis points of rate cuts since 2023 amid sticky inflation and its reserve management purchases since December of 2025, as early signs of a gradual transition to paradigm D. In additional 100 basis points of rate cuts by the Fed, which we view as a near certainty throughout 2027, would save the federal government roughly a percent of GDP's worth of interest payments based on the current composition of the debt stock. Investors would be remiss to discount this as a reason why gold bottom and treasury bonds are selling off. So today's lead off morning note, you're definitely not going to miss this one. Obviously, the G, politically driven supply demanded balance in the treasury bond market, which has been our core research thesis since the summer of 2023, is now making front page news again. We present treasury secretary Scott Besson, our former client, my former client, is, you know, I'll make a news today with doubling the size of the treasury buyback program to take some pressure to remove some duration risk out of the global financial markets and replace that with a treasury bills, a temporary solution. We've been calling this theme Besson's Bridge, ever since we got the Q3 QRA, and noticed the panic, the panic response in the currency markets by the treasury department in terms of helping Japan, prevent Japan from selling treasuries to finance its defense of the YIN. You know, we're seeing a lot of movement by the treasury department to basically prop up the game to get us from where we are today, which is a Federal Reserve that is being threatened by the bond market, by bond vigilantes, to outline its incredible path to getting back to 2% inflation. You know, it's trying to create a bridge between today, that is today versus tomorrow, where we think we're going to be tomorrow, at least according to our research, which is a Federal Reserve that is substantially more dovish in 2027 than is what is currently priced in based on our interpretation of what is the most likely outcome from the five task forces. So, as always, a wrap up. So, obviously, in today's note, we unpacked that, we unpacked the US's fiscal situation. I don't think anybody does better math on the US fiscal situation than Darius Dale here at 42 Macro. I've seen it all. I've seen all the think tanks, the white papers, the sell side research on the fiscal situation in nobody. Nobody attacks it with the granularity. We attack the US's federal budget dynamics with the same kind of granularity that a bottom-up equity analyst would attack modeling its company. But the balance sheet cash flows in income statement. You know, we think, you know, I think we know what we're doing here in terms of front-running all of global Wall Street to the arriving at the conclusion that there is a GDP-driven, supplied a man-of-balance and treasure-bound market, the same supplied a man-of-balance, the same desuco-liberium that's causing the Federal Reserve and causing the Treasury Department and causing central banks and finance ministries around the world to make big choices. Big choices that impact global financial markets and ultimately big choices that impact your portfolio. So, if you wanna see how all this is going to play out before it hits front page news again, come join us. Well, we'd be lucky to have you, thank you. So, just wrapping up, I always have the question from our community, the paradigm D. Jess Stark, as did the reputation of Kevin Worsk, just get flushed down the drain with this. This will switch on QE address near term rising yield problems at the expense of inflation down the road. So, paradigm, so let me take a step back. Paradigm D did not just start, even though it seems like it's starting today because it's front page news. We were very clear that in December, I believe December 10th was the day the Federal Reserve Outline Reservoir Management purposes that, hey, this was the first indication of Paradigm D, a Federal Reserve that is just going to do whatever it takes to contain treasury bond yields and the impact of treasury supply on the repo market, which obviously spills over to broader financial markets and the economy through the financial plumbing channel. And so, this move by Secretary Besen to bond yields by essentially buying back those off-the-run securities, longer term off-the-run securities and replacing them with bills, knowing full well that the Federal Reserve has a program to gobble up treasury bills and put them on this balance sheet and out of global capital markets. This is very clear an indication of the loss of sovereignty by the Federal Reserve and the ultimate cohesion and an increase on connectivity between the treasury and the Fed that we have been expressly and explicitly predicting for over three years now. And this is why Dr. Mo booked about 120% gain in gold earlier this spring. This is why KISS recalled that we replaced bonds in our core asset allocation, our KISS model portfolio, the 30% target allocation of bonds in October of 2024. We replaced that 30% target allocation of bonds with gold back in October of 2024. And so KISS booked a, I think about 65% gain in gold earlier this spring in the context of our risk management overlays, the systematic risk management overlays. But my, my, my hunch, my hunch as an investor. Again, I know I do, we do fundamental research and we do quantitative investment strategy here at 42 Macco with quantitative investor strategy being the only thing that I use in my portfolio to manage to risk my portfolio, my entire liquid net worth is always falling the KISS model portfolio. You know, those quantitative investment strategies just as someone who's, you know, designed these systems for the global buy side for many years. My assumption is that gold is probably going to break out and KISS and Dr. Mo will start to increase their allocations because where this is all ultimately headed over the long term is a Federal Reserve that loses its independence at the margins, that independence will continue to be eroded, will eventually be in some form of yield curve control if not already. I would argue the combination of Treasury buybacks plus reserve management purchases is a early form of the kind of yield curve control that we think we're going to see in large quantities in the coming years. And so ultimately, investors who are, you know, disappointed about the returns of Bitcoin over the past, you know, call it nine months. Investors would be disappointed about the returns and gold over the past, let's call it seven months, you know, no need to be disappointed over the long term. Because ultimately those assets are going to recover in our opinion and to mostfully I perform stocks over the medium term, time horizon, not our medium term or measurement horizon, medium term, like in traditional Wall Street speak, you know, kind of over the next three to five years. So we'll wrap it up there. Dairy still here, you know, again, if you want the answers to the test before the teacher hands you the test, they live inside of our paywall. And it's KISS and Dr. Mo's job to take all these narratives in my head and turn them into actionable and accurate and lucrative portfolio construction and asset allocation guidance. And I dare say they're doing a darn good job at that, just hop on our testimonials page and scroll down for the next six hours to see exactly the kind of job of they've been doing for our clients around the world for the past three and a half years. So we wrap it up there. Dairy still here, presenting our macro minute for Wednesday, August 19th, 2026. Best of luck out there today. We'll catch you back here tomorrow. Cheers. 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.