Daedalus
“A free life cannot acquire many possessions, because this is not easy to do without servility to mobs or monarchs.” - Epicurus
Looking at the Trump’s 2025 National Security Strategy on top of the latest Fed rate cuts and new QE not being QE but called “Reserve Management Process”, on top of rising concerns in “inflated” AI values such as the rising 5 years CDS spread for Oracle, when it came to selecting our title analogy we decided to go for Daedalus for several reasons. Daedalus in Greek mythology is famous for being a skillful architect and craftsman and known for being a symbol of wisdom and power. As well he known for being the father of Icarus. Among his creations are the Labyrinth for King Minos in Crete as well as the wings that he and his son used to attempt to escape Crete. It seems to us that the surge of “Fiscal Dominance” means in effect that in the United States, the US Treasury has effectively taken over the control of the Fed and intend to fly maybe a little bit too close to the sun like Icarus did. The Trump administration is effectively aiming at boosting nominal GDP growth to escape the debt velocity and at least stabilize its huge mountain of debt. Hence the need for “financial repression”. As such it appears to us that Kevin Hassett is potentially the new “Daedalus” Fed supremo, given that he has conceived a plan for the United States to escape its debt predicament by conceiving the new “wings”. When both Daedalus and Icarus were prepared for flight, Daedalus warned his son not to fly too high, because the heat of the sun would melt the beeswax that held his feathers together (inflation), nor too low (deflation), because the sea foam would soak the feathers and make them heavy and he would fall.
History suggests that inflation is often the chosen path and may be the only way out of the mess the United States is (We mentioned “Erdoganification” in our previous musing entitled “Gresham’s Law”). After the second world war, the US escaped from its public debts by “reflation”. Public debt fell by 0.9% points a year from 1947 to 1957, while nominal gross domestic product, helped by accelerating inflation, rose 7% annually. The ratio debt to GDP soon plunged to 47%. Today, a comparable debt shrinkage would occur if inflation moved back to 5%. As such the United States currently needs a cocktail of negative real yields (very bullish gold in true Gibson’s paradox fashion), letting inflation running hotter as well as “fiscal dominance”:
- Graph source CBO – X/Twitter
“Icarus” current trajectory is clearly “unsustainable” as per the below picture:
- Graph source US Treasury Statement - X/Twitter
The Unites States are on a $2.7 Trillion pace. Deficit spending is pushing Net Interest up the list and it is currently the second largest category expense. We highly recommend the videos from Infranomics on Youtube for more context on the US fiscal trajectory.
This is what we said before when it comes to “Erdoganification” and the United States “potential strategy”:
“If indeed the objective is similar to Turkiye, namely to “destroy” the currency in order to reduce the debt to GDP, then indeed the massive tax on consumers is a sure way of achieving the weakening of the currency while boosting the stock market in the process.” – Macronomics, July 2025
As a reminder from a previous conversation, Turkiye’s debt as a percentage of GDP accounted to 25.6% of the country’s nominal GDP in September 2024, the data reached an all-time high of 75.5% in December 2001 and is now at a record low:
- Graph source CEICDATA.com
In the case of Turkiye, below is a chart displaying the rise of the Turkish government debt, the depreciation of the currency (USD/TRY) and the significant rise of the Turkish stock market (10 years chart):
- Graph source Macronomics – KOYFIN
In the below chart we have plotted Gold, S&P500 and United States Government Debt since January 2007:
- Graph source Macronomics – KOYFIN
The Compounded Annual Growth Rate (CAGR) for both the US Government Debt and the S&P500 has been above 8% from the period of 2007 until today.
To re-iterate what we pointed out in our previous conversations, it appears clear to us that the United States is heading towards “Fiscal Dominance” à la Turkiye.
We also pointed out in our November 2025 conversation “Kaì sú, téknon” the following:
“The current Repo « funk » we are seeing with the Repo spikes is leading us to think that the Fed will have no choice but to restart QE in very short order.” – Macronomics – November 2025
The new QE not being QE but called “Reserve Management Process” has effectively just started on the 12th of December. We rest our case.
In this conversation we would like to look at what is likely to continue to outperform in 2026 in a “Fiscal Dominance” and “Financial Repression” environment and review some of our calls of 2025.
On a side note, we collaborate with friend Geoffrey Fouvry from GraphFinancials as you probably know from reading our Substack Macronomics. As such should you want to subscribe to Geoffrey’s top investing analysis (Geoffrey manages his own portfolio and his performance long/short, no options is around > 150% YTD) enclosed is a discount link to subscribe to GraphFinancials services of trade recommendations. Geoffrey, like us is old school value but opportunistic as well:
https://buy.stripe.com/4gM6oI2oP7hCfkEbdZ4ZG0m
The rest of our long monthly musings below with some tactical recommendations (we do also make some good calls) and more in-depth analysis are now for paid subscribers only.
Don’t hesitate to subscribe and share our work if you like our musings or go for a trial.
As well, don’t hesitate to reach out to us if you have any questions or suggestions or want to discuss a specific topic.
