⚡ LIGHTNING ROUND

📉 Setup: Essentials inflation < Fed rate = tight policy

🤖 Opportunity: AI may echo 1980s productivity boom

📈 Strategy: Barbell—T-Bills + selective upside

📊 Watch: ALICE Index for early stress signs

💡 Move: Lock in 5%+ on short-term Treasuries

INVESTMENT OPPORTUNITY

Markets are quiet right now.

Too quiet.

Behind the scenes, fund managers are getting uneasy. Why?

Because for the first time in years, the Fed’s restrictive policy is actually biting. Essentials inflation—the stuff people can’t avoid paying for, like rent, gas, groceries—is now running below the Fed Funds rate.

Translation: the cost of capital is high while prices on basics are flat. That’s not just rare—it’s historic.

We’ve seen this before. In 2007, this exact setup broke the credit markets.

But rewind to 1978 through 2000? It was the starting gun for one of the most productive bull markets in history: 1,275% gains in the S&P 500 over two decades.

Same signal. Two radically different outcomes.

Which Path Are We On?

This is where theory and reality part ways.

• In 2007, high real interest rates exposed systemic fragility. Consumers were stretched. Leverage cracked the system.

• In 1978-2000, high real rates coexisted with falling inflation and a productivity boom fueled by the computer revolution.

Here’s what makes today different—and potentially optimistic:

We're seeing early signs that AI could become a similar productivity engine.

Not overnight. But quietly, in the background, it’s compressing costs, increasing margins, and reshaping labor dynamics.

If AI and humanoid robotics continues to take root the way PCs and the internet did in the ‘80s and ‘90s, we may be entering another “long boom”—where high real rates don’t derail growth.

Positioning: The Barbell Just Got More Powerful

In Issue #0043, I broke down why the barbell strategy works so well in uncertain regimes. Today’s setup only makes that case stronger:

• On one end: short-term Treasuries and cash equivalents paying real yield.

• On the other: selective exposure to long-term upside—value stocks, quality tech, niche AI plays.

If the Fed overtightens and something breaks, you’re protected.

If AI-driven productivity lifts the economy, you’ve got skin in the upside.

You’re not betting on a narrative—you’re allocating for both outcomes.

What to Watch Next

Keep your eye on the ALICE Essentials Index. It reflects price pressure on everyday Americans—the part of the economy that cracks first when things go wrong.

If essentials inflation stays low, the Fed has room to hold. That supports the long-run case.

If it starts to rise again, we could be heading back into late-cycle risk.

Final Take

We're in a rare moment.

The Fed has finally gotten ahead of inflation—but what happens next depends on whether the economy bends… or gets more efficient.

If it’s fragility (like 2007), defensive posture wins.

If it’s productivity (like 1978), this could be the start of a new cycle.

Stay nimble. Stay shrewd.

Tactical Move of the Week

📌 Do This: Allocate a slice of your portfolio to 6-month Treasuries.

🎯 Why: You’re locking in >5% yield with almost no risk—while inflation sits near 2%.

📖 Next Move: Revisit the #0043 playbook to review how to build a high-conviction barbell.

P.S. If you’d like us to break down your portfolio or ask a question, submit yours here: https://shrewdinvestor.com/roastme

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The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, consult with a qualified tax professional, financial advisor, or attorney.

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