Is the US Treasury still supporting the 42 Macro Paradigm C Bull Market™?

**Darius Dale** (0:00)
Happy Wednesday out there, Team 42 It's your skipper here at Darius Dale to present our Macro Minute for Wednesday, August 5th, 2026 As always, we'll start with the executive summary from today's The Duffer Morning Note, so let's dive right in. Today's key micro question is, is the US Treasury still supporting the 42 Macro paradigm C bull market? The short answer is yes. The details of the Q3 quarterly refunding announcement supported our core research thesis that there is a geopolitically driven supply demand imbalance in the Treasury bond market, and that the Fed and Treasury will be generally forced to address this disequilibrium with dovish monetary and net financing policy over the long term.
For example, the Q3 quarterly refunding announcement contained no bearer surprises from a quarterly refunding perspective. Nominal coupon and floating rate note financing is projected to remain unchanged from Q2. Additionally, dovish net financing policy will count for 61 percent and 58 percent of total net marketable borrowing in Q3 and Q4 respectively.
That's a lot.
All told, the persistence and likely deepening of the geopolitically driven supply demand imbalance in the Treasury bond market are why the Fed has no choice but to continue monetizing US sovereign debt over the long term.
Kevin Warsh was likely appointed because he's the most credible dove in hawks clothing. And so in today's lead-off morning note, we did a deep dive on the quarterly refunding announcement specifically from the perspective of that geopolitically driven supply demand downs in the Treasury bond market attacking it from the perspective of the supply of those treasuries and also from the perspective of the demand for those treasuries, both domestically and abroad. So a lot of important insights there, particularly from the perspective of longer term investors. So and we also unpacked, I believe, the the the July report and what that portended for the medium term outlook for the US economy. So dig into that when you guys get a chance. So as always a wrap up with a question from our community. This one's titled, Why Not Raising Rates in December? Says, Hi, DD, I'm a one-year subscriber and very grateful for all the work you and your team put out daily to provide this information to members of this community. Since joining, I've not only increased my returns, but specifically I have the confidence to push the trigger in my portfolio when it's necessary. So those are two wonderful things, couldn't think of two better things to have happen when members join our community, which is that their investment returns improve and their confidence improves, which ultimately means that their stress levels are decreasing, their anxiety around making investment decisions, and the amount of time they're allocating to making investment decisions is decreasing. So that tends to be the general feedback we get in our community. Not all the time, obviously, no process is perfect, but by and large, that is the general feedback. So getting back into the question, I have a rather short question that may be of the speculative kind, which tend to be good questions. A part of your thesis is that the Fed needs to raise rates to quote, play action pass to set up the run, which makes sense. The next two meetings are right before the midterms when the political campaign will be in full swing, which if worse raises, he risks being seen as a political actor and will be putting himself right under Trump's cost hairs, which would be much easier for him to raise.
So would it be much easier for him to raise in the December meeting? So in our opinion, yeah, of course it's easier for him to raise in December meeting. He just might not have the opportunity. I recall that core to our view that the Fed needs to tighten cyclically i.e. play action pass to set up the run, i.e. structurally is the fact that the bond market is sending a very clear message to the Fed that it is lagging behind the curve and lacks credibility on inflation fighting. The Federal Reserve needs to respond to the meaningful, substantial increase in the market's pricing of the neutral rate and the market's pricing of R star. That's gone up tremendously. It's widened tremendously in recent months. And so, ultimately, the market is now telling the Fed vis-a-vis the Ford rates curve that the Fed is now one to two rate hikes behind the curve in accommodative territory. And this is in the context of an economy that is being run nominally hot to the tune of 8% on a nominal GDP, ex-government, and an export basis, which compares to a pre-COVID trend of 4%.
So we're doubling our nominal GDP growth when you look at the core private sector of the economy.