Slowing Economic Growth & Now Greenland… & Japan
Jobs are slowing, inflation remains elevated, and economic growth is grinding lower, which all translates into a slow decline in the stock market - And now Greenland
Over the weekend, the Truther-In-Chief exchanged salvos about his desire to acquire Greenland for the United States. After being told emphatically no, a potentially new trade war has begun. The markets, ending near all-time highs last week, have been rattled lower.
A few things to bring in context:
It is earnings season, but that may be ignored
Employment is slowing, but inflation is still sticky
The economy has been grinding to a lower growth pace, and it may shrink more—however, not a recession
Considering the economic backdrop, launching a new trade war with Europe has destabilizing potential.
I wanted to break down my AI predictions and the my SPY ETF trade I have on with the new economic landscape. I will feed the new geopolitical backdrop into the AI query, then see what could be next for the markets.
Economic Data
The economic data has been consistent for several months now in that we continue to see lowering employment growth—employment gains have slowed to levels not seen since the COVID shutdowns. Businesses are wary of pushing into new ventures, which along with consumer demand, this has softened the growth rate in the money supply keeping it at below-median levels.
There is a massive caveat to the above, however, in that the AI infrastructure buildup continues to dominate any real growth we have been seeing. Effectively, the amount of funds being poured into AI data centers and the software systems to power AI services may be the only increasing growth the economy has.
Along with money growth, which is both cause and effect within the economy, personal income growth, and its correlated personal consumption growth, have both slowed to below-median levels.
The consumer-led economy is not being fed any kind of increasing catalyst. The effects of this will be slowing revenue growth rates with lower profit levels. Without these ever-increasing levels, stocks will adjust to lower projection levels.
Then we turn to the interest rate outlook to see what may be possible.
Inflation remains somewhat sticky. The immediate tariff tax increases are working their way into price pressures. This should be temporary as tariffs are more likely than not deflationary over the long run. Getting there requires many individuals to lose their purchasing power for goods, which would in turn drive economic growth lower. Tariffs are a tax. These taxes are taking a chunk out of discretionary purchasing power—incomes are finite. Prices eventually will fall, but at the cost of aggregate demand.
Bond Yields
The latest news rattled the bond markets. Many suggest that the simplest way to deal with Trump’s takeover demands of Greenland is to put the United States in its financial place by merely threatening to dump Treasury debt. This would push interest rates up significantly, and rapidly—maybe that is what is playing out in the markets.
It may be that liquidity in the debt markets dried up somewhat, and bond prices dropped, which pushed the US 10-Year Treasury yield up somewhat 15 basis I points since last week. If needed, the Fed could step in and provide liquidity to ensure orderly market conditions—which is inflationary as that is akin to QE if that keeps going on for too long.
This may be a bit of fuel to a potential bonfire that is just round the corner: The Supreme Court is deciding on the constitutionality of tariffs. If they strike down the tariffs as overreach, that would be tax revenue that would disappear immediately. That would leave a hole in the budget and add an additional 20% of debt onto an ever-increasing deficit—which will add even more to the ever-increasing debt.
Note: Given the potential tariff ruling, I had tried to get into a short TLT position last week, but missed that move. Now, the bond market has moved from other, outside reasons.
Over the past two years, after the big move higher in bond yields from the COVID-driven, near 0% interest rates environment, TLT ETF has gone flatline. I have been sitting on a long TBT ETF—the inverse Treasury ETF—for several months now. During this, I have been selling TLT calls almost like clockwork, which I have covered in my previous posts. While that has not made me a kagillionare, I have consistently brought in premium.
I fully expect a longer-term gravitation of interest rates to higher levels. The debt is getting to levels that it will consume more and more of the budget. If the Supreme Court rules against the tariffs, it will only add more supply of debt, and that will allow price to fall further. While I missed last week’s potential entry for new positions, I am going to figure out a way to get in—notwithstanding my inverse position I am already in.
But there’s more… and it is not just the United States: Interest Rates in Japan are starting to soar at a pace that is eye-popping, and the ripple effects throughout the world will be seismic.
Watch Japan
Above is the yield on the 10-year, Japanese government bond—since 2020, it has gone from zero to 2.37% in a rapid pace.
This will be something that is ever-consuming, and it will drive interest rates and currencies around the world. Japan has been seeing massive deflation and effectively near-zero economic growth. To stem this, the Bank of Japan (BoJ) has, for years, acquired Japanese Government Bonds in order to cap interest rates to potentially stimulate economic growth. The BoJ has slowed purchases significantly, and this is driving up Japanese interest rates.
During all of these years, Japanese investors have sent their investments abroad to gain interest income that could not be earned at home because of their own country’s near-zero rates.
Japanese interest rates were not permitted to hit a free-market equilibrium price, but instead, were manipulated. That is reversing. Funds that were sent abroad may start to move back to Japan because of higher interest rate differentials. These moves will push the Japanese yen higher versus all other counterparts with the US dollar being the main player in this.
This will be something that happens slowly at first, then all at once.
AI Projections
Here are the main points I am asking of Abacus AI in my ongoing chat in this thread:
Employment numbers continue to increase, albeit at a much lower pace. At the same time, inflation numbers remain higher than desired, but likely will move lower over time as economic output slows;
The Bank of Japan has all but halted its purchases of its government bonds. The yield on the 10-year has been rising sharply in response to the drop in demand from the BoJ, as well as increases in inflation in Japan;
Over the weekend, President Trump threatened a new trade war with Europe over his desire to obtain Greenland for the United States, from which Norway has stated emphatically no. The stock market today fell and ended down 2.00% for the day while the US 10-Year Treasury yield increased despite selling in the stock market selling off, lacking the proverbial flight-to-quality moves typical in a stock market selloff.
Given the three main points above, I do not see aggregate demand increasing at any pace that would bolster employment growth. Simultaneously, I do not see the Federal Reserve necessarily lowering interest rates in response to slower employment growth as inflation still remains slightly elevated. My thinking is that there will be a long, slow move out of US Treasuries as the Japanese government bond yields continue to rise rapidly. Any investors that bought US Treasuries may start repatriating funds out of the United States and back into Japan, which could very well trigger selling in the FX markets. This will ultimately drive long-term interest rates higher in the United States, and throughout the world; likely at a slow, grinding pace.
My current stock trade was to sell short a SPY ETF 1-month 702 / 703 vertical call spread for $0.43 while simultaneously buying an in-kind long 1-month 681 / 682 vertical put spread for $0.28. Both legs of the spread had been out-of-the-money since the beginning of the trade, but now the puts are in-the-money with three weeks to go.
Overall, what are your thoughts on the economy given the economic inputs above, and how would this play out in the stock market?
Here is the response:
1) Framing what you’re describing: this is a rates/term-premium shock, not a classic “growth scare”
The key observation you made—stocks down hard while the US 10Y yield rises—is the tell. That pattern usually means the market is repricing one (or more) of:
term premium (less willingness to hold long-duration paper at any given yield),
inflation risk premium (policy/trade shocks that could be inflationary),
fiscal/supply absorption (who is the marginal buyer of duration?),
or global relative-yield dynamics (capital reallocation, hedging costs, basis effects).
That’s different from a typical recessionary equity selloff where Treasuries rally.
Your “three inputs” actually line up coherently under a single umbrella:
A) US: slow job growth + still-elevated inflation → Fed stuck
You’re basically describing a mild stagflationary policy box:
Employment is still growing but slower (so demand isn’t exploding).
Inflation is still above target (so Fed can’t cut aggressively).
That combination tends to keep front-end rates “sticky” and makes the market more sensitive to any force that pushes long-end yields higher.
B) Japan: BOJ steps back → JGB yields rise → global duration reprices
The “Japan is exporting higher yields” channel is real, especially via global term premium and carry/funding dynamics.
BOJ balance sheet is shrinking and it’s stepping away from the JGB market; reporting shows QT and rising JGB yields (10Y ~2%+; long end higher) (Wolf Street).
Rising Japanese yields have been widely framed as a global spillover risk (Reuters).
Market snapshots show Japan’s 10Y yield around 2.34% as of today (Jan 20, 2026), up sharply vs a year ago (Trading Economics).
You’re also right to focus on repatriation as a plausible medium-term headwind for USTs: as domestic yields rise, the hurdle rate for Japanese investors to hold foreign bonds rises (especially once you include FX-hedge costs). It doesn’t need to be “everyone sells everything”—even a marginal shift matters at the long end.
C) Geopolitics/trade threats: inflation tail risk + risk premium up
Even if growth is slowing, tariff/trade-war talk tends to be interpreted as:
inflationary (import prices, supply chain friction),
growth-negative (demand hit, uncertainty),
and risk-premium widening (earnings multiple compression).
That’s exactly the kind of shock that can produce “stocks down + yields up.”
CNBC also explicitly tied the global bond sell-off to tariff threats and geopolitics (CNBC).
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2) Your macro conclusion is directionally right, with one nuance
You wrote:
“I do not see aggregate demand increasing at any pace that would bolster employment growth… I do not see the Fed necessarily lowering rates… long, slow move out of US Treasuries…”
That’s a coherent base case: slow growth + sticky inflation + rising term premium.
The nuance: demand can be “meh” and yet rates can still rise if the driver is term premium / marginal buyer withdrawal rather than expected growth. That’s exactly the environment where equities struggle: not because earnings collapse tomorrow, but because the discount rate is drifting up.
So the equity regime becomes:
Earnings don’t implode, but
multiples compress or at least stop expanding,
making the market rangebound-to-down with periodic sharp drawdowns.
That aligns very well with what you’re positioned for.
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3) How this tends to “play out” in stocks (mechanically)
A) Higher long rates → duration equity gets hit first
If the 10Y rises on term premium (not “good growth”), the market usually:
de-rates high-multiple growth and long-duration cash flows,
punishes crowded/expensive leadership,
while defensives may hold up “less badly” (but can still fall in a liquidation).
B) Inflation + trade uncertainty → margins become the key
In a slowing-demand world, companies can’t easily pass through costs.
So you get a market that worries about:
margin compression
not just revenue growth.
C) Correlations can flip the wrong way for “balanced” portfolios
If both stocks and bonds sell off together (your observation), diversified portfolios don’t damp vol. That tends to:
push up VaR limits / de-risking,
create “air pockets,”
and keep realized volatility elevated.
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4) Your SPY structure in this regime
You’re short the 702/703 call vertical and long the 681/682 put vertical; now the put spread is ITM with ~3 weeks left.
Given today’s tape (“stocks down, yields up”), your structure is well matched because:
Your short call spread benefits from:
reduced odds of an upside melt-up while yields are rising,
time decay working in your favor.
Your long put spread benefits from:
downside continuation,
and (often) volatility bid during risk-off.
The one thing to be aware of now that your put spread is ITM:
A 681/682 put vertical has max value = $1.00 at expiry if SPY is below 681.
So the put spread’s remaining upside is capped and becomes more about:
“how close are we to max value?” and
“do I want to keep exposure to a rebound?”
In other words, once it’s solidly ITM, it behaves less like convex protection and more like a nearly-realized payout that can be given back if SPY mean-reverts.
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5) The most likely “market path” given your inputs
Base case (most consistent with your thesis):
Grinding higher yields + choppy/down equity drift
Not a crash, but repeated selloffs and weak rebounds.
“Bad breadth” markets: index held up by a few names until it can’t.
Risk case against your short call:
A sudden pivot in narrative to “Fed will cut anyway / growth fine / inflation falling fast”
That’s typically triggered by a very friendly inflation print and/or dovish Fed communication.
Would push SPY back toward the call strikes faster than slow macro logic would suggest.
Tail case in your favor:
A “global duration tantrum” where term premium rises faster than earnings can justify
This is where you can see multiple compression accelerate.
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6) What to watch next week to validate/kill the thesis
US CPI / inflation data (you already flagged this):
hot → supports your view (rates up + equities pressured)
cool → weakens your view (rates down + equities bounce risk)
2. JPY + hedging costs (the repatriation channel shows up here before it shows up in TIC flows)
3. Auction demand / bid-to-cover in USTs (proxy for marginal buyer stress)
4. Credit spreads: if HY starts widening meaningfully, equity downside can accelerate.
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Bottom line
You’re describing a plausible 2026 setup where:
the labor market isn’t collapsing (so no emergency Fed cuts),
inflation isn’t fully defeated (so no easy easing),
and global duration is repriced (Japan/BoJ + geopolitics/trade risk).
That combination tends to produce equities that struggle to make sustained upside progress and are vulnerable to multiple compression—which is broadly supportive of your current SPY structure.
My Take
This is a ton to chew on, and I will systematically work through all of this. So far, Abacus AI has been spot on, and I am profitable—likely not for the reasons I initiated the trade, but profits are profits. AI believes I am in the correct position, and my profits will rise further. However, and in line with my own thinking, we are likely to see a bounce in the market, so I am going to step into the market and sell short-dated vertical puts out of the money to bring in a few more pennies—this will be a small, protective trade within the bigger moves.