Unearthed: The New Macro Playbook ft Rebecca Patterson

Key Concepts

• Macroeconomic Regime Shift: A transition from the "ZERP/NERP" (Zero/Negative Interest Rate Policy) era of the last 20 years to a period of higher inflation and higher borrowing costs.
• Geopolitical Risk: The increasing impact of global conflicts (Middle East, Venezuela, Taiwan) on supply chains, trade, and investment strategies.
• Fiscal Dynamics: The concern regarding rising debt-to-GDP ratios in major economies (US, UK, France, Japan) and the resulting pressure on government bond markets.
• US Plus One Strategy: A diversification trend where global entities maintain exposure to the US market while simultaneously building trade and investment ties with other regions to mitigate policy risk.
• Private Credit/Equity Vulnerability: The risks associated with the lack of transparency and potential spillover effects from private markets into the traditional banking sector.

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1. Macroeconomic Factors and Surprises

Rebecca Patterson highlights three major surprises in the first quarter of 2026:

• Energy Prices: Contrary to the consensus expectation of a 10% decline, oil prices have risen significantly due to geopolitical instability in the Middle East and Venezuela.
• Monetary Policy Reversal: Markets began the year pricing in ~69 basis points of Fed cuts. As of March 19, 2026, the market expects zero cuts, with European and UK central banks potentially facing rate hikes.
• AI Capital Expenditure: The four largest US tech companies (Meta, Microsoft, Amazon, Alphabet) have announced $650 billion in annual capex—an amount roughly equivalent to the entire GDP of Sweden.

2. Geopolitical Risk and Corporate Strategy

Patterson argues that geopolitical risk has moved to the "front burner" for all global companies.

• Scenario Analysis: She emphasizes that predicting specific events is nearly impossible. Instead, investors and companies should use scenario analysis to understand how cascading risks (cybersecurity, populism, fiscal instability) interact.
• Resilience Trends:
  • Geopolitical Alignment: Trading with "friendly" nations (IMF terminology).
  • FDI Shifts: Foreign Direct Investment is increasingly following trade agreements.
  • US Plus One: While the US remains the primary consumer market, foreign entities are diversifying their strategic partnerships (e.g., Canada’s deals with Japan on energy and critical minerals).

3. The Inflationary Environment

Patterson posits that the world is moving into a structurally higher inflationary environment.

• Structural Costs: The shift toward supply chain resiliency, "friend-shoring," and domestic investment in strategic industries adds costs that were previously suppressed by hyper-efficient globalization.
• AI Offset: While AI-driven productivity may provide some disinflationary relief, it is unlikely to fully offset the inflationary pressures caused by tectonic shifts in global trade and FDI.

4. The US Dollar and Reserve Management

• The "Slow Bleed": Reserve managers are not necessarily dumping the dollar, but they are diversifying at the margin due to US fiscal deterioration (CBO projections of 120% debt-to-GDP).
• Liquidity Constraints: Because the US Treasury market ($30 trillion) is the only one with sufficient depth and liquidity, there is "no alternative" to the dollar, leading to a "drip-drip" reduction in exposure rather than a sudden exit.
• Hedging: International investors remain long on US equities but are increasingly hedging currency risk, contributing to the dollar's volatility.

5. Private Markets and Financial Stability

Patterson expresses caution regarding the private credit and equity sectors:

• Transparency Issues: Private markets lack the reporting requirements of public markets, creating "unknown unknowns."
• Interconnectivity: There is growing concern that private market stress could bleed into traditional banking institutions.
• Leverage: While private credit has some "gating" mechanisms to stop outflows, the primary systemic risk today is government leverage. She identifies the UK, France, and Japan as particularly vulnerable, noting that unlike the US, some of these nations lack the ability to "print their way out" of fiscal crises.

6. Notable Quotes

• "We will look back at the last 20 years of zero inflation and zero interest rates... and we will miss saying those cute words [ZERP and NERP]." — Rebecca Patterson
• "If you have a cold, you don't feel well, something happens, you're going to get really sick. Whereas, if you start feeling fit and vim, vigor... you blow through it." — Patterson on the importance of starting from a position of economic strength.

Synthesis and Conclusion

The global economy is undergoing a regime change characterized by higher interest rates, persistent inflation, and heightened geopolitical volatility. While the US remains the dominant economic force, its fiscal trajectory is prompting a slow, strategic diversification by global reserve managers. Investors are advised to move away from "old models" that rely on the low-inflation, low-rate environment of the past two decades and instead focus on scenario planning, currency hedging, and monitoring the potential spillover risks from the opaque private credit sector. Gold is identified as a logical hedge in this environment of uncertainty and fiscal fragility.