Happiness is a warm gun (not the warmth of collectivism)
January 4, 2026 – Weekly comment
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Today’s title contains quotes from the Beatles and NY Mayor Mamdani. I favor the Beatles.
The summary below from Kathryn Rooney Vera, Chief Market Strategist at StoneX, captures the essence of Venezuela.
Venezuela. After years of hyperinflation, capital flight, institutional collapse, and destruction of productive capacity, Venezuela’s economy has been collapsed for years. Entirely dependent on oil, exports have regardless suffered from infrastructure decay, sanctions, and repeated operational disruptions. The collapse reflects prolonged state control and systematic erosion of private enterprise. Nationalization, authoritarian governance, and the loss of property rights destroyed incentives, eliminated foreign direct investment, and hollowed out the energy, food, and industrial sectors. Roughly 8 million Venezuelans emigrated, one of the largest modern diasporas. The human cost remains severe in a country with vast natural resources. Any durable recovery requires rule of law, credible institutions, private ownership, and market incentives.
The quote below is from the Venezuelan man on the street:
“To those who say that the United States is only interested in our oil, I ask those people: What do you think the Russians and the Chinese wanted… The recipe for Arepas?”
https://www.allrecipes.com/recipe/238510/homemade-arepas
From Xi’s New Year address: “Compatriots on both sides of the Taiwan Strait are bound by blood ties thicker than water. And the historical trend toward national reunification is unstoppable.”
US actions in Venezuela and South America could speed up China’s plans, without much interference by the US. Is the supply of high-tech chips (primarily fabricated in Taiwan) possibly threatened, as has already happened with rare earth magnets? Judging by the price of oil, already near lows of the past five years (CLG6 57.32s), it’s not all about hydrocarbons. Repeating from Alyosha Market Vibes on Wednesday: “Oil prices, adjusted for inflation, are ending 2025 lower than they were before the OPEC embargo in October 1973.”
From FT, Dec 31 (Song Jung-a): “Consumers should prepare for price increases this year, of as much as 20% for smartphones, computers and home appliances, analysts and manufacturers have warned, as artificial intelligence demand drives up the cost of memory chips used in electronics. Consumer electronics makers including Dell, Lenovo, Raspberry Pi and Xiaomi have warned that chip shortages were likely to add to cost pressures and force them to raise prices, with analysts forecasting increases of 5 to 20%. Dell’s chief operating officer Jeff Clarke said during an earnings call in November that the company had never seen ‘costs move at the rate’ they were rising now and the impact would inevitably reach consumers.”
From google: Taiwan supplies the vast majority of the world’s most advanced computer chips, with estimates suggesting over 90% of the most sophisticated logic chips come from the island, primarily through Taiwan Semiconductor Manufacturing Company (TSMC). Overall, Taiwan accounts for roughly 60% of global chip output, making it the undisputed leader in semiconductor manufacturing, critical for everything from smartphones to AI.
In a multipolar world where supply chains are increasingly uncertain, the US needs fabrication facilities for rare earths and high-tech chips. Big projects with big capital needs. According to yahoo finance, the Trump admin has already taken equity positions in five companies: Intel, MP Materials, Lithium Americas Corp, Trilogy Metals and US Steel, in addition to taking a cut from NVDA. The already voracious appetite for capital related to data centers and electricity is likely to increase rapidly. While some individual companies may benefit from federal takeovers investment, US interest rates, especially at the long end, are likely to see increased upside pressure. One might hope that privatization would unleash productive capabilities in South America, (just as the US seems to be drifting towards nationalization). It’s no surprise to me that bitcoin, an asset ostensibly outside of government control, saw some firming over the weekend.
I always assume that large players have the inside scoop on big events like this weekend. US 10s and 30s ended at the highest yield levels since early Sept. German 10y bund finished at 2.90%, only exceeded by the October 2023 high of 2.966%. Japan 10y JGB at 2.06%, just below the end of the year high of 2.078%. New high Exxon (XOM) 122.65, only exceeded by the 2024 all-time-hi 126.34. Nice bounce in Chevron (CVX).
Signs are piling up that a bear market in equities could start: Oracle stock and CDS price. Blue Owl pulling out of an ORCL financing deal. Apollo Capital paring back all risk to get a clean balance sheet. Local elections where people are united against one thing: data centers that jack up electricity prices and threaten water supplies. Private Equity funds selling…to THEMSELVES. (Buying companies out of existing funds and starting new funds with new investors).
In states and markets, perhaps the theme of 2026 is ‘Regime Change’.
Payrolls released Friday, January 9. NFP expected +59kwith an Unemp Rate of 4.5 vs last at 4.6.
OTHER THOUGHTS, TRADES
2/10 treasury spread ended at a new high 71.2 (3.475/4.187). The high in April was 64.2. This is the highest level since early 2022 prior to the hiking cycle. Red/gold pack spread ended at 63.5 bps (9680.5/9617.0). These two spreads tend to track, but in April red/gold reached 80.875 bps. Having said that, red/gold is still above the highest level in 2022 which was 48.75. Below is a graph of 2/10 in white and red/gold pack spread in pink.
Directionally blue/gold tends to track 10/30, which I believe is a good proxy for measuring term premium. Same as red/gold, 10/30 is near recent highs at 67.6 (4.187/4.863) while blue/gold, at 19.25 (9636.25/9617.0) is well below April’s high of 25.75. Chart below, US 10/30 in white and rolling blue/gold SOFR pack spread in blue.
My interpretation, which has NOT worked well this past year, is that deferred SOFR contracts, blues and golds are likely ‘rich’. I think curves will continue to steepen.
| 12/26/2025 | 1/2/2026 | chg | ||
| UST 2Y | 348.1 | 347.5 | -0.6 | |
| UST 5Y | 369.6 | 373.7 | 4.1 | |
| UST 10Y | 413.4 | 418.7 | 5.3 | |
| UST 30Y | 481.8 | 486.3 | 4.5 | |
| GERM 2Y | 214.0 | 213.8 | -0.2 | |
| GERM 10Y | 286.1 | 289.9 | 3.8 | |
| JPN 20Y | 295.9 | 297.4 | 1.5 | |
| CHINA 10Y | 183.3 | 184.3 | 1.0 | |
| SOFR H6/H7 | -39.0 | -39.0 | 0.0 | |
| SOFR H7/H8 | 18.0 | 22.0 | 4.0 | |
| SOFR H8/H9 | 19.5 | 22.5 | 3.0 | |
| EUR | 117.72 | 117.19 | -0.53 | |
| CRUDE (CLG6) | 56.74 | 57.32 | 0.58 | |
| SPX | 6929.94 | 6858.47 | -71.47 | -1.0% |
| VIX | 13.60 | 14.51 | 0.91 | |
| MOVE | 58.50 | 62.36 | 3.86 | |
