Trying Not To Use It But...Situational Unawareness

Trying Not To Use It, But…Situational Unawareness

Trying Not To Use It, But…Situational Unawareness This is likely the hundredth (if not thousandth) report in your inbox with some play on Situational Awareness. As a rule, the T-Report tries not to be too derivative on our titles, but this one kind of writes itself. Besides, it’s the first weekend in August, so maybe we can cut ourselves a bit of slack, and go with the obvious title? There is no shortage of things we can write about: • Warsh, who isn’t as hawkish as some were led (or we would argue misled) to believe he was. His drive towards “less transparency” is increasing, as he floated the idea of having fewer meetings. Let the market talk! For too long the bond market has been too fixated on what a handful of people plan to do about short-term rates (and some exotic tools at their disposal). “We” (collectively) lose information when the market is trying to price the whims of a handful of people, rather than what it thinks is appropriate value. The signal-to-noise ratio gets completely messed up! It might take some time getting used to increased volatility in the bond market, but expect that shift to occur as the market starts having to think for itself, rather than trying to think about how the FOMC will think (they are not mutually exclusive, but they aren’t the same thing). • Staggering market cap gains and losses. In a week where some mega caps traded like “meme” stocks, we could talk about earnings and market structure, but, you guessed it, we are going to focus on Situational Unawareness. • Iran. Shortly after the markets closed, multiple headlines surfaced proclaiming an imminent larger-scale attack by the U.S. So far nothing has happened. Academy continues to monitor the situation, with a base case that what passes for the “ceasefire” will largely hold, and the U.S. will have to revert to economic punishment (including the highly successful blockade) to shift the narrative significantly. The big question mark for markets, as we see it, is how much more can we release from the SPR (Strategic Petroleum Reserve)? Academy was fortunate to discuss “The AI Trade and Iran” on Friday’s CNBC’s Morning Call. • Japanese Yen. Someone finally intervened in the market. After “chatter” about “price checks” (central banks checking levels with large banks), the Yen dropped from 163.85 on Tuesday, to 157.4 by the end of the week. It hasn’t been that strong since early May. Is further strength possible? Will that impact the “carry” trade? Normally the “carry trade” might warrant more thought, but for me, it is something that tends to get too much attention to begin with, and is only a minor player compared to the other drama playing out in real time. Situational Unawareness This is the focus of today’s report. Every conversation I’ve had this week tends to quickly move from earnings, AI spending, Iran, and the Fed to was the Situational Awareness sale a market bottom? The corollary, and equally important, is how much of the July weakness can be tied to Situational Awareness? • The argument that this should be a temporary bottom makes some sense and we will examine why. • The concern is that this is just the first “thing” (or second, if you want to include structured notes in Korea) in what may be a string of “things” (frequent discussions around the Bear August 2, 2026 1

Trying Not To Use It, But…Situational Unawareness Stearns hedge funds that were forced to liquidate, relatively early in the ABX calamity – the Big Short covers this). The Financial Times broke the story and it was great to see that they picked up on Academy’s take on some of what is playing out in the AI Spend, and the markets. If you are going to ask the market (or Wall Street) for help, you better do it properly! We’ve seen multiple unwinds. We’ve been part of unwinds. It is the nature of the beast on Wall Street. When I think about how to “unwind” a messy, large, and somewhat illiquid position (which fits the bill for this fund based on everything that’s been published), there are a few things that need to be done: • Work with truly deep, trusted relationships. The knee-jerk reaction can be to reach out to…