Trump-o-Minsky

Due to 15 years of serial monetary bailouts, "buy and hold" has become an unquestioned religion. No amount of risk could get investors to sell. Therefore, the bull case and the bear case are now the same. Only the expected outcome is vastly different. On the institutional side, only history's biggest con man could convince so many hedge funds to onboard record risk exposure in the face of record risk...

Bulls contend that Trump-o-Nomics is highly bullish and will lead to a booming economy and booming stock market in 2026. Wall Street calls it the "Run it hot" trade, as in inflation will be high, but profits will be higher.

Normally, Wall Street would be cautious about this level of positioning and over-valuation, BUT because Trump is taking control of the Fed, they have abandoned all caution. Don't take my word for it, here is what BofA said this week:

January 23rd, 2026

Major equity market peaks usually emerge when bullish positioning is stretched, investors expect a profit boom, and policy is tightening, but only two of those conditions are currently in place

Hartnett and his team say the policy backdrop remains supportive, pointing to easing through Federal Reserve rate cuts"

In other words, Trump's takeover of the Fed is viewed as a bullish factor NOT a risk factor. This is where the bull and bear case diverge. Reducing rates in an inflationary environment is causing LONG-TERM bond yields to rise not fall. In the article above BofA maintains that as long as the 30 year yield remains below 5.1% then markets remain RISK ON. But a rise above 5.1% will signal "Panic".

This chart shows that we are only .3% away from BofAs panic level of rates (dotted red line).

Bear in mind, this is the bull case.

In addition to that risk factor, below we see that the consensus "Run it hot" trade already crashed twice in the past 15 months while the Fed was CUTTING rates. Mind you, this is basic logic that I am using to debunk the bullish hypothesis. I didn't go to Harvard so maybe I don't understand how all of this works in the upside down.

This chart shows that the hyperbolic consensus inflation trade IS the risk to markets.

Remember, BofA put out a sell signal back in December based upon extreme positioning and earlier this week they reiterated that positioning remains extremely bullish:

Jan. 20, 2026

"The (survey) findings pushed BofA’s Bull and Bear indicator to a “hyper-bull” level, which indicates investors need to load up on risk hedges and safe havens. Instead, nearly half of participants said they do not have protection against a sharp fall in equity prices, the highest level since 2018."

“Low levels of stock market hedging are irrelevant in a world of positive surprises,” Hartnett said. “But it matters greatly if surprises suddenly turn greatly.”

What surprise? That is the only question. It could be anything at this point.

In addition to the Greenland and Japan "unforeseen" shocks that began this Davos week, now ending the week Indian stocks are collapsing along with the currency. These global risks will soon coalesce into one totally out of control meltdown.

Another widely ignored risk here in the U.S. - I put out a chart of the Cass Freight Volume index on Twitter with the XME (Metals and Miners) index shown above. It showed the XME going vertical with the Cass Freight Index crashing. The same pattern occurred in 2008.

But then I thought why not look at the Dow Transports to see if they are confirming the Cass Freight Index. And here we see below that they are inversely correlated for the first time in history:

We've never seen this before. The economy is imploding, but the massive AI bubble is hiding the collapse.

In summary, this not a dangerous market, this is THE MOST dangerous market in human history. Even Wall Street is saying it's dangerous but telling people to buy it regardless. Trump's imminent takeover of the Fed is their primary bullish argument; however a Trump takeover of the Fed is not bullish, it's a lethal risk to bond markets. Trump chickened out again on Greenland, but contrary to popular belief, this is not the same buying opportunity it was last April.

The machines can't handle the level of selling that is coming next. Investors are not positioned for any type of market shock.

Anyways, that's what BofA just said and they are bullish.