Why Hedge Funds Now Rule the World (And the Fed Doesn't Matter)

本站添加: 2026-05-22

[00:00:01]Soon the Federal Reserve will meet and it will be Kevin Warsh's very first meeting as the leader of the Fed Open Market Committee. And the key thing that we're paying attention to as the new chairman of the Federal Reserve takes the helm is what everybody in the media will be asking as we head into that meeting. Are they going to raise interest rates? Are they going to cut interest rates? What about quantitative easing? Will they tighten the Fed balance sheet? And the reality is these are all the wrong questions.

[00:00:30]Because the Bank for International Settlements recently released another report showcasing that once again, it is not the central banks that are driving the bus. It's being done by hedge funds.

[00:00:42]And today, what we're going to explain very simply in English, no textbooks, through what we call Money Printer 101 events, this is exactly the story that people ignore.

[00:00:56]The exact same Fed rate hike can crash the market or do absolutely nothing. And the difference isn't the Federal Reserve. The difference is what is going on in the room before the Fed even walks in and does anything. And that's what we're going to explain today.

[00:01:13]It's not the Fed driving the bus, but picture this situation. It's June 17th, the Fed meets. It's the first meeting under Warsh and he publicly has to say, "Well, we have little appetite to cut."

[00:01:26]Meanwhile, the bond market is on fire.

[00:01:28]30-year Treasury yields above 5%. German bonds sitting at levels we haven't seen since 2011.

[00:01:36]The Bank of Japan looks ready to hike the exact same month. And in a couple of weeks, every analyst on cable will sit here and go through every single statement that the central bankers have made and say, "Are they going to hike?

[00:01:47]Are they going to hold? What does he even mean by little appetite?"

[00:01:50]Well, the thing is it doesn't actually matter what they do because at the end of the day, it's about positioning.

[00:01:59]The real question is who else is already in the room?

[00:02:03]Who bet on what and with how much borrowed money because the Fed isn't driving it, it's the other people in that room.

[00:02:11]And the BIS proof came from a new report that just came out. Now, here's the key thing.

[00:02:17]The Fed raises rates, the dollar goes up, stocks go down, bonds sell off, inflation cools. That's what we're told in school. Then after inflation chills, everybody settles down, the Fed cuts rates, the dollar drops, stocks rally, everybody buys a boat. It's clean, it's simple, it's predictable. The Fed pulls a lever and the rest of the economy moves with it.

[00:02:40]Folks, that's what they tell you in school and I have three of those degrees to tell me that it's not how it works cuz I've seen the real world and I've seen the academic world and basically markets have not done any of this for at least 4 years, at least going back to COVID and the reason's pretty simple because people still assume that the Federal Reserve pulls a lever and then with that the rest of a con- the economy moves with it.

[00:03:10]The story assumes that the Fed pulls that lever in an empty room.

[00:03:16]And there are already people in that room. And those people are hedge funds, big ones with piles of money sitting on the table at all times. And what happens is what happens when that money is already there?

[00:03:33]Not what they're going to do after, what they did ahead of time. So, with piles of borrowed money on the table, what happens when the Fed has to move, do something significant and those people have to react to what the Federal Reserve has done because once again, the BIS has already proven this. They've already showcased it with this new report. May 6th, the Bank for International Settlements calling them the Fed's older cousin in Switzerland quietly published a seven-page paper titled The Monetary Policy Transmission to Exchange Rates, The Role of Currency Carry Trades. Four authors on this and you're not going to read it and CNBC doesn't care.

[00:04:16]Wall Street Journal might give it three column inches on page B7. But here's what it says in plain English. It's pretty simple. The Fed isn't really driving the bus anymore. Hedge funds are and the BIS put real numbers behind it to show that that statement is true for the first time and that's what we're going to walk you through. The three reasons this paper matters more than 99% of what you're going to read over the next 60 days are pretty simple. First, this is the BIS, right?

[00:04:44]This is the central bank's of central banks. This isn't a hedge fund newsletter. This isn't a podcast. This isn't a newsletter coming out of Baltimore. This is not something on Substack. This is what every monetary policy maker reads on this planet. Kevin Warsh reads it. Lagarde reads it.

[00:05:01]Everybody reads this if they are entrenched in monetary policy. Secondly, the timing in this one really matters because six weeks ahead of the Federal Reserve meeting, this paper comes out.

[00:05:13]And this is the most important Fed meeting of the year, bar none, with Warsh at the helm. And at the same time, the Bank of Japan meeting coming at roughly the same week as well. So why does all of this matter? Because every single central banker right now is going to be reading this before Warsh takes the helm. It's not an accident.

[00:05:37]And reason three is this idea, very simply, the Fed has lost control was a hedge fund opinion. After this paper, it's a measured fact. Conference intervals and all because the whole conversation has now changed about the state of affairs. So, let me walk you through what they did.

[00:05:58]The BIS picked the Swiss National Bank, the Switzerland's Federal Reserve, as their test case. They went back and looked at four times the SNB made a surprise policy move, and it happened four times. June 2010, June 2022, March 2015, and March 2020. There were four moves of roughly the exact same size, same currency, same central bank. So, the Swiss franc and the dollar exchange rate against it should have done roughly the same thing all four times, right?

[00:06:33]Didn't.

[00:06:34]Because in 2010, the franc rocketed higher. Same thing happened in June 2022, a sharp jump. But in March 2015 and in March 2020, nothing happened.

[00:06:47]Barely moved. Same hand on the same lever two times, the market goes crazy and two times the market just shrugs.

[00:06:56]Same action, four completely different outcomes. Why? Well, here's the answer.

[00:07:02]The most important part of this is pretty simplistic. It comes back to who's in the room.

[00:07:09]Before the two times the franc went vertical, 2010 and 2022, hedge funds have been borrowing francs cheap to bet to make uh bets in other currencies.

[00:07:19]There were huge piles of money bet against the franc sitting on the table.

[00:07:24]So, when the SNB surprised them, all those traders had to scramble at the same time. Everyone was running for the same exit. The franc goes vertical. Now, before that, the two times that it didn't move, 2015 2020, those piles of bets didn't exist. Nobody had to scramble. Same surprise, no fire exit.

[00:07:47]So here is the killer number that the BIS measured. A quarter percent surprise rate move. When the bet pile is huge, moves the Swiss franc 4% and the Japanese yen 10%. The same move with no bet pile, almost nothing. A statistical zero. Same paper cut, different patient. These are colossal differences in consequences.

[00:08:16]And the sentence that I think is so important for people to really write down is understanding this case is pretty simplistic. The bet pile being huge and the killer number being that a massive shift on that 0.25.

[00:08:34]This is where it gets interesting.

[00:08:37]Currency trading strategies of hedge funds and other leveraged investors can play a key role in shaping the exchange rate response to monetary policy and therefore warrant careful monitoring.

[00:08:49]End quote.

[00:08:50]That's the BIS.

[00:08:52]Central bank for central banks telling other central banks very politely that they no longer have a clean lever to pull. Hedge funds are now part of that machinery and they're saying it out loud.

[00:09:05]So what is the carry trade to begin with? Well, again, let me explain this to you like we're sitting in a bar. Step one, you borrow money and you do it in a place where interest rates are basically zero. Japan does this. Switzerland did it for years. So you borrow there. Step two, you take borrowed money and you move it somewhere where interest rates are higher. That could be Mexico, Turkey, Australia, even the United States a higher yield or now.

[00:09:31]Step three is you earn the difference.

[00:09:33]5% a year, 8%, 12 depending on the pair.

[00:09:38]Think of it like a credit card balance transfer kick. You move your debt to a 0% card and you use the cash to buy something that pays you back. You pocket the difference. As long as nothing moves, it feels like real money.

[00:09:55]But, that's where it gets interesting.

[00:09:58]Because once again, right up until the funding currency rally uh rallies around you, the more you you owe more in yen, the more you can repay. Margin call. You have to sell. So does everything else running the same trade. Everyone trying to sell at once and the big problem becomes unfortunately that the exit gets blocked.

[00:10:21]The trade unwinds in violence and that's the whole story. Every recent macro surprise you've heard about, the same story comes in different clothes. So if you look at the post-2006 period, it snaps into one shape. August 2007 had the quant meltdown. Carry trades in the yen and the franc on unwound rapidly. The BIS paper cites this by name in July 2010, the euro crisis concerns trigger another franc carry unwind, also cited by the BIS. In June 2010 and June 2022, there were two violent SNB events that the paper studies. The most famous case sits between them in 2015, the day the Swiss Bank unexpectedly let go of the franc and the franc jumped 30% in 15 minutes.

[00:11:13]Every retail foreign forex brokerage on the planet blew up its customers. And then let's go back to August 5th, 2024.

[00:11:22]And that was the end unwind of the carry trade. The Nikkei fell about 12% in a single session. It was the worst day in Tokyo since 1987.

[00:11:32]And the BIS has separate paper just on that one.

[00:11:37]Now, in October 2022, UK pensions blew up. There was the LDI crisis. And the reality is it was the same exit story, a different building. In April 2025, you had the Treasury market relative value swap on one. The BIS basically commenting on that one, too. It was a different trigger every time.

[00:11:57]So, different market every time, same machine every time every over and over again.

[00:12:03]And here's what the BIS just confirmed in plain academic English.

[00:12:08]We've been writing about it for 2 years.

[00:12:11]Monetary policy decision in 2026 is not a rate decision. It is a positioning decision.

[00:12:17]The Fed doesn't move in an empty room.

[00:12:19]Neither does the Bank of Japan or the ECB. They all move in a room full of hedge funds with positions on. And the size of those positions decides whether the rate move ripples gently or ripples through everything.

[00:12:34]The Fed thinks it's driving. Hedge funds are also driving. Both hands on different wheels. And both are connected to the same car. The BIS publishing the autopsy of what happens when these wheels point in different directions.

[00:12:48]The two things that you can do right now is start watching things. Start watching the commitment of traders report. The CFTC releases this every week. It's free. It's public. It tells you exactly how much money has been bet against the Swiss franc and the Japanese yen. And when that number goes sharply negative, and it stays there for weeks, the next Fed or Bank of Japan surprise is the one to watch. The bet pile is loaded.

[00:13:16]Second, you have to pay very close attention to the dollar carry trade. One big version of this trade right now is to borrow yen and lend in dollars. And if the Fed pivots hard, and the dollar weakens, the unwind is forced selling.

[00:13:31]That puts liquidity out every dollar denominated asset on the planet at the exact same time. And the closest example of this was, of course, April 5th, 2024.

[00:13:41]The BIS is telling us that. Imagine the next one is likely going to be bigger.

[00:13:47]The story that we tell investors is the Fed hikes, the dollar rises, and the stocks fall in a predictable order. But the story that the BIS tells central bankers is that the Fed hikes into a room of hedge funds, and the hedge funds decide what happens next. One of these things is the costume, and the other is the body underneath it. The Fed isn't driving this anymore, and again, the BIS has just put out a report basically noting how all of this has transpired in the post-2008 world. So, we have to pay attention ahead of that June 16th meeting by the Federal Reserve, and pay close attention to what hedge funds are doing ahead of the Bank of Japan decision. Because if there is a violent unwind, those are the types of events that can lead to severe downturns, and ultimately lead to liquidity challenges that put weight on the financial system.

[00:14:40]It's very complex, and it's not something that is openly taught in schools, and it's certainly not taught in places in traditional media. So, I encourage you to come check us out at themoneyprinter.substack.com, where we focus on liquidity, momentum, insider buying, and policy decisions, plus those positionings from hedge funds as we pay more attention to CTAs and various commitment of traders reports ahead of meetings like the one that we will see in June. I thank you all for taking the time, and I hope you have a great day. Stay positive.