Key Insights

The Canadian Renaissance: A Bullish Thesis for Outperformance

"I am getting more and more impressed with this guy [Mark Carney]. And I think we have or we are witnessing the return of classical liberalism. This is the type of liberalism that won elections, which is socially liberal and fiscally conservative."

A powerful, pro-growth agenda is unfolding in Canada that positions its economy and currency for significant outperformance. The analysis points to Prime Minister Mark Carney’s new policy direction as the primary catalyst, describing it as a return to "classical liberalism"—a blend of social liberalism and fiscal conservatism designed to unleash economic potential. This framework is seen as a stark, positive contrast to the previous administration.

The strategy is multifaceted and explicitly pro-growth:

• Deregulation: A mandate to eliminate duplicative and delay-causing regulations.
• Infrastructure Spending: $80 to $100 billion in new spending, with two-thirds dedicated to infrastructure—the equivalent of an $800 billion to $1 trillion program in the US.
• Fiscal Prudence: A $25 billion cut to government spending to rein in a bloated public sector.
• Tax Relief: Targeted middle-class tax cuts to stimulate demand.
• Free Trade: The removal of inter-provincial trade barriers to create a more efficient domestic market.

This policy mix, combined with a strong jobs report (83,000 jobs added, equivalent to 831,000 in the US) and Canada's position as a commodity powerhouse, creates a compelling investment case. The thesis is that Canada is uniquely positioned to benefit from a looming commodity supercycle, driven by global demand for materials needed for electrification, AI infrastructure, and robotics.

Actionable Takeaway: The analysis strongly advocates for a long position in the Canadian dollar (CAD) via futures. A consensus forecast sees the CAD strengthening to $0.78 USD by year-end, a 6.28% move that could translate into a ~146% return on margin due to leverage. Building a long CAD futures position on any weakness is presented as a core strategic trade.

The Copper Tariff Tightrope: Betting on Ego vs. Economics

"This is a base for everything you need. Everything you're talking about, you're going to need this... The amount of copper that's in this is as stupid as you can get on a tariff. So if I had to pick, I'd probably say this is not going to happen. However, his ego."

The proposed 50% tariff on all copper imports represents one of the most significant and mis-analyzed risks in the market. The analysis frames this not as a rational economic policy but as a high-stakes gamble between a sensible outcome (the "taco trade," implying it's a bluff) and an irrational one driven by political pride (the "ego trade"). The market is currently pricing in a 50% probability of the tariff being implemented, a level reflected in the recent spike in copper prices to the $5.60/lb range.

The argument against the tariff's implementation is overwhelming. It is described as "the stupidest tariff I have ever heard" because it directly undermines key US strategic goals. It would dramatically increase the cost of building out data centers for the AI revolution, expanding the electrical grid, manufacturing electric vehicles, and constructing new housing—all priorities of the administration. The tariff would guarantee that Americans pay the highest price in the world for a foundational industrial metal, effectively taxing the nation's future growth.

Despite the clear economic self-harm, the risk of the "ego trade" cannot be dismissed. The analysis posits a stark thought experiment: if forced to bet on whether Trump would save your life at the cost of a hit to his ego, or let you die to protect it, which side would you take? This highlights the profound uncertainty and the non-economic factors at play.

Actionable Takeaway: The extreme spike in implied volatility on copper options has created opportunities. The analysis reveals a trade of selling out-of-the-money puts (specifically the $4.90 and $4.80 strikes on the XHE contract) to collect rich premiums. However, this is a tactical trade with a strict deadline; the position should be closed before the August 1st tariff decision date, as a "no tariff" outcome would cause prices to quickly revert towards the LME price around $4.50-$4.75/lb. Selling calls at the $6 strike is deemed extremely risky, as it's a direct bet against the "ego trade."

The Fed's Path to Rate Cuts: Ignoring the Tariff Noise

"I don't know why they wouldn't go ahead and cut... I seem to think three to four for the year might be the right place to be."

The market is overly focused on the inflationary potential of tariffs while ignoring more powerful, persistent deflationary forces, particularly from AI. The analysis argues the Federal Reserve has clear "permission" to begin cutting interest rates, potentially as soon as the July 30th meeting. The expectation is for upcoming CPI data to come in light, giving the Fed the cover it needs.

While the market is pricing in roughly two rate cuts for the remainder of the year, the assessment here is that three to four cuts are more probable. The current Fed Funds rate is seen as "significantly restrictive," and the argument is that even with tariffs, there is little risk of inflation resurging. The past four months of existing tariffs have produced no discernible inflationary spike, suggesting the market's fears are overblown.

A key long-term trade idea is presented: going long October 2026 Fed Funds futures. This bet is based on the view that the market is underpricing the total number of cuts that will occur over the next two years, especially given that Powell's term will end and a new Fed chair is unlikely to resist political pressure to lower rates. The analysis suggests a clear path for the administration to manage debt by aggressively cutting short-term rates—where debt is constantly repriced—while reducing the supply of long-term bonds to keep yields in check.

Actionable Takeaway: Investors should consider positioning for more aggressive rate cuts than the market currently expects. Long positions in October 2026 Fed Funds futures are a direct way to play this thesis. The core insight is that the Fed will ultimately prioritize supporting the economy over fighting a phantom inflation threat from tariffs.

Market Disconnect: Why Stocks, Bonds, and the Dollar Can't Agree

"The equity market didn't really believe him. Copper somewhat believed him, but the bond market absolutely believed him. One of those three are wrong, or all three are wrong."

Current market action reveals a deep schism in how different asset classes are interpreting the tariff threats. This disconnect highlights a fundamental uncertainty about the future path of inflation and economic growth.

• The Equity Market: Remains near all-time highs, largely dismissing the tariff talk as political noise or a "taco trade" that won't materialize into significant economic damage.
• The Bond Market: Has reacted strongly, with long-end yields rising (30-year up 10 bps, 10-year up 8 bps) on the belief that tariffs are unequivocally inflationary and will force the Fed to stay hawkish.
• The Currency Market: The Dollar Index has rallied nearly 1%, reflecting a flight to safety and a belief that tariffs, if implemented, could strengthen the dollar through trade dynamics, even if they harm the global economy.

This divergence cannot persist indefinitely. The analysis leans heavily towards the bond market being wrong, arguing it is fixated on a single variable (tariffs) while ignoring the massive deflationary wave from AI and other structural forces. The equity market's nonchalance is seen as more likely correct, but it remains vulnerable to a shock if the "ego trade" on tariffs prevails.

Actionable Takeaway: The conflicting signals create opportunities for relative value trades. The bullish case for the Canadian dollar against the US dollar is one such trade that bets against the bond market's inflation narrative. The key is to identify which market's interpretation is most flawed and position for its eventual correction.

Notable Quotes

On the Canadian policy shift: "This is the type of liberalism that won elections, which is socially liberal and fiscally conservative... Make sure we, you know, be who you want to be, but don't send me the bill. And socially liberal, which means you do you, but socially liberal means you let me do me."

On the flawed logic of the copper tariff: "This is probably the stupidest tariff I have ever heard. This is a base for everything you need... You want to make electric vehicles more expensive... You want to make housing more expensive to build... You want to build out all of these data centers... The amount of copper that's in this is as stupid as you can get on a tariff."

On the political risk of tariffs: "I wouldn't bet too heavily on the taco trade. I'd sort of give equal weight to the ego trade at this point."

Market Implications

The central thesis is that investors should look past the chaotic daily headlines on US tariff policy and focus on more durable, fundamental shifts. The most actionable strategy is to position for Canadian outperformance through a long Canadian dollar position, capitalizing on a rare confluence of pro-growth domestic policy and a favorable global commodity cycle.

In the US, the primary opportunity lies in betting against the market's inflation fears. This can be expressed by positioning for more aggressive Fed rate cuts than are currently priced in, particularly in longer-dated futures contracts that extend beyond the current political cycle.

For risk assets, the copper market serves as a microcosm of the broader political risk. While the economic logic suggests tariffs won't be implemented, the "ego" factor remains a significant, underappreciated threat. This calls for tactical, risk-defined strategies, such as selling volatility through options, rather than making outright directional bets on the outcome. The key to navigating this environment is to identify where markets are mispricing political psychology and position for a return to economic reality.