Capital Flows
· Capital Flows
· August 24, 2026 at 23:14
· ⏱ 3 min read
| Read on Substack ↗
Summary
The article argues that today's credit cycle is defined by strong nominal GDP (6.5%) and real growth/term premia pushing long-end rates higher, which allows the Fed to hold rates above inflation. The market implication is that the second derivative of growth — not inflation headlines — is the key swing factor, and a growth stall could create a liquidity gap that hits the highest-beta equities.
•Nominal GDP is running at 6.5%, described as incredibly high relative to recent history.
•Long-term inflation swaps stayed in range during the oil shock earlier this year, while real rates and term premia drove 30-year nominal yields higher.
•The Fed is holding 1-year nominal rates above inflation; historically, a widening spread between nominal rates and inflation signals a more restrictive policy stance.
•The article identifies the second derivative of growth in both economic data and stock fundamentals as critically important because a growth deceleration while the Fed pauses could create a liquidity gap.
•The piece explicitly frames the 2026 AI Liquidity Thesis as the core subject, but the provided text cuts off before detailing that thesis.