The Macro Minute: Is the US economy being run too hot?

Added: 2026-05-12

[00:00:00]Happy Tuesday out there team 42, it's your skipper here Darius Della presenting our macro minute for Tuesday, May 12th, 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, is the US economy being run too hot?

[00:00:15]Our answer is, with nominal GDP tracking up over 10% on a 3-month annualized basis, investors must pause from appropriately positioning for the right tail risk that we've been calling for to consider the other side of the distribution of probable economic policy and market outcomes. Specifically, growth this robust will likely delay the impact of our jobless recovery theme, and inflation this hot will likely cause the left-leaning FOMC to consider rate hikes and pausing reserve management purchases. Moreover, signals from abroad support our view that wealth redistribution will increasingly dominate the political discourse as AI adoption and corporate profitability accelerates. All told, while the probability of returning to a risk-off market regime is rising, this is not yet something investors should act upon according to our risk management overlays, KISS and Doctor Mo.

[00:01:09]KISS being for retail, Doctor Mo being for institutions.

[00:01:11]That said, our crowding model is currently generating a bearish signal in the NASDAQ 100, so traders should take profits.

[00:01:20]As always, we'll wrap up with a question from our community. Now, this one's titled clarifying the current setup and what could change.

[00:01:27]Uh team 42, there's lots of chatter that equities are in a defensive hedging driven melt-up. If so, are these two inflection points to mentally plan for?

[00:01:36]Uh number one, a regular correction if participants become bullish, unwind hedges, and dealers take the other side.

[00:01:41]And number two, a severe correction if participants implement a roll roll phase transition, uh for example, going from reflation to inflation, uh unwind hedges, sell reflation assets, and buy inflation assets with the overhang of crowded uh bullish positioning. Uh so, uh one thing I would say is, you know, we're getting to a place uh from a gamma positioning standpoint when you look at a lot of the notes in the street in recent days where dealers are starting to get long gamma, which will ultimately slow down the realized volatility, the expansion of realized volatility to the upside in the index. Now, this stuff doesn't cause the index to correct. You would actually need a catalyst to cause market participants to start changing their positions in a way that forces dealers to to delta hedge back to a negative position. So, you know, the one thing I would say about all this stuff, you know, there's a lot of bean counting out there who's doing what in financial markets, but at the end of the day, the thing that causes people's positioning to change is not this. What's causing people's position to change are changes in the six key macro cycles: growth, inflation, monetary policy, fiscal policy, liquidity, and positioning. So, if you have changes in those, particularly the five key macro cycles outside of positioning, that's what causes people to go, "I want to buy calls." Or I want to buy puts. Or I don't want to buy puts anymore. I'm going to cover my puts. Or I'm going to stop buying calls and selling you know, that's what you have to get you get in the head of investors, institutional investors who are moving all this capital around. You can bean count it at the option level. You can bean count it at the dealer level. But if you want to front run the first principle of all that flow, you need to understand the the key macro cycles and and the momentum within those cycles. Going back to number two, a severe correction. So, in my opinion, I continue to think this is a meaningful risk. Doesn't mean the market has to price it in today, but as long as the straight of her moves remains closed, you have a massive wrench being thrown in the global dollar recycling process. We've talked about this ad nauseam in the context of the net international investment surplus economies in the Gulf Coast, as well as the net international investment surplus economies in Asia and Europe not being able to generate the household savings and corporate profits and FX reserves that they need to continue recycling dollars to global capital markets. That is starting to get eroded at the margin as evidenced by the data we got out of the UK, out of the India today.

[00:03:56]You guys can review the note for more details on that.

[00:03:59]And so that is the risk. Every day we go by, we're inching closer to returning to a risk-off market regime condition. So the street needs to be open in order to prevent that you know hazardous left tail outcome. If the street remains closed for an extended period of time, we are going to go back into the global liquidity crisis. We're going to go back into a trending risk-off market regime that investors are going to have to do something about in their portfolio to remain on the right side of market risk.

[00:04:24]Generally speaking, investors don't need to overreact to short-term, you know, pullbacks or you know, shallow pullbacks in markets. It's the more hazardous drawdowns that you're trying to eliminate from your portfolio. I would say anything beyond kind of eight eight percent on the S&P, you know, kind of 10 12% on the NASDAQ in terms of the beta for that. So if you you need to start to you worry about corrections of those magnitudes, then certainly you want to take the other side of that. You want to certainly position for that in terms of defensively positioning in your portfolio to stay on the right side of market risk. So we're wrapping up there.

[00:04:57]Darius Dale here presenting our macro minute for Tuesday, May 12th, 2026. Best of luck out there today. We'll catch you back here tomorrow. Cheers.