#writing Exploring the futility of the current debates around Fed rate cuts. Like a con-man the markets have everyone focused on one shell while it robs us with a sleight of hand without anyone noticing. Whether the Fed cuts or not is of little concern, and if you build your portfolio around a view like that you only create a very fragile portfolio. --- **August 25, 2025** We don't do this often, but Alex Campbell's "Stoic Macro" Series ([Part 1](https://www.campbellramble.ai/p/stoic-macro-the-mathematics-of-progress), [Part 2](https://www.campbellramble.ai/p/stoic-macro-living-between-order), [Part 3](https://www.campbellramble.ai/p/stoic-macro-portfolio-consciousness)) is a must read. It's always easy to recommend someone who aligns with you, but instead of just adding to the echo chamber he provides a very useful framework to apply many of the principles we talk about frequently here which creates massive value. We tend to linger in the abstract here whereas Alex gets down to business, turning insight into action. We quoted from Part 2 last week in our exploration of the tension between [[CHG Issue 196 Art versus Science|art and science]] where we learned the necessity of [[Surrender|letting go]] of our attachments and embrace the radical uncertainty and complexity of the world. Alex calls these attachments "structures of meaning" and highlights the duality of [[CHG Issue 104 Ego|ego]] that we must navigate: ego is the driver of creativity but also the germ of overconfidence. In Part 1 he takes Ray Dalio's formula, $Pain + Reflection = Progress$, and does some heavy nerd math to show the importance of challenging yourself, taking risk (aka [[Faith]]), [[Fielding Outcomes]] and creating [[Feedback Loops]] to maximize your [[Learning]] convexity. This sort of learning is not what you do in school where most of the focus is on memorization and achieving success, aka good grades. Under the pass/fail regime there is not a lot of opportunity to reflect on bad grades and make progress, so we end up teaching our kids that pain means you are doing something wrong instead of teaching them how to process the inevitable pain that you will experience in life. We develop attachments based on these experiences and we carry them with us, for most unknowingly, like baggage into adult life. We see the world through the lens of our attachments and develop "structures of meaning" based on them. Before long, our subjective reality is completely dominated by these artificial constructs that we have unknowingly developed. >Think of yourself in a concert hall listening to the strains of the sweetest music when you suddenly remember that you forgot to lock your car. You are anxious about the car, you cannot walk out of the hall and you cannot enjoy the music. There you have a perfect image of life as it is lived by most human beings. >*Anthony De Mello*, The Way to Love None of us have control over our circumstances but we do have control over how we pilot ourselves through things as they are.[^1] To develop learning convexity we need to first realize that we can choose our attachments. Just because you were given a certain set of attachments early in life doesn't mean you have to keep them and the minute you reflect on them and see them for what they are you gain a new freedom. You start to see things as they are, instead of as you expect them to be and in doing so you are better able to handle the pain of losing and being wrong and gain the capacity for learning a reflection from those experiences. You are no longer a slave to your circumstances but become the master of them because no matter what happens you can gain from them.   Instead of relying on only logic and reason to find the answers you can interpret your experiences based on the possible outcomes of your decisions. This is Pascalian Reasoning which comes from Blaise Pascal's famous "Wager." In it he answers the timeless God debate by simply considering the outcomes of your belief: 1. If God exists and you believe you stand to gain infinite reward 2. If God exists and you don't believe, you lose infinite reward 3. If God does not exist and you believe the consequences are finite 4. If God does not exist and you don't believe the consequences are finite Therefore, since the possible gains are infinite and the costs are finite, the logical bet is to believe in God. Pascalian Reasoning can also be thought of as [[Thinking in Bets]], which is also a great book by the former professional poker player Annie Duke. It is also what Alex advises under his Stoic Macro framework: structure your portfolio and life to benefit from volatility and [[uncertainty]]. This framework can also help you to see when the egos of others get overconfident and positioning gets overextended on something where the rewards are finite.  Last week provided a good example of that in the markets. The rotation out of tech picked up steam and everyone assumed Powell would be hawkish. But he did what everyone thought he should do, and the markets almost completely reversed the action from earlier in the week on Friday because sentiment and positioning got too one-sided. Part of this is summer markets but it provides a good example of sentiment trading. Sentiment trading is like playing poker blind. Playing bling means you don’t look at your cards, you just play the other players, their cards, and the pot odds. Sentiment trading completely ignores the fundamentals and any causal relationships and focuses solely on market vibes and technicals. Playing blind in poker is fun and a flex on the table but it’s not a good strategy for success because you are willfully ignoring free information contained in your hand. Sentiment trading, Technical trading, Fundamental trading, and any flavor of trading for that matter that focuses on one thing at the expense of another is similarly flawed. While these things can work at certain times, none of them provide a statistical edge because they exclude important information. Currently investors are focused on the fundamentals of whether the Fed will cut rates without giving as much consideration to the outcomes of those possible cuts. If the Fed cuts and everyone is positioned for it, you could see rates rise because they disappointed expectations. Or maybe they cut into a hot economy causing inflation. There are so many considerations that if you are lucky enough to get the call right you might not even get the market reaction right, which demonstrates the futility of these approaches to the markets. Instead of trying to figure everything out, game plan out different scenarios and think what might happen. The point is to prepare for being wrong and focus on learning and adapting. Now this kind of flexibility is great, but it can go too far, without discipline it’s just chaos so you need to strike the right balance. Let’s stay on the example of Fed rate cuts. If the Fed cuts because they are being politically pressured that is bad for the dollar, inflationary, and good for growth. In this environment precious metals and crypto should be the strongest as physical assets should outperform financial assets under currency debasement. Stocks should be supported by the weaker dollar, but inflationary monetary policy could be a threat which would cause a headwind and potentially a change of leadership. The yield curve should steepen. Thinking further down the road, too much inflation could hold growth back which would be another headwind for stocks. If the Fed cuts rates because growth and inflation are on a downward trajectory then this will shorten that cycle. The dollar has been under pressure because of rotation into foreign stocks but has been supported as the Fed kept rates high while other central banks have been cutting rates. The dollar has also been supported by inflows due to the increased investment flows touted by the Trump administration. Initially lower rates will be bad for the dollar but as growth and inflation come down these dynamics might change and be bullish for the dollar. This is why we spend so much time looking at cross-asset correlations: they show you the cause-effect narrative that is in place and when it changes. When building a portfolio, you want to be aware of these sorts of scenarios and then compare them to current market pricing (your odds) and let your positions fall out from that. Take oil for example: it has been under pressure for some time as it has priced in lower growth and higher supply. However, it has failed to find enough sellers to break out lower and under the scenarios we laid out it could benefit from Fed easing offsetting slower growth and it could benefit from Fed easing due to political pressures. When we [[CHG Issue 190 The Problem with Probability|last looked at the correlations between oil and bonds it was positively correlated with bonds]] meaning lower growth was good for bonds and oil. A relationship like that goes against the fundamentals but can exist for extended periods of time but not forever, therefore it’s fair to reason that once we get a resolution to the growth outlook or Fed cuts this pair should see change and indeed the correlation has recently decreased. We own gold and foreign stocks so another benefit of owning crude would be to increase diversification because it has been negatively correlated to both. By increasing our allocations to bonds at the same time we are not making an explicit bet on growth, and we are increasing allocation to a risk-off asset as risk markets have rebounded, and rates have risen. As risk markets have risen implied volatility has decreased, which has offered the ability to replace linear exposure with upside optionality. This comes at a reduced cost (lower implied volatility) but also reduced upside exposure. None of these moves are informed by an opinion on growth, inflation, or monetary policy but merely unbiased observations of the markets with reliance on long wavelength causal relationships serving as a fundamental backstop to short wavelength market sentiment and narratives. When the outlooks for the primary fundamental drivers of the markets, growth and inflation, are unclear, it doesn't mean there aren't any trades to do it just means that shorter wavelength forces are the ruling reason of the day and those come with higher volatility. If you are willing to take risks and experience pain there is plenty of opportunity for learning and progress in such environments. [^1]: Oswald Chambers, The Complete Works, p.722