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A new macro framework suggests investors should prepare for a distinct shift in market dynamics, characterized by a period of economic slowdown – “Run It Cold Now” – followed by a potential reacceleration in 2026, dubbed “Run It Hot Later.” This analysis, driven by increasingly accurate macro models, indicates a critical need to assess teh current stage of the “Run It Cold Now” phase and determine whether opportunities remain in this strategy or if a pivot to anticipating the “Run It Hot Later” period is warranted.
The Case for “Run It Cold Now”
Macro models point to tariffs as a key fiscal tightening force through the end of the year. However, by early 2026, the offsetting impact of the OBBB fiscal impulse, coupled with potential policy changes and increased private money creation, is expected to fuel a resurgence in economic activity.
Evidence currently supports the “Run it Cold Now” thesis, particularly concerning US labor demand. Extrapolating recent benchmark revisions suggests the US has been consistently losing jobs since April 2025. Looking at broader labor market indicators, including both demand and supply, reinforces this trend.Currently, the number of Americans unemployed for 27 weeks or more stands at 1.14% of the total labor force – a level not seen since 2002 or the summer of 2008, both periods preceding significant economic downturns.
Tariffs as a Drag on US Growth
the weakness in US labor demand is largely attributed to the restrictive effect of tariffs, which are acting as a tax on both companies and consumers. The 2025 primary fiscal deficit is already nearly 20 basis points below last year’s level and substantially lower then the pace observed in 2023.
This assessment aligns with the views of prominent economic figures. According to one analyst familiar with the insights of “the best economist Druckenmiller knows,” the internals of the stock market corroborate the weakening labor market conditions. Specifically, the ratio between an index of the five largest US payroll processor companies
Fiscal Stimulus and Inflationary Pressures
In response to the economic slowdown, the US OBBB is set to provide fiscal stimulus, offsetting the impact of tariffs.Korea, Sweden, and other nations are also initiating deficit spending programs.
This sets the stage for a potential scenario where inflation rises, but global money printing continues to accelerate. Applying a TMC Quadrant Asset Allocation Model,the current environment falls squarely into the top-right quadrant,historically favoring a shift away from IOUs and paper assets towards tangible risk assets.
Investment Strategy: Sell Bonds, Buy Stocks
Historically, the optimal asset allocation in this environment involves selling government bonds and other fixed-income instruments and investing in stocks and assets linked to nominal growth. However, investors should be wary of a potential “pain trade” – an equity rotation towards emerging markets (EM) and value stocks, coupled with a commodity rally. These asset classes are currently underowned and could experience significant gains, potentially undermining conventional portfolio hedges like the US dollar and bonds.
The Market Gods, as some investors playfully refer to unpredictable market forces, often deliver such unexpected outcomes.
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