Run It Cold Now, Run It Hot Later

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Hi everyone - this is Alf.I hope you’re having a great day.My macro models have been suggesting a bi-modal framework to approach markets for the near future: Run It Cold Now (growth < expectations, and dovish Fed) and Run It Hot Later (growth up, inflation risk premia up, but no Fed hawkishness).My Run It Cold Now theory has been increasingly vindicated by labor market data, and markets are often busy trading what’s in front of them rather than looking through a potential reacceleration in 2026.This is why it’s vital to figure out:1. How early/late do we sit within the ‘’Run It Cold Now’’ period;2. How much has the market priced in by now;3. Consequently: is it still worth getting engaged in Run It Cold trades, or shall we look at Run It Hot Later ideas already?As a reminder, my macro models suggest tariffs will act as a fiscal tightening mechanism until year-end.By early 2026, the OBBB fiscal impulse will offset and Trump’s new initiatives alongside lowered Fed Funds and private money creation should propel a Run It Hot Later period.First, some evidence that US labor demand is really weak: extrapolating benchmark revisions from April 2025 onwards, the US has been consistently shedding jobs!To get a broader perspective on the labor market we can rely on unrevised data which incorporates demand and supply for labor: for example, unemployment rate and its important subcomponents.The chart below shows the number of long-term (27+ weeks) unemployed Americans as a percentage of the total labor force. At 1.14%, this number is already as high as in 2002 or summer 2008 – in both ca…