Welcome Back
Macro Monitor, August 9, 2026
(For the best experience, read on the website here).
I have been friends with John B. since we were about 7 years old and with Paul A. since college. Combined, that is ninety years of friendship. After months of planning, they arrived in São Paulo last month for our great Brazilian adventure.
This was our itinerary:
São Paulo – Brazil’s economic engine and the largest city in South America. Feijoada at Rubiayat, Football Museum at Pacaembu, Marisa Monte show in Ibirapuera, World Cup Final at home (with justice prevailing).
Rio de Janeiro – perhaps the most beautiful city in the world, draft beer at the top of Sugarloaf Mountain, a tourmaline collection at H. Stern, footvolley on Ipanema Beach, dinner at Satyricon and no, we didn’t get mugged.
Chapada dos Guimarães – a dramatic mesa (elevated plateau) in the state of Mato Grosso in western Brazil, a “mini Grand Canyon” where macaws glide in pairs by the Bride’s Veil waterfall.
Pantanal – the world’s largest tropical wetland, ten times the size of the Everglades, where we set out each morning and afternoon by motorboat with a naturalist to search for some of its 600 birds, 100 reptiles, 300 fish, 150 mammals, 9,000+ invertebrates.
Foz do Iguaçu – the world’s largest waterfall system, nearly 275 falls spanning almost 3 km on the Brazil-Argentina border, Macuco boat safari in the white water and meter-long catfish at the newly opened Aquarium.
The trip allowed us to turn off the “real” world, do some proverbial male bonding, and reset our perspective on family, friends, and work.
Then there was the photography! I am an avid amateur photographer and can tell you that photographing 12 jaguars in one day was one of the most exciting experiences of my life.
Dear Brazilian reader, your country is much more beautiful than you realize. Look beyond the terrible political system and appreciate it!
Dear “Gringo” reader, visit Brazil! Not only is it rich in wildlife, culture, gastronomy and music, it is also dirt cheap for dollar-bearers. Drop me a note. I loved being a tour guide to my buddies and would be delighted to guide you too.
Coming back home from our iconic voyage made me think of the wildly successful 1975 ABC TV situation comedy (sit-com) called “Welcome Back, Kotter.”
Unless you are a boomer, you probably don’t know that Welcome Back, Kotter launched John Travolta’s career. Travolta played the ultra-cool Vinnie Barbarino, a high school hipster who, with his classmates, constantly but innocently tormented their teacher, Gabe Kotter.
What I remember most about the program was the theme song. Did you know it is the only TV program whose theme song became a national #1 single? That happened in 1976.
Here is a clip where you can meet John Travolta as Vinnie Barbarino, and hear the theme song that echoed in my head as my two friends said goodbye to me and to Brazil last weekend, and I returned to the markets. Would they welcome me?
Welcome Back, Wolfer
What have I found after my three-week sabbatical?
Commodities
In the commodity world, both gold and oil broke out of their steep downtrends. Gold was up almost 7% in the period and oil almost 10%. The weekly charts below highlight the improved technicals for each market. Commodities, like piranhas in a delicate Pantanal ecosystem, belong in a portfolio, especially when no one wants to touch them.
Weekly Gold Chart
Weekly Oil Chart
Oil has been volatile on “she loves me, she loves me not” war headlines, so its bounce requires no macro explanation. Why gold has gone ballistic again is more of a mystery. My (complete) guess is that its strength is precipitating another decline in the global dollar, which so far has not reacted to the move in gold.
Interest Rates
As expected, the Fed left overnight interest rates unchanged, and Kevin Warsh faced his second press conference as Fed Chairman, conducted while I was on the Cuiabá River observing giant river otters.
I listened to the recording, and these were my takeaways:
Warsh did his best to emulate former Fed Chairman Alan Greenspan by not answering questions directly. Greenspan will be forever remembered for his phrase to the Senate Banking Committee in 1987:
"If I seem unduly clear to you, you must have misunderstood what I said."
Warsh is obsessed with market pricing. He repeatedly mentioned that long-term interest rates had risen in the intermeeting period, but he didn’t say what that meant for short-term rate policy.
He didn’t provide any clues to his personal framework for fighting inflation.. Torsten Slok, chief economist of hedge fund giant Apollo, criticized Warsh for the lack of framework guidance (as opposed to forward guidance). He equated Warsh's promise to get inflation back to 2% after 63 months (five years and three months above target) to something like:
“I will take you from New York to Los Angeles, but I'm not telling you how quickly, what it will cost, or how you'll get there.”
The three dissenters - who voted to raise rates by 25 basis points- show how difficult it will be for Warsh to gain “control” over the board. On Friday, President Trump renewed his efforts to fire Governor Lisa Cook; Jay Powell, bucking Fed tradition, has remained a Fed Governor; and the weak July Employment report, released Friday, will only bait President Trump into haranguing Warsh for lower rates. Dissension will be the norm.
Not surprisingly, the long end of the Treasury market didn’t like what it heard, and on the day I arrived back in São Paulo, July 31, the thirty-year Treasury (the “long bond”) traded at 5.27%, its highest level since 2007.
Like my writing, I guess the bond market is getting nostalgic!
Stocks
In the wild jungle of equities, markets had high hopes for record earnings, and, overall, the largest-cap stocks delivered. The S&P was up almost 4% since July 7, setting a new all-time high, although the Nasdaq lagged, gaining 1%.
Under the surface, though, the water was as turbid and fast-moving as that of the Parana River flowing into Igaucu Falls.
From July 7th to Friday, Microsoft advanced 34%, Nvidia 18%, and Amazon 17%. Tesla fell 20%, and SpaceX fell 17% (despite our remote Floatel lodge deep in the Pantanal being served extraordinarily well by Starlink).
Over these three weeks, the trading range for Apple and Google was 22%, while Meta swung 30% from low to high.
All three stocks closed near where they were when I left for my Brazilian boondoggle.
The volatility tells me there is a lot of leverage out there, probably by greedy retail investors. I am content to take the footpath by the roaring river, instead of risking Level 6 AI rapids where my portfolio could capsize at any moment.
The Economy
On the economic front, things have become interesting, and in my view sinister.
Think of Copacabana after dark.
Consider this chart, posted on X by Eric Basmajian of EPB Research. As Eric points out, 92% of the economy is growing just 1% while 8% is growing 14%. We are all dependent on the AI build-out.
Another pensive and pessimistic post on X was a report titled “Upside Down” by Whitney Baker of Totem Capital. Baker argues that the AI build-out is both inflationary and recessionary, inverting common investor wisdom.
Her writing is dense, and she discusses reduced flows to emerging markets as a sign of a coming liquidity crunch; LLM pricing becoming commoditized; hyperscalers selling off compute - all factors that point to faults in the current AI narrative.
She makes a subtler and controversial argument: AI Capex does not fulfill a specific need for the economy. When a car factory is built, by contrast, cars are produced and satisfy consumer demand. The new supply puts downward pressure on prices.
AI Capex is nothing more than demand for DRAM and HBM memory, microchips, electricity, and all the other “picks and shovels” needed to produce “compute.” That makes its first-order impact inflationary. But the inflationary investment does not create supply of any good or service that the economy needs in the near term.
She also points out that this is just the fourth time this millennium markets have pivoted sharply from pricing interest rate cuts to pricing more than fifty basis points of hikes - as measured by the spread between overnight Fed Funds and the two-year Treasury.
In layman’s terms, that means equity markets were buoyed by easy money before having the rug slipped out from under them by a sudden upward shift in interest-rate expectations.
That's happened four times this millennium: 2001, 2007, 2021, and now 2026. In the first three, equities fell an average of 24% afterward, with a recession following each pivot.
To sum it up, the stunted expectation that the Fed would be lowering rates fuels the bubble that the pivot to higher rates pops.
That is another reason for caution.
Portfolio Implications
Remember, I have two portfolios: the Beta portfolio, which is a long-term investment strategy designed to capture risk premium and attempt to beat inflation, and the Alpha portfolio, which is a short-term trading strategy.
Alpha opportunities are few and far between, and I have focused on the beta, which represents 80% of capital at risk. Here are my primary positions:
VEA ETF - Rest of World Stocks (non-US), which I prefer to US stocks, given the dangerous dynamics discussed above.
IGOV ETF - Rest of World Fixed Income, also denominated in non-dollar currencies.
TLT ETF - Long-dated Treasury bonds continue to be a portfolio drag, but like gold, will have their day if and when inflationary pressures subside.
GLD ETF - Gold has been a portfolio drag since the war started, and its resurrection this past week confirms that patience is a key element in successful portfolio diversification.
TIPS, SCHP ETF -Treasury Inflation-Protected Securities. Ten-year real yields at 2.40% (plus CPI)s and at 3% (plus CPI) for thirty years represent value.
DBA ETF - Agricultural Commodities, which should benefit in an inflationary environment.
New Positions - Invested one-third of US dollar cash position in Euro, Yen, and Pound, to capture a potential second round of dollar debasement.
Dear Reader, I hope you are ready to welcome me back from my once-in-a-lifetime boys’ trip. Just in case you don’t, let me steal a John Travolta catchphrase from Welcome Back, Kotter that made much of America giggle fifty years ago.
UP YOUR NOSE WITH A RUBBER HOSE!
Just kidding. Have a great week!
David
Great read - the jaguar experience sounds like 'once in a lifetime' type stuff!