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Finding Compounders
Jim Simons lecture : Mathematics, Common Sense and Good Luck https://t.co/IlH8WHGUvK
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Jim Simons lecture : Mathematics, Common Sense and Good Luck https://t.co/IlH8WHGUvK
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EndGame Macro
When the Buffers Run Thin: Reading the Fed’s Balance Sheet in Real Time
If you look at the latest H.4.1 without getting lost in the line items, the message is pretty simple: the Fed has taken QT about as far as it can go without pressing directly on the parts of the system that actually matter. The asset side is still huge at roughly $6.58 trillion but the shift isn’t happening there. The interesting story is on the liability side, where you can see how QT, Treasury behavior, and foreign flows are all tightening the same bolts at the same time.
The Fed still holds an enormous pile of securities: just over $4.19 trillion in Treasuries and around $2.07 trillion in MBS. QT shaved a few hundred billion off those totals over the past year, but in the grand scheme it barely dents the mountain. Ending QT on December 1 simply freezes the portfolio where it is and lets it slowly tilt toward more Treasury bills as older MBS run off. It’s not a shift back to QE, it’s more like pressing pause and letting time shorten the duration profile.
Where the Real Tightness Is Coming From
The real pressure shows up on the liability side, the plumbing that determines how far QT can go before something breaks. Bank reserves are down almost $400 billion over the past year. Reverse repo balances fell by more than $200 billion. And now the Treasury General Account is sitting around $943 billion not quite a trillion, but still very high which means Treasury has rebuilt a large cash buffer. Every time they issue debt and leave the cash idle in the TGA instead of spending it, it quietly drains liquidity out of the banking system. Add to that the steady rise in physical currency in circulation, and you have another slow but constant pull on reserves.
Those pieces might look separate, but they all push in the same direction: the pool of easy excess liquidity has thinned out. Early in QT, most of the balance sheet shrinkage came from the reverse repo facility, a giant pool of cash money markets had parked at the Fed because they had nowhere else to put it. That buffer is mostly gone now. Any further QT would hit bank reserves directly, and the Fed remembers what happened in 2019 when reserves got too close to the floor. They have no desire to run that experiment again, especially now with larger deficits, heavier issuance, and more complicated global flows.
This is where the foreign side matters. The H.4.1 shows roughly $3.06 trillion in U.S. securities that foreign central banks and international institutions hold in custody at the Fed. That’s the official sector…reserve managers, sovereign wealth authorities, multilaterals, not traders. They still hold a massive amount of Treasuries, but over the past year they reduced those holdings by about $264 billion. That doesn’t mean a dump; it just means they weren’t adding to their positions during a period when the Treasury needed buyers and the Fed was letting its own portfolio shrink. Even foreign use of the Fed’s reverse repo facility has ticked slightly lower, which is another gentle sign that they’re not adding liquidity the way they did in past cycles.
Put all of that together and the picture comes into focus. The Fed still has a huge portfolio. Foreign official holdings remain enormous. But the buffers that made QT look effortless for a while…giant RRP balances, steady foreign accumulation, a smaller TGA have all moved in the opposite direction. So now, every additional step of QT would mostly come out of bank reserves at a time when nobody wants to find out where the new lower bound actually sits.
Ending QT here isn’t a dramatic pivot. It’s the Fed reading the room. The official sector isn’t stepping in to absorb more supply, Treasury is pulling liquidity by running a fat TGA, and the easy drains have been used up. Better to stop tightening the plumbing before the plumbing starts tightening them.
Interactive guide to our weekly #BalanceSheet report: https://t.co/75xiVY3BGu #FedData - Federal Reserve tweet
When the Buffers Run Thin: Reading the Fed’s Balance Sheet in Real Time
If you look at the latest H.4.1 without getting lost in the line items, the message is pretty simple: the Fed has taken QT about as far as it can go without pressing directly on the parts of the system that actually matter. The asset side is still huge at roughly $6.58 trillion but the shift isn’t happening there. The interesting story is on the liability side, where you can see how QT, Treasury behavior, and foreign flows are all tightening the same bolts at the same time.
The Fed still holds an enormous pile of securities: just over $4.19 trillion in Treasuries and around $2.07 trillion in MBS. QT shaved a few hundred billion off those totals over the past year, but in the grand scheme it barely dents the mountain. Ending QT on December 1 simply freezes the portfolio where it is and lets it slowly tilt toward more Treasury bills as older MBS run off. It’s not a shift back to QE, it’s more like pressing pause and letting time shorten the duration profile.
Where the Real Tightness Is Coming From
The real pressure shows up on the liability side, the plumbing that determines how far QT can go before something breaks. Bank reserves are down almost $400 billion over the past year. Reverse repo balances fell by more than $200 billion. And now the Treasury General Account is sitting around $943 billion not quite a trillion, but still very high which means Treasury has rebuilt a large cash buffer. Every time they issue debt and leave the cash idle in the TGA instead of spending it, it quietly drains liquidity out of the banking system. Add to that the steady rise in physical currency in circulation, and you have another slow but constant pull on reserves.
Those pieces might look separate, but they all push in the same direction: the pool of easy excess liquidity has thinned out. Early in QT, most of the balance sheet shrinkage came from the reverse repo facility, a giant pool of cash money markets had parked at the Fed because they had nowhere else to put it. That buffer is mostly gone now. Any further QT would hit bank reserves directly, and the Fed remembers what happened in 2019 when reserves got too close to the floor. They have no desire to run that experiment again, especially now with larger deficits, heavier issuance, and more complicated global flows.
This is where the foreign side matters. The H.4.1 shows roughly $3.06 trillion in U.S. securities that foreign central banks and international institutions hold in custody at the Fed. That’s the official sector…reserve managers, sovereign wealth authorities, multilaterals, not traders. They still hold a massive amount of Treasuries, but over the past year they reduced those holdings by about $264 billion. That doesn’t mean a dump; it just means they weren’t adding to their positions during a period when the Treasury needed buyers and the Fed was letting its own portfolio shrink. Even foreign use of the Fed’s reverse repo facility has ticked slightly lower, which is another gentle sign that they’re not adding liquidity the way they did in past cycles.
Put all of that together and the picture comes into focus. The Fed still has a huge portfolio. Foreign official holdings remain enormous. But the buffers that made QT look effortless for a while…giant RRP balances, steady foreign accumulation, a smaller TGA have all moved in the opposite direction. So now, every additional step of QT would mostly come out of bank reserves at a time when nobody wants to find out where the new lower bound actually sits.
Ending QT here isn’t a dramatic pivot. It’s the Fed reading the room. The official sector isn’t stepping in to absorb more supply, Treasury is pulling liquidity by running a fat TGA, and the easy drains have been used up. Better to stop tightening the plumbing before the plumbing starts tightening them.
Interactive guide to our weekly #BalanceSheet report: https://t.co/75xiVY3BGu #FedData - Federal Reserve tweet
www.federalreserve.gov
Fed's balance sheet
The Federal Reserve Board of Governors in Washington DC.
Offshore
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Finding Compounders
Every time Don Keough brought up New Coke, he made it simple: ‘We tried something. People hated it. So we fixed it.’ Sometimes that’s all it is.” https://t.co/lVsE75zPmx
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Every time Don Keough brought up New Coke, he made it simple: ‘We tried something. People hated it. So we fixed it.’ Sometimes that’s all it is.” https://t.co/lVsE75zPmx
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Finding Compounders
Michael Price Lecture Notes
Price was Seth Klarman’s mentor , so I’m sure investors can gain a lot by studying him. https://t.co/vIqHlGQehm
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Michael Price Lecture Notes
Price was Seth Klarman’s mentor , so I’m sure investors can gain a lot by studying him. https://t.co/vIqHlGQehm
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Quiver Quantitative
UPDATE: We recently launched a strategy on Autopilot that buys stock in companies that are ramping up lobbying spending.
It has now risen 20% since the start of the year. https://t.co/1itW8ACLHk
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UPDATE: We recently launched a strategy on Autopilot that buys stock in companies that are ramping up lobbying spending.
It has now risen 20% since the start of the year. https://t.co/1itW8ACLHk
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EndGame Macro
A Slow Burn Crisis Is Finally Showing Up in the Data
655 large U.S. companies have gone bankrupt through October, more than any full year since 2010, and the year isn’t even over yet. And these aren’t corner stores or tiny startups. They’re big, asset heavy firms: industrials, consumer discretionary names, healthcare operators. When the top of the corporate stack starts cracking, it tells you the stress is broadening.
The pattern is straightforward: stimulus and zero rates held everything together in 2020–2021, things looked deceptively calm in 2022, and then the pressure started building in 2023 and 2024. Now the adjustment is here. Companies that refinanced at 3% money back then are staring at 7–10% today. Some can handle that shift. A lot can’t.
What’s Driving the Spike
A few forces hit at once. Higher rates are the obvious one: the refinancing window that looked miles away in 2021 is now on top of companies with weaker balance sheets. Costs never really rolled back either…wages, inputs, insurance, transportation all of it stayed sticky. And demand isn’t as strong as the headline numbers suggest. Lower income consumers are stretched, inventory cycles are uneven, and certain sectors just don’t have the pricing power they used to.
Credit hasn’t disappeared, but it’s gotten selective. Good credits can refinance. Everyone else pays up or ends up in court. And that’s what you’re seeing here: restructuring, not liquidation. It’s a sign of a stressed system.
How This Fits Into the Bigger Macro Picture
At the same time this wave of bankruptcies is building, the Fed is quietly shifting gears. QT ends on December 1. All maturing Treasuries will be rolled over. MBS runoff gets steered into T-bills. So the front end of the system is getting easier while the long tail of corporate debt is still adjusting to a higher rate world. Liquidity is improving where markets feel it first…repo, bills, cash instruments but that doesn’t erase the damage already baked into corporate balance sheets.
This is why you can have smoother funding markets on one hand and the highest bankruptcy count in 15 years on the other. One reflects what the Fed can influence today. The other reflects decisions made five or ten years ago.
My Take
This is the credit cycle playing out…the slow, grinding kind where weak companies restructure, strong companies survive, and the market pretends everything is fine until suddenly it isn’t. Defaults aren’t a surprise; they’re the cleanup phase. And that’s exactly where we are.
So the way I’d frame this chart is simple.
The adjustment didn’t happen when rates went up…it’s happening now, as those old debts finally come due. The Fed can smooth the plumbing, but it can’t rewrite the math.
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A Slow Burn Crisis Is Finally Showing Up in the Data
655 large U.S. companies have gone bankrupt through October, more than any full year since 2010, and the year isn’t even over yet. And these aren’t corner stores or tiny startups. They’re big, asset heavy firms: industrials, consumer discretionary names, healthcare operators. When the top of the corporate stack starts cracking, it tells you the stress is broadening.
The pattern is straightforward: stimulus and zero rates held everything together in 2020–2021, things looked deceptively calm in 2022, and then the pressure started building in 2023 and 2024. Now the adjustment is here. Companies that refinanced at 3% money back then are staring at 7–10% today. Some can handle that shift. A lot can’t.
What’s Driving the Spike
A few forces hit at once. Higher rates are the obvious one: the refinancing window that looked miles away in 2021 is now on top of companies with weaker balance sheets. Costs never really rolled back either…wages, inputs, insurance, transportation all of it stayed sticky. And demand isn’t as strong as the headline numbers suggest. Lower income consumers are stretched, inventory cycles are uneven, and certain sectors just don’t have the pricing power they used to.
Credit hasn’t disappeared, but it’s gotten selective. Good credits can refinance. Everyone else pays up or ends up in court. And that’s what you’re seeing here: restructuring, not liquidation. It’s a sign of a stressed system.
How This Fits Into the Bigger Macro Picture
At the same time this wave of bankruptcies is building, the Fed is quietly shifting gears. QT ends on December 1. All maturing Treasuries will be rolled over. MBS runoff gets steered into T-bills. So the front end of the system is getting easier while the long tail of corporate debt is still adjusting to a higher rate world. Liquidity is improving where markets feel it first…repo, bills, cash instruments but that doesn’t erase the damage already baked into corporate balance sheets.
This is why you can have smoother funding markets on one hand and the highest bankruptcy count in 15 years on the other. One reflects what the Fed can influence today. The other reflects decisions made five or ten years ago.
My Take
This is the credit cycle playing out…the slow, grinding kind where weak companies restructure, strong companies survive, and the market pretends everything is fine until suddenly it isn’t. Defaults aren’t a surprise; they’re the cleanup phase. And that’s exactly where we are.
So the way I’d frame this chart is simple.
The adjustment didn’t happen when rates went up…it’s happening now, as those old debts finally come due. The Fed can smooth the plumbing, but it can’t rewrite the math.
BREAKING: 655 US large companies have gone bankrupt year-to-date, the highest number in 15 years.
This has already surpassed all previous full-year totals since 2011, except for 2024.
Since 2022, bankruptcies have risen nearly +100%.
This comes as 68 companies filed in October, 66 in September, and 76 in August, the highest monthly reading in at least 6 years.
Industrials have seen the highest number of bankruptcies in 2025, at 98, followed by consumer discretionary and healthcare, at 80 and 45, respectively.
Corporate bankruptcies are running at a crisis pace. tweet