This time of year encourages a certain duality: one hand scribbling notes for the holiday party calendar, the other scribbling numbers for the IRS.
It’s human nature — we take stock of what we forecast, what actually happened, and what new absurdities 2026 may bring. Then maybe sip a little of Doug’s family egg-nog (hint).
At a short glance, next week reveals organizational meetings, editorial resets, the start of the annual wrestling match between ambition and reality.
Yesterday on Grey Swan Live! Dan Denning and I spent an hour doing the same in public — tracing the outlines of a financial system drifting deeper into Hyman Minsky’s old warning: “Stability is destabilizing.”
The closer a system gets to equilibrium, the more aggressively it seeks to leverage its position. And the farther the eventual fall.
A quick review: the Fed has officially ended Quantitative Tightening. Monetary plumbing — once a dull, gray, unseen grid beneath the financial streets — is now dictating the tempo of the entire system. QT is over. Rate cuts are next.
The “cash curve,” measured by the stubborn flattening of M2 velocity, is signaling fatigue. The yen carry trade is unraveling. And yet markets are already decorating themselves for a Santa Rally as if none of the above matters.
“That was depressing,” one of our top researchers texted me as soon as we signed off. “You say you’re not gloom and doom,” Jennifer said, scoffing slightly under her breath.
Meh.
We can admit to waking up this morning to this question: How and why do complex systems actually collapse?
Before we head into the weekend, we’re going to take a stab at an answer. Maybe it’ll give us a clue as to what we should be paying attention to in between toasts and snack bites over the next week
The Minsky Frame: Prosperity, Then Fragility, Then… Snap
Hyman Minsky was an American economist best known for the “Minsky Instability Hypothesis”, an academic stab at explaining how a long period of stability and growing prosperity can lead to financial instability and crisis.
Minsky argued that in good economic times, like our own, optimism leads to increased risk-taking, speculative borrowing, and the accumulation of private debt, making the financial system fragile.
When this fragility leads to a collapse, it is known as a “Minsky moment,” a term that has gained popular acceptance among financial analysts since the 2008 financial crisis.
The Minsky cycle still offers the cleanest lens for today’s mess.
First comes Hedge Finance — revenues cover interest and principal, everything feels sane.
Then Speculative Finance — revenues cover interest only, and refinancing becomes a lifestyle.
Finally Ponzi Finance — revenues don’t cover anything; asset prices simply must rise to keep the machine humming.
A “Minsky Moment,” he warned, happens when a tiny shock hits a system already living in Phase Three. One wobble becomes a cascade. The confidence that built the boom becomes the accelerant of the bust.
And what have we talked about all week?
A Fed that can no longer shrink its balance sheet without breaking something.
A public that cannot absorb a $1,000 emergency.
A global system built on decades of near-zero yen borrowing.
And money velocity — the heartbeat of real economic activity — flattening again after the briefest recovery. You don’t need a dramatic shock. Any stray spark will do.
The Fed Must Cut — But Who Does That Actually Help?
The rate cut narrative is calcifying into gospel: the Fed must cut to save the consumer.
Bankrate reports that 59% of Americans cannot cover a $1,000 emergency without debt or selling something. And yet stocks are roaring, liquidity junkies are celebrating, and the top 10% now account for half of all consumer spending.
Here’s the plot twist: before 2020, consumer confidence faithfully tracked equity markets. After 2020, that relationship broke. As one analyst put it, “The poor don’t hate stocks going up. They just don’t feel it anymore.”
So when the Fed cuts rates in one of the hottest stock markets in history, who exactly benefits? Not the 59%. Not the middle. Certainly not anyone renting and watching shelter inflation devour their paycheck.
Meanwhile, unemployment is creeping, job security is deteriorating, and — in a first since 1994 — the Bureau of Labor Statistics will not publish an October employment report. The data blackout leaves private indicators as our only compass.
Initial claims fell… but layoffs hit their highest November level since 2022. Mixed signals, thinning cushion.
Minsky would arch an eyebrow. Then pause… not yet.
Japan Just Shook the Global Bond Market
If the Fed is fighting gravity, the Bank of Japan appears to be fighting physics.
Japan’s 10-year yield hit 1.92%, the highest since 2007 — up from –0.28% in 2019. The 30-year yields hit an all-time high of nearly 3.4%.
A 220-basis-point reversal in the anchor under $500 trillion in global derivatives. And they’re raising rates as part of a $135B fiscal stimulus package.
As one strategist put it: “No sovereign in history has tightened into a wall of debt this large.” Every 1% increase in yields costs Japan ¥2.8 trillion a year.
Debt service already consumes nearly a quarter of tax revenue. We’ve been observing Japan’s debt pile for decades, anticipating a similar one to grow in the United States.
The U.S. political system is simply incapable, as it stands, to deal with the two biggest expenditures on the books: Social Security and Medicare.
We can’t even have an honest disagreement over the broken health care system. Let alone discuss, openly, interest on the national debt now gobbling up the third spot on the national register of expenses.
In Japan, necessary low interest rates fostered the infamous yen carry trade — the free lunch of global finance – for two decades. Now it’s wobbling. When Japan, the world’s largest creditor nation, becomes a forced seller of $3 trillion in foreign assets, markets don’t “correct.”
They convulse.
Again: small spark, dry forest.
₿ Bitcoin Screams While Velocity Whispers
Bitcoin broke back into positive territory for the year. JPMorgan, who, along with BlackRock and Vanguard, are actively trying to capture bitcoin as an asset class, upped its forecast for the next rally to $170,000.
Binance volumes have surged since the Trump pardon of its CEO.
So far, macro doesn’t confirm the enthusiasm. M2 velocity — the circulatory system of actual economic activity — sprinted off its pandemic low only to flatten again. Not falling yet, but no longer rising.
Late-cycle behavior looks exactly like this: risk assets get excitable while the real economy exhales, slows, and braces.
We also noted briefly yesterday that short interest in TLT, the long-bond ETF, is at historic highs — precisely as rate-cut odds rise. If the Fed turns more dovish, TLT can spike violently. Short-sellers would scramble to cover, triggering a feedback loop.
A classic Minsky-style “speculative to Ponzi” transition — leverage leaning one direction, forced to sprint the other.
Billionaires, SoftBank, and the New Gilded Statecraft
Record inequality has a way of sneaking into the macro system like a slow leak under the floorboards. A new report out by UBS is making its way around political strategist circles right now.
Need an enemy and a source of capital for your social justice schemes?
Look no further than the record number of global billionaires – 2,919 sitting atop $15.8 trillion. Many are shifting their capital away from the U.S. — toward Europe, China, and the Asia-Pacific — citing political uncertainty and inflation.
But the strangest development comes courtesy of SoftBank’s Masayoshi Son. After months of talks with the Trump administration, Son is drafting a plan to marshal hundreds of billions from Japan to build Trump-branded industrial parks on U.S. federal land — factories to produce AI components at scale. Funds could begin flowing in early 2026.
Reshoring as geopolitical performance art: Japan supplies the money, Trump supplies the brand, Son supplies the chaos. Minsky would call it “speculative finance with theatrical elements.”
Bread, Circuses, and the Algorithm That Ate Hollywood
And in the entertainment column of complexity: Netflix is buying Warner Bros. Discovery for $82.7 billion.
The studios that once defined American storytelling are becoming appendages of streaming giants that measure narrative by engagement metrics.
Like ancient Rome, the bread is thinner — but the circuses are spectacular.
We began the week with a reader question: What will the next crisis look like and when?
We’ll only recognize the last snowflake after it lands. One light frozen crystal too many… and whoosh.
Debt piled atop debt, data missing from official reports, monetary plumbing pushed past its tolerances, consumers drained, billionaires hedging their geography, currencies mispriced, and central banks cornered by their own past promises.
Minsky taught that stability invites risk-taking; risk-taking invites fragility; fragility invites collapse.
And yet: this is also the season of renewal, reflection, new projections, and (if we’re lucky) new clarity.If complex systems fall from neglect, they also strengthen through awareness.
Next week we sharpen forecasts, review assumptions, and tighten the bolts for 2026. A little philosophy, a little math, a little holiday spirit.
Call it preventive maintenance.
Enjoy your weekend,
~Addison
P.S. If you missed yesterday’s Grey Swan Live! with my longtime co-conspirator Dan Denning, do yourself a favor and catch the replay.
We tore through the Fed pivot, Dollar 2.0, the yen carry unwind, oil’s 2026 setup, and why the next crisis may look like an Enron moment delivered at warp speed. Dan’s easy to talk to. His dry, his analysis sharp, and — as godfather to my middle son – he’s contractually obligated to keep me honest.
If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.
