In Today’s Issue:

• Is the Fed put back?

• BOA Fund Manager Survey is bearish

• Is the bottom in

• 60/40 portfolio fails again

• How to play the weight loss drugs

• and more……..

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News & Noise

🧠 News:

❌ Noise:

Key quote from the article….

What Wall Street Is Saying

Jefferies…..

Bank of America (Fund Manager Survey)….

Is The Bottom In?

As the BOA Fund Manager Survey points out above, investors are more bearish than they have been in a while. Meanwhile, the market continues to bounce off the 4/7 intraday low, which on SPY is $481.80.

There are still all sorts of bad things that could happen, but for now it looks like this is a durable low. I’ve been selectively adding back equity exposure while still keeping very cautious positioning. I often like to compare the markets to playing cards. In poker and Blackjack, the key is to bet big when the odds are in your favor and fold or bet small when they aren’t. Markets are the same way and this environment is like holding a 5 and 7 suited against a bunch of kings and aces. You could get a flush or a straight, but the odds aren’t in your favor. In markets, Trump could blink on tariffs, China could blink, the Fed could start cutting, etc. Any of these things could ramp the market 10% or more, so I want to play this hand, but I’m not going to bet big until we have some more clarity.

The 60/40 portfolio failed miserably again. The definition of insanity is doing the same thing over and over and expecting different results. I had Chat GPT take a deep dive on this below. For a different approach Click Here for a copy of our ETF model portfolio.

🧨 The Death of 60/40 (Again): Why It Failed… Again

The 60/40 portfolio — 60% equities, 40% bonds — was long considered the holy grail of long-term investing. It’s pitched as a balanced, diversified strategy that captures upside in bull markets and cushions the downside in bear markets. But in today’s macro environment, that promise is broken — and recent market action proves it

📉 60/40 in Theory: Why It Should Work

• Equities (60%) are expected to deliver long-term growth

• Bonds (40%) are expected to reduce volatility and provide ballast during equity drawdowns

• Assumption: Negative correlation between stocks and bonds

This worked in a deflationary, disinflationary world (post-Volcker to pre-Covid), especially from 2000 to 2020. But that regime is over.

🚨 Why It Failed This Time — Again

1. Correlation Breakdown

• In the recent selloff, stocks and bonds both declined.

• This mirrors 2022 and 2020 (pre-Fed backstop).

• Treasuries, traditionally the hedge, became the problem.

📊 10Y Treasury yield surged >4.5% while equities fell — the classic 60/40 cushion collapsed.

2. The Basis Trade Blowup

• The $1T Treasury “basis trade” (hedge funds arbitraging futures vs. spot) started to unwind.

• This forced liquidation of long bonds, pressuring yields higher.

• Result: 40% of your “safe” portfolio became a source of systemic risk, not a hedge.

3. Inflation & Rate Volatility

• Inflation reaccelerating due to tariffs and supply-side shocks

• Fed boxed in: can’t cut without fueling inflation

• Duration (i.e., bond sensitivity to rate changes) has gone from friend to foe

🧠 If you owned TLT or long-dated Treasuries as your hedge, you got crushed.

4. Repricing of Safe Havens

• Gold caught a bid, but Treasuries, once the cleanest hedge, failed

• Volatility (VIX) gave some cover, but requires timing

• Traditional “risk-free” assets aren't behaving like they used to

🔍 Structural Reasons It Keeps Failing

1. Leverage in the bond market is higher than most realize

   • Pensions, hedge funds, and sovereigns use leverage to juice bond returns

   • Creates instability when the carry trade unwinds

2. Fed Put is Weaker

   • The Fed is reactive, not preemptive, due to inflationary overhang

   • Unlike 2018, they can't "cut to save markets" easily

3. Global De-dollarization and Treasury Dumping

   • China, Japan, and others trimming U.S. Treasury holdings

   • Weakens demand for U.S. debt right as the U.S. is issuing more

4. Tariff-Driven Repricing of Growth

   • Higher input costs, lower margins, and broken global supply chains hurt both earnings (equities) and credit quality (bonds)

💥 Bottom Line: 60/40 Is Fragile in a Polycrisis World

The market regime has shifted:

• Macro is dominant.

• Liquidity is fractured.

• Safe assets aren’t safe.

The classic 60/40 allocation was built for a world of:

• Low inflation

• Global coordination

• Predictable Fed pivots

That world is gone.

🛠 Alternative Frameworks

✅ 1. 40/30/30 – Add Alternatives

• 40% Equities

• 30% Bonds (short-duration + inflation-linked)

• 30% Alts (volatility, commodities, gold, long/short, tail hedges)

✅ 2. 50/50 Risk-Parity Inspired

• Equalize risk, not capital allocation

• Use volatility weighting to reduce drawdowns

• Allocate to convex hedges when vol is cheap

✅ 3. HEAT Framework

• Hedges: Tail risk, VIX calls, long volatility

• Edges: Structural and behavioral

• Asymmetry: Heads I win a lot, tails I lose a little

• Themes: Tariff winners, AI power infrastructure, etc.

🔮 What to Watch

• Bond market stress → Fed intervention

• 0DTE options/VIX spike dynamics

• Treasury auctions and foreign participation

• Chinese Treasury holdings (dumping = alarm bell)

• Corporate earnings guidance revisions (watch Q2 outlooks)

💊 The Weight-Loss Drug Trade: Hype to Fragmentation

🚨 What Just Happened?

The weight-loss drug trade was the dominant healthcare theme of 2023–2024. Analysts saw the GLP-1 market ballooning to $100–140B by 2030, with Novo Nordisk (Wegovy) and Eli Lilly (Zepbound) positioned as oligopolistic titans.

But recent events have dramatically shifted sentiment:

• Pfizer (PFE) just exited the category.

• NVO and LLY are off their highs, despite blockbuster revenues.

• Goldman Sachs just slashed its 2030 global obesity market estimate from $130B → $95B.

• Pricing pressure, payer pushback, and compounding pharmacy competition are fragmenting the landscape.

The obesity drug trade is no longer a clean duopoly. The street is waking up to:

• Falling U.S. net prices (down ~17% from 2022)

• Channel complexity (DTC, insurance, PBMs, global)

• Margin risk from rebates and copycats

• Broadening competition from oral GLP-1s, biosimilars, and combo therapies

🧠 Summary:

• The TAM is still huge, but more fragmented and competitive.

• Price erosion is the new reality in the U.S.

• Novo is more vulnerable due to compounding and weaker pipeline updates.

• Lilly still looks like a fortress, but it’s no longer invincible.

• Future winners may not be drug originators but manufacturers, delivery system innovators, or global distributors.

🧮 Company Rankings (1–10): Opportunity in the GLP-1 World

📉 Key Bearish Trends

1. Net price erosion in the U.S.

   • Goldman now assumes –7% annual price cuts (up from –2%).

   • DTC cash pay is undercutting insurer rates.

2. Rebate Arms Race

   • Novo and Lilly now paying higher PBM rebates just to maintain coverage.

3. Compounder Disruption

   • Legal gray zones exploited by online pharmacies.

   • Patients prefer cheaper semaglutide from telehealth vs branded versions.

4. Pipeline Gaps for Novo

   • Their follow-on drug data has underwhelmed.

   • Lilly, in contrast, has oral GLP-1s and dual agonists lined up.

📈 Bullish Offsets

1. $28B market today — and growing fast

   • Even reduced TAM ($95B by 2030) is massive.

2. International markets will drive future growth

   • Lower prices, but huge volume in LatAm, APAC, Middle East

3. Lilly’s moat is real

   • Best capacity, best rebates, and fastest to scale future innovations

4. M&A likely coming

   • Expect Amgen, Sanofi, or Merck to shop smaller GLP-1 players

🧭 Strategic Takeaways

• LLY is still a long, especially under $750, with asymmetric upside on pipeline surprises.

• NVO is a hold-to-trim, as it lacks the margin or IP edge to dominate long term.

• VKTX or AMGN offer early-stage optionality — high beta with strong catalysts in 2026.

• Avoid PFE — strategic missteps + execution risks = dead money for now.

• HIMS is a sleeper growth trade if DTC volume remains strong — but don’t overstay.

🧨 Final Word: The Trade Isn’t Dead, It’s Just Mature

The easy money has been made in GLP-1s. We are now in the fragmentation + pricing pressure phase of the hype cycle. Expect sideways chop, periodic price resets, and pipeline-driven pops.

The long-term winners will be those who:

• Control cost (manufacturing efficiency)

• Control access (rebates, PBMs, DTC)

• Deliver new formats (oral, combo, novel delivery tech)

LLY is the best positioned, but there are asymmetric opportunities emerging in smaller-cap and delivery-driven plays.

Before you go: Here are ways I can help

‍

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