Happy Tuesday!

04 MAR 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w10**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Euro Defense Stocks. After the diplomatic and historic meltdown at the White House between Trump and Zelenskyy, the remaining NATO EU countries (without the U.S.) have rallied around Ukraine -driving EU defense stocks higher. The STOXX Europe Total Market Aerospace and Defense index surged ~7.9%, representing its largest one-day jump in roughly five years.

Europe is now seriously considering a divergent new reality: that the United States may no longer be Europe's longtime Ally and a guarantor of its security -in the event of a future war.

Consequently, investors in European defense companies have been and continue to expect larger orders, ultimately resulting in fortifying the regions defensive and offensive powers, respectively.

European Defense Stocks on the Rise

U.S. President Trump: "[Zelenskyy is] Gambling with World War III… Zelenskyy disrespected the U.S…. Can come back when he is ready for peace."

HSBC Chief Multi-Asset Strategist, Max Kettner: "Short-term sentiment, positioning signals close to outright oversold… Remain constructive, particularly on high-beta carry assets… Holding onto our Goldilocks view for first half of 2025."

+AI Topping? Despite tech-darling Nvidia achieving another double-beat (Revenues and Earnings per Share) and a strong guide, investors largely used the positive print as an opportunity to move to a risk-off environment. See Chart1. The following day, NVDA lost ~-8.5% or roughly~-$273 Billion. Coincident Economic Indicator ("CEI") still showing strength for the time being. See Chart2.

Taiwan Semiconductor ("TSMC") plans to invest $100 Billion in AI Chip manufacturing plants in the U.S. over the next four years.

NVDIA Q4 Earnings Report

NVDIA Gross Margins

Potential NVDA Headwinds:

• Increased competition from Deepseek

• Upcoming U.S. export controls

• Waning gaming GPU prices

• Weakening Margins

Nvidia CEO, Jensen Huang: "AI is advancing at 'light speed…' Demand for Blackwell is 'amazing…' We've successfully ramped up the massive-scale production of Blackwell."

Headwinds:

-Tariff Time Test. The Trump Administration Tariffs are now active, effective 04 March. This includes the additional 10% on China announced last week, bringing China Tariffs to 20%.

Tariff Status

Canada and Mexico vow retaliation:

• Canada pledging immediate tariffs on $30 Billion in goods; tariffs on $125 Billion to come within weeks

• Canada has suggested limited minerals exports, blocking U.S. companies from government contracts

• Mexico exploring 5-20% tariffs on agricultural goods, steel, aluminum, etc.

Critical Commodities from Canada

China Tariffs Target American Agriculture, specifically: Corn, Soybeans, Beef, Pork, etc. See Chart3.

China Retaliation:

• China to take "all necessary measures" to fight Trump tariffs

• State media: China to target U.S. farm goods for Trump tariffs

• China to hit U.S. agriculture with tariff and non-tariff moves

JPMorgan Senior Analyst, Chris Horvers: "Tariffs very difficult to navigate, causing stress in supply chains… 'Made in China' retail greatly impacted (electronics, home)… Toys ("HAS," "MAT") may hold the worst hand."

Berkshire Hathaway Chief, Warren Buffett: "Tariffs are an Act of War."

-Slowing Market Momo. The U.S. Markets and Economy seem to show signs of slowing momentum. The NASDAQ posts worst week of the year last week. Discretionary spending drops ~9% in February. Further, the U.S. Housing market started off 2025 with a rougher-than-expected start. Initial Jobless Claims hit highest levels since 07 December. Additionally, the Atlanta Fed GDP Tracker went negative forecasting Q1 GDP Growth Now Forecast at -1.5% revised downward from +2.3%.

According to the Wall Street Journal, "the top 10% of Americans account for about half of all consumer spending." Therefore, if the top 10% owns most of the wealth in the U.S,.

January Housing Data (Month-over-Month)

• Pending Home Sales (Lowest on Record): ~-4.6%

• New Home Sales (Softer-than-expected): ~-10.5%

Autodesk announces layoffs: ~1,350 employees impacted, representing about ~9% of their workforce.

Peterson Institute for International Economics President, Adam Posen: "More confident we'll see 4.5-5.0% headline inflation a year from now, less confident about GDP growth… Upped probability of stagflation/recession from 10-15% to 20+% and expect to raise it again… Shifting taxes from corporations to households via tariffs, reduced migrant flows could contribute to stagflation."

DOGE Cullings. Jobless claims spiked to the highest levels in three months on Federal job cuts. The Federal Government projected job losses are estimated to be around 200,000 by October -or roughly ~20,000 layoffs per month. See Chart4. The Federal Government was one of the three major pillars (Federal Government, Healthcare and Leisure) of the overall U.S. labor market over the past two years. This gear-shifting into reverse is likely to hurt the labor market with additional adverse secondary effects such as reduced localized spending.

Barclays Global Chair of Research, Ajay Rajadhyaksha: "A U.S. recession remains improbable, but is no longer unthinkable in the coming quarters."

Regions Financial Chief Economist, Richard Moody: "…estimates about 300,000 to 500,000 jobs are at risk this year… There have been waves of downsizing in the federal government before, but there was some analysis to it, as opposed to just taking a blunt ax to it… The bottom line is that federal layoffs are just one 'domino,' but if that domino fell in conjunction with others -negative wealth effects, diminished business and consumer confidence, persistently high inflation and interest rates -it could culminate in recession."

Sentiment. Investor Sentiment ending 26 FEB 25:

Morgan Stanley House View on STZ (to Equal-Weight from Overweight), new Price Target: $202 cut from $220: "Beer Volume Slowdown Looks Both Structural and Due to Short-Term Pressure Points; Downgrade to Equal-weight"

Canadian Prime Minister Justin Trudeau: "We will not back down from a fight…"

U.S. President Donald Trump: "Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!"

SPX Technicals.

Macro Data

Broader Markets continue sell-off on Monday after Trump confirms Tariffs will be enforced effective 04 March. NASDAQ officially enters correction territory -down ~10% from recent highs.

Likelihood remains high that SPX tests its 200-DMA in the coming weeks. SPX Bearish Engulfing Bar on Monday is ominous sign and increases odds of continued downward momo over the short-term.

Question of the Week:

Will President Trump re-escalate by raising Tariffs again -after Canada, China and Mexico implement their Retaliatory Tariffs this week?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

25 FEB 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w09**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+AI Ascension. AI stocks continue to power higher via outsized spend from Megatechs and Large companies, alike. See Chart1. Apple ("AAPL") announced a $500 Billion U.S. Investment which will include a 250,000 sq. ft. server manufacturing facility in Houston, TX. AAPL also said that the aforementioned facility will play a role in powering Apple Intelligence and that it will be a foundation of Private Cloud Compute. The Texas factory for AI Servers is expected to yield ~20,000 jobs.

Chinese Megatech Alibaba ("BABA") announced a $52 Billion Investment in AI over the next three years.

2025 Megatech CapEx Commitments

Apple CEO, Tim Cook: "We are bullish on the future of American innovation, and we're proud to build on our long-standing U.S. Investments with this $500 Billion commitment to our country's future…"

+First Year of Last Bull Leg? According to the Shiller PE Ratio, the broader Markets have some of the highest valuations of the last 150 years only second to the late 90s "Dot.com Bubble." See Chart2. In a normal market environment cheap stocks can trade at ~11x earnings while expensive equities may trade at ~16x. However, during extended market tops, pricey stocks trade at ~33x and higher -whilst cheap ones trade in the single-digit multiples.

Bank of America Securities' Equity Client Flows:

• Clients bought stocks in six sectors, led by Technology (biggest inflows of 2025)

• Financials has the longest recent buying streak of any sector

• Discretionary saw largest outflows and has seen outflows in the last four weeks

ValueWorks Founder and Chief Investment Officer, Charles Lemonides: "[12 years ago just outside of the global financial crisis] …just go buy stocks, it's all great, it's all cheap, you're not going to go wrong."

Lemonides in 2025: "…First year of the last leg of the bull run, in our call of the day. And that final stage often ends with an overextended, speculative market top… [It will be a] bubbly period… It's going to be tough for value investors, generally unloved companies are not the ones that bring you to crazy market peaks…

The things that [ValueWorks' Stock Picks] own are worth more than today's share price, and that they are really high-quality assets, and that those assets could be growing in value and those stocks could go from being unloved secondary names to super-loved, high momentum names."

Headwinds:

-Inflation Indicators. The rise in inflation has been broad-based: rent, eggs, health care, energy, etc. The Fed overestimated the tightness and impact and underestimated the strength of the U.S. economy. For example, Chief Powell admitted in testimony two weeks ago that the FOMC has underestimated the natural rate^ (r*). ^Natural Rate: Theoretical interest rate that supports a stable economy -often used as a benchmark for monetary policy.

Proposed Tax Cuts and Deregulation are net positive for the broader Markets. However, the aforementioned are contributors to inflation for the general economy -similar to the late 1990s.

According to Umich Consumer Sentiment, the 5-year inflation outlook rose to 3.5% -the highest level since 1995.

Potential Products to Inflate via Un-Paused Tariffs:

Mexican Imports:

• Fruits

• Vegetables

• Beer and Liquor

• Cars and Auto Parts

• Electronics

Canadian Imports

• Meat

• Potatoes and Grains

• Oil and Gas

• Lumber

• Steel

Peterson Institute President, Adam Posen: "Will wait until it happens -Fed priming itself to be behind the curve… Tariffs are a real income cut, especially if broad and especially if centered on consumers and final goods… They are experienced as inflation and tend to lead to pressures for higher prices and wages."

S&P Global House View: "…expect most tier 1 suppliers would pass a substantial burden of the higher costs on to automakers, which would eventually have to pass it on to consumers through higher prices."

-Consumer Confidence Cracking. Homebuilder sentiment fell to lowest level in 5 months in February. Single Family Housing starts decreased ~8.4% Month-over-Month in January. 30-year fixed mortgage ~6.96%, at the time of this writing. Consumer Confidence falls to 98.3 in February -the lowest level since June 2024. Further, Economic Policy Uncertainty Index rises to highest levels since Summer 2024. See Chart3.

Existing Home Inventory (January)

Existing Home Sales (Inventory Sits On-Market)

Domino's Pizza CEO, Russell Weiner: "As we look ahead to 2025, we believe the combination of pressured consumer spending and a value driven QSR [Quick-Service Restaurant] marketplace will continue."

WalMart CFO, John Rainey: "We're not going to be completely immune to this [Tariffs]. We've lived in a tariff environment for the last seven or eight years, and we'll do what we know how to do… We'll work with suppliers. We'll lean into our private brand…"

Sentiment. Investor Sentiment ending 19 FEB 25:

Atlanta Fed President, Raphael Bostic: "Still has two cuts built in; but rate forecast uncertainty 'Pretty Significant…' Pervasive ambiguity calls for caution and humility."

Point 72, Hedge Fund Manager and New York Mets Owner, Steve Cohen: "Tariffs and DOGE's cuts are negative for the economy, market correction could be soon."

SPX Technicals.

Macro Data

Small Caps move into Technical Correction Territory. Broader markets move sharply lower last Friday, with Dow Jones lower than 800+ points at nadir.

In the first two hours of the Monday Session, Retail investors net sold ~-$1.1 Billion, the largest outflow on record for this time of the day since March 2020… Majority of the selling flow came from single names with PLTR and BABA leading the outflow. All of the "Magnificent 7 were net sold." All-important NVDA print after the bell on Wednesday. SPX needs to hold 5,900 handle or risk further downside action.

Question of the Week:

Will Bitcoin break close above $110,000 or below $90,000 at the end of March?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

19 FEB 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w08**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Inflation Incrementing. Stocks can be a hedge against modest inflation since earnings per share are measured in nominal terms. Inflation raises those nominal results, particularly for companies with relatively inelastic demand for their products. Many of the largest tech stocks fit that description.

Further, it's still a good environment for the credit market. Expect default rates to keep stable, credit spreads and conditions to remain robust. Asset class at the perfect inflection point where returns are high relative to risk. Private Credit Outlook remains very strong. See Chart1.

2024 Bank CEO Pay

Magnificent 7 Earnings Reports

The Magnificent Seven will likely continue to do well. However, smaller cap firms (Market Cap < $500 Billion) with AI focus, fintech and automation are likely to outperform. Crypto continues to be highly correlated with the Tech Sector.

Zoe Financial CEO, Andres Garcia-Amaya: "Market doesn't have a cohesive narrative to attach itself to… Stocks are moving significantly but in different directions… Highest dispersion since March."

+Mighty META. META continues to diverge from its Magnificent 7 counterparts performance-wise. See Chart2.

META Q4 Highlights:

• Big double-beat on EPS and Revenue

• AI chatbot surpasses 700 Million

• Daily Users > ~3.35 Billion

META 2025 Growth Drivers:

• AI Ambitions -leading the way in open source

• Strong Ad Market

• Further monetization of Reels and Whatsapp

• Potential TikTok ban

Noteworthy Unusual Options Activity -source: Benzinga Newswire:

"Deep-pocketed investors have adopted a bearish approach towards META, and it's something market players shouldn't ignore. Our tracking of public options records at Benzinga unveiled this significant move today. The identity of these investors remains unknown, but such a substantial move in META usually suggests something big is about to happen.

We gleaned this information from our observations today when Benzinga's options scanner highlighted 108 extraordinary options activities for Meta Platforms. This level of activity is out of the ordinary.

The general mood among these heavyweight investors is divided, with 31% leaning bullish and 48% bearish. Among these notable options, 35 are puts, totaling $2,961,571, and 73 are calls, amounting to $5,451,406.

Analyzing the Volume and Open Interest in these contracts, it seems that the big players have been eyeing a price window from $5.0 to $1020.0 for Meta Platforms during the past quarter."

Headwinds:

-Trump Tariffs. The Trump Administration announced a Presidential Memorandum. However, with a delayed implementation. The Office of the U.S. Trade Representative ("USTR") will identify next steps. It is largely expected that some exemptions will be made. Currently, the U.S. Debt exceeds GDP by ~120%. See Chart3.

Tariff Mentions on Earnings Calls

Barclays Capital Fixed Income Strategist, Mike Pond: "Expect a boost of about 40-50 basis points to CPI by year-end… Uncertainty has increased and probability of either no meaningful tariff-induced inflation or an all-out global trade war leading to very high inflation prints have risen."

Former Federal Reserve Bank of Cleveland President, Loretta Mester: "Now is not the time to cut interest rates… The combination of good growth, healthy labor markets, and still high inflation makes it appropriate for the Fed to hold on rates."

Tariff Status

Inflation Insights Founder, Omair Sharif: "The bigger-than-expected increase in prices last month largely reflected higher prices for used cars and auto insurance… if the new tariff on Chinese goods remains in place, it will boost some consumer prices by March or April… Not only did you get almost a one-to-one pass through on the tariff, you got it in a very short period of time."

-DOGE Dodgeball. On 08 January, the Trump Administration, via Elon Musk and Department of Government Efficiency ("DOGE") sent out buyout offers to over 2 million federal workers -including employees in the CIA. See Chart4.

Some of the Federal Agencies Being Targeted by DOGE:

• Medicare

• Medicaid

• Consumer Financial Protection Bureau

• Department of Defense

• Department of Education

• Federal Aviation Administration

• Federal Emergency Management Agency ("FEMA")

• Internal Revenue Service

• National Institutes of Health

• National Oceanic and Atmospheric Administration

• Treasury Department

• U.S. Agency for International Development ("USAID")

Wedbush Global Head of Technology Research and Managing Director, Dan Ives: "The Street is worried that Musk is dedicating too much time to DOGE, taking away his time for Tesla during a crucial year… But this is off base as Tesla is gearing up for many catalysts including the autonomous roadmap (~$1 Trillion in valuation)… Musk has always been able to balance his countless initiatives better than any other CEO we have seen."

U.S. District Judge, Tanya Chutkan: "The court is aware that DOGE's unpredictable actions have resulted in considerable uncertainty and confusion for plaintiffs and many of their agencies and residents… But the 'possibility' that defendants may take actions that irreparably harm plaintiffs 'is not enough…

Musk has not been nominated by the President nor confirmed by the U.S. Senate, as constitutionally required for officers who exercise 'significant authority pursuant to the laws of the United States… Bypassing this 'significant structural safeguard of the constitutional scheme,' Musk has rapidly taken steps to fundamentally reshape the Executive Branch."

Sentiment. Investor Sentiment ending 12 FEB 25:

BTIG Managing Director and Chief Market Technician, Jonathan Krinsky: "The SPX has spent the better part of the last three months in a pretty narrow trading range… While there is nothing bearish about new highs, and while SPX looks poised to breakout of that multi-month trading range, we are entering a weak seasonal period with weak momentum."

SPX Technicals.

Macro Data

The Markets may be more vulnerable than they seem even though the S&P 500 is near all-time highs, less than 60% of its components are above their 50-day moving averages, suggesting a notable chunk of the market are not enjoying an upward trend.

Question of the Week:

Will the Fate of Ukraine be decided without Ukraine this year?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

11 FEB 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w07**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Softbank Spend for OpenAI. The Japanese multinational Investment Fund, Softbank, is finalizing ~$40 Billion for a primary investment in OpenAI at a ~$260 Billion pre-money valuation. The investment would be deployed in tranches over the next 12 to 24 months. Softbank may syndicate about one-fourth to other co-investors -pending OpenAI approval. The generative AI market is forecasted to exceed $1 Trillion in revenue within the next 10 years.

This move implies that Softbank will overtake Microsoft ("MSFT") as OpenAI's top investor. According to CNBC, "Part of the funding is expected to be used for OpenAI's commitment to Stargate." Stargate is the joint venture between Softbank, OpenAI and Oracle announced by President Trump.

In January, OpenAI released ChatGPT Gov, an AI platform exclusively for the Federal Government. Supposedly, it will have more security than ChatGPT Enterprise. ChatGPT Gov will allow government agencies to feed "non-public, sensitive information" into OpenAI's models while operating within their own secure hosting environments, the company said.

OpenAI Chief, Sam Altman: "[DeepSeek's R1 is] impressive… We will obviously deliver much better models and also it's legit invigorating to have a new competitor."

Alphabet ("GOOG/L") Q4 Cloud Revenue is up 30% Year-over-Year ("YoY"). The Search Megatech is forecasting a 2025 CapEx spend of ~$75 Billion. See Chart1.

Amazon CEO, Andy Jassy: "The vast majority of that CapEx (~$26.3 Billion) spend is on AI for AWS. It's, you know, the way the AWS business works, and the way the cash cycle works is that the faster we grow, the more CapEx we end up spending, because we have to procure data center and hardware and chips and networking use ahead of when we're able to monetize it."

+Palantir Power. Software-as-a-service ("SaaS") giant Palantir ("PLTR") flew past the $200 Billion Market Cap for the first time last week. See Chart2. PLTR now hold the #2 spot as the largest U.S. software company -second only to Salesforce ("CRM"). PLTR is currently on a hot-streak with six quarters in a row of revenue growth. Palantir's AI platform ("AIP") is driving rapid adoption among its U.S. commercial and government businesses.

According to Palantir's 10-K report, "We are fundamentally competing with the internal software development efforts of our potential customers… that its customers often come to it after trying to build their own data platforms."

Palantir CEO, Alex Karp: "Say you're a [Private Equity] company, you acquire a large insurance company, and you wanted to change the cost of revenue… If you do it [AI Adoption] and the company down the street doesn't, you are going to have very different margins and very different revenue."

Palantir Q4 Report Stats:

Palantir 2025 Expectations:

Headwinds:

-U.S./China Trade Tensions Rise. In light of the recent Tariffs on Chinese goods, China has responded with a multi-pronged approach: Retaliatory Tariffs on U.S. goods and an overall reduction in buying U.S. Treasuries -instead opting for Gold. See Chart3.

China Retaliates against U.S. Tariffs

Effective 10 February

Charles Schwab Managing Director and Chief Investment Strategist, Liz Ann Sonders: "Tariffs are likely to deal a meaningful blow to the U.S. economy, while putting upward pressure on inflation… U.S. exporters may be muted. However certain sectors may feel the pain more acutely, like agriculture."

JP Morgan House View: "Even with tariffs delayed, the persistent threat of tariffs and the associated increase in policy uncertainty will likely hurt investment decisions and weigh on business sentiment not only in Mexico and Canada, but potentially also in the U.S."

-Trump Tax Cut Ramifications. At the time of this writing, the Trump Administration is still having difficulty trying to offset the multi-trillion dollar cost of extending and expanding the tax cuts they passed in Trump's first term. The nonpartisan Congressional Budget Office has projected that extending the Trump tax cuts for the next 10 years would add $4.6 Trillion to Federal deficits. See Chart4.

According to the Associated Press, "With Republicans controlling Congress and the White House, fiscal hawks say the time is now to change the nation's fiscal trajectory. Steep cuts to Medicaid spending are among their priorities as they push for a major overhaul of government spending…

…GOP Leaders have to bridge the divide. With Republicans holding the barest of majorities in the House -a 218 to 215 majority -they need virtual unanimity to pass the legislation that nearly all Democrats are likely to oppose…"

Representative R-NY, Nicole Malliotakis: "…did not want to be asked to vote for a topline number in a budget plan without a better handle on how it will be paid for." She said New York is a state that relies heavily on Medicaid and she has concerns about some of the proposed changes for the program.

"There's certain things I've found concerning and I've expressed that… I want to have a more general understanding than 'we're going [with] this topline number and figure it out later.' That's not comfortable to me."

Fiscal Impact of Trump's Tax Plans

Cost estimates for 2026-2035

End Carried Interest? The Trump Administration is seeking to end the Carried Interest Tax Loophole -specifically the tax on 20% of Fund Profits.

American Investment Council Statement: "We encourage the Trump administration and Congress to keep this sound tax policy in place… that supports jobs, workers, small businesses and local communities."

Sentiment. Investor Sentiment ending 05 FEB 25:

Raymond James Chief Investment Officer, Larry Adams: "Fed to cut 2 more times: inflation to decelerate, jobs growth slows… Complacency and over-optimism biggest risk for equities… Favorite sectors: Technology, Industrials and Healthcare."

Aura Intelligence CEO, Evan Sohn: "Immigration is a core driver of the U.S. job market -filling positions in high-skilled industries and lower wage ones… If immigration restrictions continue, we could expect higher wages, more automation, and perhaps cuts in services… Immigrants aren't just filling open jobs, they're creating them."

SPX Technicals.

Macro Data

University of Michigan Consumer Sentiment Survey came in at 67.8 for February -the lowest reading since July 2024. In stark contrast, economists polled by the Wall Street Journal had expected sentiment to rise to a reading of 74 in February. Inflation expectations for 2025 increased to 4.3% -the highest reading since November 2023. This is only the fifth time in ~14 years there was such a large one-month gain.

Question of the Week:

Will the Trump Administration be able to pass and extend the proposed Tax Cuts this year?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

04 FEB 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w06**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Opensource AI vs. Proprietary AI. Chinese Quant Hedge Fund created AI company DeepSeek gains don't threaten new-term spend or U.S. leadership. It does appear competitive, but its major distinction is that it was developed with fewer resources -as a direct result of the U.S. limiting chip sales to China.

The Megatechs may need to adjust their proprietary strategies and CapEx to remain competitive. See Chart1. Consumers are prioritizing more open and cost-effective AI solutions over traditional, closed systems. Additionally, Project Stargate represents a U.S. strategic push to accelerate semiconductor manufacturing and secure access.

Total Raised to Date (Leading U.S. AI Companies)

****At the time of this writing, OpenAI is in talks to raise an additional $40 Billion venture capital funding round -that would value the company at ~$340 Billion.

New York University Professor, Gary Marcus: "Advances will be more incremental than before and quickly matched… GPT-5 or similar model, perhaps led by OpenAI, a Chinese company, or a competitor like Google will get there first… Models will continue to get more efficient and less expensive."

JP Morgan House View: "…it is too early to abandon Mag7/AI theme especially with earnings [last week]. That said, I do think this accelerates the timing on when the market will want to see an ROI on AI investments."

Meta Chief AI Scientist, Yann LeCun: "To people who see the performance of DeepSeek and think: 'China is surpassing the U.S. in AI.' You are reading this wrong. The correct reading is: 'Open source models are surpassing proprietary ones.'"

Blackrock-backed AI inference tech company, Groq Co-Founder and CEO, Sunny Madras: "Open source innovation is great for entire industry, techniques will be used by other AI researchers… Seeing a faster shift to accelerated compute -AI spend can go further as a result."

+Fed Outlook. The Federal Reserve left the Fed Funds Rate unchanged at 4.25% to 4.5% at last Wednesday's FOMC meeting. Chief Powell reiterated, "inflation has moved much closer to 2% longer-run goal, but remains somewhat elevated" and that the Fed, "remain squarely focused on achieving maximum employment and stable prices."

The U.S. economy retains significant momentum. Threats to Fed independence "seem overblown" -for now. Term premium in the Treasury curve now a significant driver of long-term yields. And, corporate debt issuance markets is robust.

Key Points of Fed Outlook:

• Direction of rates still down

• Confidence inflation headed to 2%

• Powell/Trump fiscal policy dance

Potential Macro Headwinds to the Fed Achieving their Mandates:

• Tariffs

• Tax Cuts

• Deportations

• Potential decline in government spending

• Deregulation

• Federal workers looking for jobs

Doubline Capital Founder, Jeffrey Gundlach: "I wouldn't be looking for rate cuts at the next meeting… Maximum of two interest rate cuts possible in 2025; one would be the base case."

Headwinds:

-Blog Sparks $600 Billion NVIDA Loss. Jeffrey Emanuel, former Quant Investor and Pastel Network Founder, published a ~12,000 word blog post making the case to short the most influential U.S. stock of the last few years: NVDA. That post not only went viral it was a major catalyst in NVDA losing approximately ~$600 Billion in market cap -the largest single-session loss of market cap in market history. Forcing the Nvidia stock below its 200-DMA for the first time in 2 years.

NVDA $600 Billion Market Value Drop (by comparison)

The post was published Friday night (25 JAN 25). The next morning 35 people were reading it, by Saturday evening ~1,500 people were viewing his anti-NVDA manifesto. Then, Venture Capitalist Chamath Palihapitiya re-posted it to his 1.8 million X followers. Next, early-stage investor Naval Ravikant shared it with his 2.6 million followers. Morgan Brown, a VP of Product and Growth at Dropbox, pointed to it in a thread that was viewed over ~13 million times. Emanuel's own website crashed for a period of time because of the sheer traffic.

Emanuel studied math at Reed College and worked at several investment funds, including as an analyst at Millenium Management and Balyasny Asset Management, two large multimanager Hedge Funds. Emanuel noted, "Every single bank has a super-bullish buy rating on Nvidia. It's like the blind leading the blind -they have absolutely no idea what they're talking about… All of their arguments have become totally divorced from reality… They try to defend their arguments by saying, 'Well, we talk to industry experts.' But that's like asking the barber if you need a haircut."

Some of Emanuel's Key Arguments:

• Given: Some of the most influential tech companies determined that deep learning and AI are the biggest tech advances since the dawn of the internet. In order to remain competitive, companies must build and train their AI -which takes gargantuan amounts of data and compute resources. NVDA sells precisely this key hardware and makes monstrous margins on its most advanced chips.

• Emanuel Argument1: "AI companies have been using scaling laws that essentially say the more data that is used to train an AI model, the better it gets… the industry may be running low on quality data to train that AI -that is , a potential 'data wall' is looming that could slow down AI scaling and reduce some of that need for training resources.

• Emanuel Argument2: "GPUs are constantly getting exponentially better, so after a few years, companies might not want to use old hardware anymore. This puts them on a cycle where they're always spending more  to get the best hardware. But eventually, those companies are going to want to see a return on their hefty investment(s)."

• Emanuel Argument3: [DeepSeek tie-in] "On top of that, some new AI models are proving to be much more resource-efficient." See Chart2.

  • This is where all the drama with DeepSeek comes in. DeepSeek launched its own AI that's on par with the likes of OpenAI's ChatGPT, but the real kicker was that it said it trained its AI in less time -using fewer chips.

• Emanuel Argument4: "It was when I realized that every one of [Nvidia's] big hyperscaler customers [are] literally making their own competitive silicon, all made by [Taiwan Semiconductor] TSM, and that was already coming out and was imminently going to hit the market. I was thinking, 'Do people realize this?' Because I don't think they do… If you know that a company will only earn supersized returns for a couple of years, you don't apply a multiple. You certainly don't put a 30-times multiple."

His core contention, that sparked a massive blow to Nvidia and the broader Markets, is that if training and integrating AI becomes significantly cheaper, why would these large tech companies keep spending obscenely large sums of money? See Chart1.

At the time of this writing, Wall Street firms have been flooding Emanuel with consultant requests at a $1,000 hourly rate, showing that at least some firms were taking his ideas seriously. Further, he alleges that he never held a short position on Nvidia.

-Trump Tariff Trials. President Trump imposes a series of Tariffs on various U.S. trading partners, including: Canada, Columbia, Mexico and China. The moves spark initial Market-wide slides. See Chart3.

Trump will impose 25% tariffs on Canada and Mexico beginning in roughly 30 days. As a result, the Canadian dollar and Mexican peso immediately weakened against the U.S. dollar, while U.S. Treasury bond yields rose and stocks ended the day lower -after climbing most of the Friday session, prior to the news.

Expected Tariff Retaliation from Canada:

• Increase in prices of aluminum, lumber, motor vehicles, oil, etc. to the U.S.

Expected Tariff Retaliation from Mexico:

• Increase in prices of fruits, vegetables, beer, electronics, motor vehicles, etc. to the U.S.

Minneapolis Fed President, Neil Kashkari: "The challenge becomes, if there's a tit for tat and it's one country imposing tariffs and then responses and it's escalating. That's where it becomes more concerning, and, frankly, a lot more uncertain."

St. Louis Fed President, Musalem: "Will it be a 'one-and-done' or will it be two years of a sequence of tariffs in many different sectors of the economy? If it's over two years, incrementally, every month or every two months, it gets harder to parse out."

According to Reuters, "Trump's move is expected to draw retaliatory tariffs, potentially disrupting more than $2.1 trillion in annual two-way U.S. trade with the three trading partners [Canada, Mexico, China]."

Canadian Chamber of Commerce Public Policy Chief, Matthew Holmes, "President Trump's tariffs will tax America first… From higher costs at the pumps, grocery stores and online checkout, tariffs cascade through the economy and end up hurting consumers and businesses on both sides of the border."

Canada has a broader list of targets, slated for immediate tariff retaliation, that could reach $105 Billion USD worth of U.S. imports, but would hold public consultations before acting.

China "firmly opposes" Trump's new duties, a spokesperson for Beijing's embassy in Washington said, adding, "There is no winner in a trade war or tariff war, which serves the interests of neither side nor the world." China has been more circumspect about its retaliation plans, but has vowed to respond.

Sentiment. Investor Sentiment ending 29 JAN 25:

iCapital Managing Director and Chief Investment Strategist, Anastasia Amoroso: "[Last week's] earnings provided a major reassurance to the AI infrastructure complex… Strengthened our conviction the pullback we saw across AI, semis and power is a buying opportunity."

Microsoft Vice Chair and President, Brad Smith: "Golden opportunity for American AI… In FY 2025, Microsoft is on track to invest approximately $80 Billion to build out AI-enabled datacenters… More than half of this total investment will be in the U.S…."

SPX Technicals.

Macro Data

After recovering from the DeepSeek/Nvidia rout on Monday, the market was poised for reclaiming all-time highs prior to the finalization of the Tariffs against Canada, Mexico and China on the Nasdaq-100's 40th birthday -last Friday. The SPX needs to continue to hold above the ~6,000 handle. If it does not, many of the proposed tariffs from all U.S. major trading partners are not likely baked-in to the current Market Level. IF that happens, the market will likely reprice to the downside.

Question of the Week:

Will Trump's Tariffs be enforced for greater or less than 6 months?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

28 JAN 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w05**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+AI Afterburner. The Stargate Initiative, led by the Trump Administration, Softbank, Oracle and ChatGPT, aims to invest ~$500 Billion via the private sector to expand U.S. Artificial Intelligence Infrastructure. This represents the largest AI infrastructure investment or project in history.

Project Stargate Facts

• $100 Billion is already set for immediate deployment

• Stargate intends to enhance national security and develop transformative AI technologies

• Construction of 10 new data centers has begun

• AI Priorities include healthcare (ex: revolutionize patient care via improved diagnostics)

• Softbank Chief, Masayoshi Son will serve as Stargate's chairman

• Microsoft will provide computing power necessary for OpenAI to train its AI models and deliver next-generation products and services.

• The expectation is that total investment may reach ~$500 Billion within the next 4 years.

OpenAI Founder, Sam Altman: "[Stargate is] the most important thing we do in this era."

AI chip leader, Nvidia will likely be among the largest winners of this gargantuan endeavor. NVDA is the dominant player in graphics processing units ("GPUs") -the chips that power required AI tasks such as training and inferencing of Large Language Models ("LLMs"). NVDA currently supplies the world's most powerful GPUs.

NVDA Chief, Jensen Huang agrees with the aforementioned statement and has called the "insane" demand for Nvidia's latest AI architecture and chip, "Blackwell." Microsoft, OpenAI and Oracle, key Stargate players, are already eager and longtime NVDA customers.

The $200 Billion AI Total Addressable Market ("TAM") is expected to fly past $1 Trillion by 2030 -NVDA is poised to take advantage of this epic growth.

Benchmark Venture Capital General Partner, Bill Gurley: "Stargate's proposed structure could present a big lease liability for OpenAI… [industry] may be moving from performance at all costs to optimization phase of AI."

**DeepSeek Deviant. Chinese disrupter tech DeepSeek AI caused the greatest one-day loss of Market Cap in Market history. Nvidia lost nearly $600 Billion in Market Cap in one trading session. DeepSeek AI created by Chinese Quant Hedge Fund, "High-Flyer Quant", is currently challenging the need for massive AI CapEx. Supposedly, the open-source AI is a serious OpenAI and Anthropic contender -for a fraction of the spend. While, OpenAI has spent billions and billions developing its tech, DeepSeek's Model V3 was created with less than $5.7 Million. We will cover this topic in more detail in next week's issue.

+Megatech Earnings Inform Macro. The majority of the Magnificent Seven are scheduled to release earnings this week. The Megas will continue to have an outsized impact on the overall markets just based on their sheer overwhelming Market Cap sizes, respectively.

Mag 7 Earnings Reports

Unusual Options Activity:

• Traders buy ~15.9k 31 JAN 25 Weekly 420-calls @$16.25 (approx. ~$25.8 Million in long options)

• This implies those Traders see TSLA trading at least ~7.3% higher by end of next week

Trump Executive Order to develop National Digital Asset Stockpile. See Chart1.

The U.S. versus the World

SPX Earnings Growth Estimates:

CFRA Chief Investment Strategist, Sam Stovall, "New all-time highs can act like rusty doors and require several attempts before swinging open… I'm not surprised that we have a bit of profit-taking today (23 Jan 25), but I would tend to think that the market will start to power its way through an all-time high on a closing basis in the near-term."

Headwinds:

-Trump vs. Powell. The first Federal Reserve policy meeting of 2025 starts today. Although the newly re-minted President has bolstered the stock market rally with formal announcement of Project Stargate (see: "AI Afterburner" above), Trump has also declared at the Davos World Economic Forum speech, "I will demand that interest rates drop immediately." Not-so-subtly implying he will bend Powell to his will.

In stark contrast, the Federal Open Market Committee ("FOMC") and its Chair J. Powell, is widely expected to pause and hold interest rates at their current level of 4.25% to 4.50%. See Chart3. It's not unusual for a sitting president to have strong views on interest rates and want his views reflected in Fed policy -but Powell has been very clear on maintaining the central bank's independence.

Empower Chief Investment Strategist, Marta Norton: "However, Trump can influence what the Fed does through fiscal policy, and if the fiscal policy proves inflationary, that's going to be counterproductive to getting lower interest rates…"

Simultaneously, market participants will also need to juxtapose earnings expectations with valuations -which could be pressured by spiking Treasury yields as a result of the Fed's higher-for-longer interest rate policy. The Trump administration will be sure to continue delivering plenty of market-moving announcements this year.

Norton continues, "Higher yields should ultimately mean those valuations come down, but higher earnings growth could propel higher prices, so you're having this push-pull between valuations and earnings that are going to have to battle it out this year."

Siebert Financial Chief Investment Officer, Mark Malek: "So far, markets have reacted to every statement by the president, even those that should not have any impact, which shows that traders have not yet settled into their pace… the dance marathon is really just beginning."

KKM Financial Founder, Jeff Kilburg: "[Market] breadth is still in question… VIX is suppressed yet again at 14, showing signs of complacency… Bitcoin enthusiasts and recent gains above $100k reveal the all-out risk on environment -that unsettles me."

-Vanguard Vacillation. The mighty Vanguard Group, founded by the late Jack Bogle, famous for "My view [is] that a U.S. only equity portfolio will serve the needs of most investors… Buy a fund that holds this all-market portfolio, and hold it forever…" is now forecasting some troubling figures. In fact, one of their funds actually flip the standard 60% equities / 40% bonds to a 40% equities / 60% bonds.

Vanguard's Capital Markets Model Forecast sees U.S. large-company stocks only earning you somewhere between 2.5% and 4.5% a year, on average -wait for it… for the next decade. That's before counting the costs of inflation, which Vanguard sees averaging 1.9% and 2.9% a year over the same period. Further, that number is before any investment fees -the majority of people pay ~1% to 2%+ per year.

For every $1,000 invested traditionally 60/40 over the next 10 years:

Alternatively explained: in "real" or constant dollars, after deducting inflation -Vanguard's model sees big U.S. stocks earning between 2.6% and (-0.4%) per year, on average, over the next decade. That's enough to turn $1,000 now into… somewhere between a paltry $1,300 and a disappointing $960 by 2035.

Their model implies "absolute catastrophe" for those who invest in large U.S. growth stocks -the kind currently dominating the market. Vanguard sees a "passive" investment in U.S. growth losing somewhere between 20% and 40% of its value in real or constant dollars over the next 10 years. That's based on forecast nominal average returns of (-0.4%) a year to (-1.6%) per year, and their inflation estimates.

Vanguard Senior Investment Strategist, Todd Schlanger: "Never bet the house, even on a model. Best practice in portfolio construction is to avoid overly concentrated positions… We believe it can be wise to establish certain constraints and risk budgets for time-varying asset-allocation strategies… [the] primary risk to the strategy is model forecast risk."

Sentiment. Investor Sentiment ending 22 JAN 25:

Khosla Ventures Managing Director, Keith Rabois: "We're shifting from most anti-business presidency to one that aspires to be pro-business… Future of the world is predicated on AI."

SPX Technicals.

Macro Data

The all-important FOMC Decision will be released tomorrow, Wednesday. Further, the Powell presser likely to contain details of how aggressively the Fed will fight for its independence from Trump administration influence -or not. The FOMC in conjunction with the Megatech earnings releases will dictate the momentum for the next week. See Chart4.

Question of the Week:

Will Powell continue to defy Trump? And, for how long?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

21 JAN 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w04**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Cool DEC CPI. Last week's all-important December CPI data came in "cooler-than-expected" driving equities higher and snapping the previous S&P 500, Dow and Nasdaq multi-day losing streak. DEC CPI, along with other DEC economic indicators have eased many of the downside concerns about the near-term labor market. See Chart1.

December CPI Data

Select December CPI Details

The Atlanta Fed's GDPNow tracking model is now showing Q4-2024 real GDP growth of 3.0% Seasonally Adjusted Annual Rate ("saar"), driven by a 3.7% increase in consumer spending on goods. The latter was revised up from 3.3% after retail sales was released today. Data for January is currently showing a potential rebound in the manufacturing sector.

The net effect of the DEC CPI print has been bolstering, over the short-term, the bullish 2025 Wall Street forecasts for Year-End Price Targets. See Chart2.

+Quantum Rising. With NVIDIA announcing its inaugural "Quantum Day", scheduled for 20 March, Quantum stocks have been rising -despite NVDA's Chief Jensen Huang stating, "practical quantum computing may still be two decades away." Megatech Microsoft also affirms the same sentiment and, "…urges its businesses to be 'quantum ready' by 2025…"

Select Quantum Computing Stocks ~1 Year

Proposed quantum applications could be extremely significant. For example, Quantum Computing ("QUBT") will provide Sanders TDI access to its Dirac-3 Entropy Quantum Computing Machine. This will enable the institute to leverage quantum computing for complex biomedical challenges. Sanders TDI, is a collective of various New York area research institutions -focusing on drug discovery and disease progression. The partnership will utilize quantum tech for biomolecular modeling, exploring potential applications in computational chemistry.

Quantum Computing CEO, William McGann: "It aligns with our mission to make quantum machines accessible and affordable and is one of the many real-world applications where the power of quantum computing is being demonstrated and put into practice…"

Headwinds:

-Trump Tariffs Trepidation. During Trump 1.0, the tariffs did adversely slow global economic growth -weighing down on the BLS measures of export and imports inflation during 2018 and 2019.

Trump U.S. Treasury Nominee Scott Bessent: "[U.S.] will see gigantic middle class tax increase if tax cuts are not extended… Carbon tariffs could be part of an overall tariff program…"

Scott Bessent Proposed Policy Positions

• Called tariff threats a "maximalist negotiating position"

• Believes best way to reduce debt is through faster growth

• Proposed a "shadow Fed Chair" and suggested nominating next chair early"

Canada Tariffs.

Canada is America's #2 trading partner -with over ~$700 Billion in goods exchanged between January to November 2024. The ~$55 Billion Trade Deficit is the ninth largest for the U.S. See Chart3. Canada is bracing for the proposed Trump Tariffs, according to the New York Times, "Canada Readies Billions of Dollars in Retaliatory Moves to Trump Tariff Threat."

Probable Economic Effect of Canada Tariffs (25% Import Tariff by the U.S. with "Full Retaliation")

U.S. Imports from Canada (2023)

Canadian Exports to the U.S. (Estimated Output under a 25% U.S. Tariff with Retaliation)

-External Revenue Service. President-Elect Trump, "…I will create the EXTERNAL REVENUE SERVICE to collect our Tariffs, Duties, and all Revenue that come from Foreign sources. We will begin charging those that make money off of us with Trade, and they will start paying, FINALLY, their fair share…"

Hudson Bay Capital Senior Strategist, Dr. Stephen Miran: "Sweeping tariffs and a shift away from strong dollar policy can have some of the broadest ramifications of any policies…"

According to the Associated Press, "Trump, who has vowed to shrink the size of the government, would be creating a new agency to do functions already handled by existing agencies, including the Commerce Department and the U.S. Customs and Border Protection, with collect duties and revenues from other nations."

Trump has asked Elon Musk and Vivek Ramaswamy to lead his Department of Government Efficiency ("DOGE"), a nongovernmental task force assigned to find ways to fire federal workers, cut programs and slash federal regulations, all part of what he calls his "Save America" agenda for a second term in the White House.

Economists have largely said the costs of the tariffs will be passed on to consumers, and are generally skeptical of them, considering them a mostly inefficient way for governments to raise money and promote prosperity.

Sentiment. Investor Sentiment ending 15 JAN 25:

DoubleLine Capital Founder and Chief Investment Officer, Jeff Gundlach: "The Fed looks like Mr. Magoo, driving around and bumping into things… In 40 years we haven't had a recession that didn't include the long bond yield declining. Don't count on that now. This time is different. We have left the bus^. We're in a new environment."

^"bus" is a reference to a concept from Neil Howe's book "The Fourth Turning: An American Prophecy" that talks about big generational cycles, with the fourth referring to the last one of crisis and transformation."

Gundlach continued, "Consumer expectations have been shooting higher. That is not bullish given today's valuations… [SPX Component sectors] are at historical highs in terms of valuations."

SPX Technicals.

Macro Data

CBOE Global Markets, VP and Head of Derivatives Market Intelligence, Mandy Xu: "A lot more demand for downside hedges… Higher volume on down days than up days… Upside not getting chased."

SPX is attempting to break the downward Price Action ("PA") trendline started on 09 DEC 2024. PA has gapped up twice since bouncing up from the ~5,780 support area. However, the current doji formation under the SPX 6,000 level clearly shows indecision. See Chart4. SPX needs to hold above the 5,920 area this week in order to continue near-term bullish positions.

Question of the Week:

Will the SPX be higher or lower after Trump's first 100 days?

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.

Happy Tuesday!

14 JAN 25

Headwinds or Tailwinds Update (HoT Weeklies): 25w03**: Fund Updates + Market Outlook + Question of the Week:

CWA Managed Funds: 

Carbonwolf Alpha, Fund Alpha Performance

Major Indices:

2025 YTD Performance:

QALM = Quantitative Algorithmic Leveraged Momentum

Winners and Losers Random ~3 QALM Trades

Observations:

Tailwinds:

+Big Bank Buyouts. Megabank earnings reports start tomorrow. The incoming administration is expected to have less onerous regulation changes. Commensurately, the industry could repurchase ~4.5% of their respective market caps. Megabanks could have ~$90 Billion in excess capital if Basel III turns out to be ~50% less stringent as originally proposed. See Chart1.

Wolf Research Head of U.S. Policy and Politics, Tobin Marcus: "Deregulation will have to proceed at a fairly typical pace… Pending and late-finalized rules can be halted, but most will have to be rolled back slowly through rulemaking or litigation… Hopes for rapid, big-bang regulation -like what's being proposed by the DOGE team -likely won't hold up in court."

+Macro Market Moves. Wall Street expectations are still confident of a goldilocks (2025) year of above-trend growth. The expectations are the soft landing will likely expand via broadening real income growth. Accordingly, this infers broadening equity market performance in the 493 versus just the Magnificent 7 as in 2024 -all with $1 Trillion or greater Market Caps. See Chart2.

Top Titan Trillionaires

Current market tailwinds:

Earnings Expectations, SPX Growth Estimates:

Best Performers in 2024 -source: Bank of America

Headwinds:

-Yield Curve Steepening Risk. The 10-Year has been creeping higher. Persistently higher yield curves across the curve. Market is seeking any sign of stickier or rising inflation signals or earnings that materially disappoint from bell-weather stocks.

If the supply side benefits from deregulation and tax cuts overpower the inflationary impacts of tariffs, a shrinking labor supply and large budget deficits, the 10-year Treasury should remain in the range of ~4.5% to ~5.0%. Conversely, if the 10-year rises meaningfully above 5.0% for a greater than expected period of time, then an adverse re-pricing of the markets is likely. See Chart3.

U.S. Treasury Secretary, Janet Yellen: "In real terms, wages have outpaced inflation… Inflation was mainly a supply-side phenomenon… Pretty convinced we're on a downward path on inflation."

Goldman Sachs Co-Head of GSAM's Global Fixed Income and Liquidity Solutions Business, Ashish Shah: "We are at an inflection point where good news is bad news… Investor optimism and valuations on U.S. equity setup for correction risk… U.S. small caps remain attractive way to play easing cycle."

San Francisco Fed President, Mary Daly: "At this point, I would not want to see further slowing in the labor market -maybe gradually moving around in bumps and chunks on a given month, but certainly not additional slowing in the labor market."

-PBOC Stops Bond Purchases. China's 10-year bond yield plunged to a record low this month, while the Chinese currency traded in Hong Kong last Wednesday hitting its weakest against the U.S. dollar in more than a year. The People's Bank of China is "trying to cool down the market by suspending government bond buying," according to Larry Hu, Chief China Economist at MacQuarie.

The decision "suggests that the PBOC is concerned about the recent rapid decline in bond yields, as it will increase CNY depreciation pressure now and SVB-style financial risk in the future." Hu continued, referring to the major U.S. bank failure in 2023 that was largely blamed on shifts in capital allocation due to aggressive Federal Reserve rate hikes.

A stronger dollar and higher U.S. Treasury yield make U.S. denominated assets relatively more attractive to international investors -theoretically supporting capital outflows.

"Unfortunately, suspending buying of bonds will reduce the transparency of pricing in the domestic bond market, making it a little more difficult for market participants to execute orders," said Brian Tycangco, an analyst for Stansberry Research.

China has also ramped up efforts to support the yuan by issuing bills in the Hong Kong market. The PBOC will auction 60 Billion yuan in six-month bills in Hong Kong tomorrow (15 JAN). Taken together with Friday's bond buying suspension, the PBOC is trying to use a basket of tools to signal yuan stability and support a gradual decline in yields, according to Zong Liang, Chief Researcher at the Bank of China.

Sentiment. Investor Sentiment ending 08 JAN 25:

Yardeni Research Founder, Ed Yardeni: "Fed was stimulating an economy that didn't need to be stimulated… Officials more emboldened to depart from Powell's view… [Quantitative Tightening] can run until Q3/Q4 but will likely end at first sign of trouble."

SPX Technicals.

Macro Data

The S&P 500 just logged two 20%+ years in a row -a feat that has only happened 10 times since 1871. Only during the 1990's and the Roaring Twenties did the good times continue for another two years. CPI reports tomorrow morning. It's critical that it stay in-line with estimates or risk triggering more downside price action.

Question of the Week:

Will TikTok be sold to Elon Musk? See Chart4.

Disciplined Alpha,

MFA

**All of the above Funds are CLOSED to the public. These proprietary Hedge Fund Updates are for informational purposes only. Complex Derivatives, Futures, Algorithmic Trading can involve significant risks. Our past performance does not guarantee your future results. Always do your own due diligence, research and suitability before investing or trading.