By Chad Walker • February 7, 2026
There’s a debate raging right now in macro circles that I think most of you should know about. On one side, you have Michael Howell at CrossBorder Capital declaring that global liquidity momentum has clearly slowed and warning that risk markets are signaling “the end of easy money,” recommending rotation into defensive investments. Darius Dale at 42 Macro is warning that incoming Fed Chair Kevin Warsh’s core principles could trigger what he calls “Paradigm B”—a painful cut phase that’s bearish for risk assets in the short term. On the other side, you have Raoul Pal and Julien Bittel at Real Vision arguing that the debt refinancing cycle forces liquidity into the system regardless of who’s running the Fed, that the business cycle is now accelerating with the ISM surging to 52.6, and that 2026 remains the year to be offensive.
I’ve been following this debate closely. And I think both sides are missing a critical variable.
Political survival.
In my article “February 10, 2026 – You Are NOT Prepared,” I laid out the case for why Bitcoin’s cycle has extended from four years to roughly 5.4 years—driven by debt maturity extensions during COVID that pushed the liquidity cycle out further than anyone expected. In my follow-up, “Right or Wrong? We’ll Know Shortly,” I gave you falsifiable criteria so you could judge the thesis for yourself rather than just taking my word for it.
Today I want to add a dimension that neither the pure macro analysts nor the chart technicians are spending enough time on. Because when you layer the political incentive structure on top of the Gann dates, the wave counts, the sentiment extremes, and the macro tailwinds I’ve already discussed—the picture gets significantly more compelling.
The Timeline Reality: Why Q2 2026 Is the Deadline
The November 2026 midterm elections are an existential event for the Republican Party. I’m not saying that as a partisan statement. I’m saying it as someone who studies incentives for a living. If the economy is weak and markets are down heading into those midterms, Republicans lose the House, possibly the Senate, and Trump’s final two years become a legislative dead zone—or worse.
But here’s the part most people don’t think about: consumer sentiment lags actual economic conditions by several months. That means the administration can’t wait until October 2026 for things to improve. By then, it’s too late. Voters need to feel the improvement well before they walk into the voting booth. Research from Ned Davis shows that midterm years typically see market weakness through the summer with an October trough before rallying into year-end. If Republicans want voters feeling good about the economy in November, the economic foundation has to be laid by the second quarter of 2026.
That’s not next year. That’s right now.
The Polling Disaster They Can See Coming
And the administration knows the clock is ticking. A Fox News poll shows 52% of voters support Democratic House candidates—the highest for either party since October 2017. Voters who cite the economy and inflation as their top issue favor Democrats by 12 points, which represents a staggering 90-point swing from where that number stood in 2024. Over half of voters say the economy is worse under Trump than under Biden. Trump’s economic approval has retreated to the high 30s—levels historically associated with significant midterm losses.
Perhaps the most telling statistic: a record 56 out of 535 Congress members—more than 10%—are not seeking reelection. That includes 25 House Republicans. When that many people from the party in power start heading for the exits, it tells you something about how they see 2026 playing out if nothing changes.
The administration is not operating in ignorance. They can read these polls the same way you and I can. The question isn’t whether they’re aware of the problem. It’s what they’re doing about it.
Bessent Has Gone All In on 2026
Treasury Secretary Scott Bessent has explicitly framed 2026 as the payoff year. And when I say explicitly, I mean he’s been saying it in almost every public appearance. He told reporters: “In 2025, the President laid the foundation for powerful economic growth. Now, in 2026, we will reap the rewards of President Trump’s America First agenda.” He followed that with: “We should think that 2025 was setting the table. 2026 is going to be a bountiful year.”
He’s been even more specific about how Americans will feel it in their wallets. Bessent promised “very substantial tax refunds in the first quarter” of 2026 from the One Big Beautiful Bill, saying the best way to address the affordability crisis is to put more money in people’s pockets. He’s promised real wage increases. He’s called 2026 a “fantastic year” for taxes, deregulation, and energy certainty.
Now, politicians make promises all the time. I get that. But Bessent isn’t some backbencher. He’s the Treasury Secretary, and he’s staking his reputation on a specific timeline. If 2026 doesn’t deliver, he’s done. He knows this. Which means every lever available to the Treasury—debt issuance strategy, TGA management, regulatory relief—will be pulled in support of this outcome.
Kevin Warsh: The Hawk Who May Not Hawk
This brings us to what I think is the most misunderstood piece of the puzzle: Kevin Warsh, Trump’s pick to replace Jerome Powell as Fed Chair.
Darius Dale at 42 Macro has raised legitimate concerns about Warsh. In his January 31 macro report, Dale’s key question was whether Warsh’s nomination signals a return to what he calls “Paradigm B”—the cut phase of a cut-grow-print sequence needed to address the supply-demand imbalance in the Treasury bond market. Dale’s short answer: “It’s too early to tell, but our initial analysis suggests Paradigm B is not far from being the modal outcome.” His concern is that Warsh’s core principles—shrinking the Fed’s balance sheet, draining financial-sector liquidity, overhauling bank regulation—could mean lower rates but also less liquidity. That combination would steepen the yield curve and tighten financial conditions even as the front end falls. Dale notes this would be painful for markets in the short term, though ultimately the best possible outcome for the K-shaped economy over the long term.
I addressed Dale’s framework in my February 10 article and acknowledged it as a real risk. But here’s what I think the bearish camp is underweighting: the political calendar.
Warsh takes over in May 2026. Midterms are in November 2026. He has six months to prove he can deliver for the administration, or his tenure begins as a liability. JPMorgan’s Michael Feroli put it bluntly, saying he suspects Warsh’s leanings will be open to revision and “perhaps reversion back to a more hawkish view, particularly as we get past the midterms.” Read that carefully. JPMorgan explicitly expects Warsh to be dovish until the midterms, then potentially hawkish after. The political imperative constrains him.
Evercore ISI’s Krishna Guha called Warsh a “pragmatist, not an ideological hawk,” and noted that because Warsh has a hawkish reputation, he’s actually better positioned to bring the FOMC along for rate cuts without appearing reckless. Stanley Druckenmiller—Warsh’s own mentor—said it’s simply not correct to brand him as always hawkish, noting he’s seen Warsh go both ways. And Raoul Pal was even more blunt in his February 1 post: Warsh’s job is to run the Greenspan-era playbook. Cut rates and let the economy run hot, assuming the AI productivity boom will keep core CPI in check—just like 1995 to 2000. As Pal noted, the system hit reserve constraints, so Warsh likely won’t change the balance sheet’s current course—he can’t, or he blows up the lending markets. And David Bahnsen of The Bahnsen Group made perhaps the most practical observation: there was no person getting this job who wasn’t going to be cutting rates in the short term.
The emerging framework some analysts are calling “productive dovishness” helps explain the shift. Warsh apparently believes the AI revolution is a structural disinflationary force—meaning the Fed can cut rates and shrink its footprint simultaneously, because technology is doing the inflation-fighting work. Whether that’s correct long-term is a separate debate. What matters for 2026 is that it gives Warsh intellectual cover to accommodate.
The Arithmetic Forces Accommodation
Even if you discount the political argument entirely, there’s a mathematical one that’s harder to dismiss. I discussed this in my February 10 article drawing on Raoul Pal’s Everything Code framework: approximately $9.2 trillion in U.S. debt needed refinancing in 2025, with another $7.6 to $8 trillion coming due in 2026. The Treasury has been relying heavily on short-term T-bills, creating frequent rollover events that demand liquidity.
The administration cannot allow a liquidity crisis or spiking interest rates with this refinancing wall looming. This isn’t about ideology or preference. It’s about arithmetic. The fiscal math forces accommodation regardless of who’s sitting in the Fed chair.
As I wrote many times previously, governments have had no intention—or ability—to meaningfully cut deficits since 2008. Debt has become unsustainable. Every four years or so, they’ve had to monetize interest payments to keep the system running. The only difference now is that the maturity extensions during COVID pushed that cycle out to roughly 5.4 years. The liquidity is still coming. It’s just arriving on a delayed schedule.
The Convergence
Step back with me for a moment and look at how many independent frameworks are pointing in the same direction.
The Gann dates I’ve tracked since December 2023 identified February 10, 2026 as a pivotal moment—originally a cycle top confirmation, now reinterpreted as a cycle bottom under the extension thesis. The wave counts on the daily chart suggest an A-B-C correction completing in the zone where we’ve been trading. Sentiment hit extremes I’ve only seen a handful of times—the Fear & Greed Index dropped to 5, RSI hit 23. The macro setup is turning favorable: the Fed ended QT on December 1, began Reserve Management Purchases on December 12, the dollar is weakening, and the ISM just printed 52.6. And critically, as Pal revealed on February 1, the reason crypto and SaaS stocks have underperformed isn’t because the macro framework is broken—it’s because U.S. liquidity specifically has been the dominant driver at this phase, and it was temporarily drained by the Reverse Repo exhaustion, the TGA rebuild, and two government shutdowns. Global total liquidity—which has the highest long-term correlation to Bitcoin—is still rising.
And now, layered on top of all of that, you have a political class with existential incentives to ensure markets and the economy improve by the second quarter of 2026. They’ve already deployed tools to support that outcome. They’ve appointed a Fed chair who’s being given explicit permission to be dovish through the midterms. They’ve promised tax refunds and affordability measures kicking in during Q1.
These aren’t coordinated conspiracies. They’re convergent incentives. And when the technicals, the sentiment, the macro, and the political incentives all point the same direction—that’s when I pay the most attention.
What This Means for Right Now
Let me be clear about what the political imperative does and doesn’t mean. It does not prevent corrections. We’re living through one right now, and it’s been painful. I rode this thing all the way down from the October 2025 highs, as I’ve been transparent about.
But here’s what’s remarkable about where we are. According to Julien Bittel’s analysis in the February 5 MIT report, Bitcoin is now as oversold on its 14-day RSI as it was during COVID. Let that sink in. During COVID, the world literally shut down. Today, against a completely different macro backdrop—where the ISM is surging, global liquidity is rising, and financial conditions remain supportive—we’re seeing the same level of extreme pessimism. Bitcoin is also trading at a significant discount to global total liquidity, which continues to rise in both absolute terms and on a rate-of-change basis. As Bittel put it, the data continues to argue for patience and conviction, not capitulation.
But the political imperative does suggest a floor. The administration will deploy whatever tools it has to support markets and the economy by Q2 2026 at the latest. The question isn’t whether they want to. It’s whether they can. Given what they’ve already done—ending QT, beginning reserve purchases, appointing a pragmatic Fed chair, passing fiscal stimulus through the One Big Beautiful Bill—the answer appears to be yes. At least through November 2026.
After the midterms? That’s a different story. And it aligns with the longer-term view I’ve held for years: economic improvement through 2026 into the midterms, then inflation re-emerging, fiscal tightening, and a bear market in 2027–2028 as the longer-term cycle plays out. Interestingly, this also aligns with Bittel’s observation in the February 5 MIT report that the easing in financial conditions that has kept investors on the right side of risk since Q4 2022 is now “likely in its more mature phase.” He expects one final leg lower in the dollar before it finds a floor in the second half of 2026, after which financial conditions begin tightening in earnest—with the economic impact arriving roughly nine months later. That timeline points directly at 2027, which is exactly when my longer-term framework says trouble arrives. That timeline hasn’t changed. But for the next nine months, the incentive structure is about as bullish as it gets.
What We’re Watching
As I outlined in “Right or Wrong? We’ll Know Shortly,” the character of the bounce from current lows remains the key test for the cycle extension thesis. This political analysis doesn’t change that framework—it reinforces it. If the administration really is going all-in on 2026, we should see the macro tailwinds I described start showing up in the data. And they already are. The MIT report explains why: 2025 was about semiconductors and AI compute—that was the first domino. Now in 2026, that impulse is propagating outward into the real economy. Chips lead to data centers. Data centers demand power. Power demands grids, cooling, construction, materials, and labor. That’s when the ISM finally responds—not because the cycle restarted, but because it reached the part of the economy the ISM actually measures. Tax refunds hitting in Q1. ISM continuing to accelerate toward 60. Liquidity improving. The dollar continuing to weaken. And here’s a data point from the MIT report that should get your attention: Bittel analyzed Bitcoin’s full-cycle returns every time the ISM moved to 52.6 or higher. In the 2013 cycle, Bitcoin rallied roughly 55x from that point. In 2016–2017, about 30x. In 2020–2021, about 7x. Small sample size? Absolutely. But if you believe Bitcoin behaves as a macro asset—which is what the data says—then an ISM in expansion territory and accelerating has historically been a necessary condition for sustained Bitcoin bull markets.
And this is where I part ways with Michael Howell. Howell’s latest Capital Wars research notes that global liquidity sits near record highs at $187.7 trillion, but momentum has clearly slowed. He warns that the incoming Fed under Warsh promises to be better for the dollar and Treasuries, but “not so good for gold and silver.” Most notably, Howell is now explicitly warning that risk markets are signaling the end of easy money and favoring “rotation into more defensive investments to protect wealth.” I respect Howell’s work—his liquidity framework is among the best in the business. But I think he’s underweighting the political imperative and the refinancing arithmetic that constrains Warsh’s options through the midterms. The liquidity cavalry, as Pal puts it, is still coming—it’s just been delayed by plumbing issues, not structural deterioration.
If instead we see the ISM roll over, liquidity dry up despite the refinancing wall, and the administration fail to deliver on Bessent’s promises—then the original bearish interpretation of my Gann dates was correct all along, and we’re looking at a cycle low later in 2026 with potentially much lower prices.
I don’t think that’s the more likely outcome. But I’ve laid out both sides so you can decide for yourself. That’s always been the point of this newsletter—not to tell you what to do with your money, but to give you the frameworks and the information the mainstream financial media won’t.
The scoreboard is live. The criteria are falsifiable. And we’ll know soon enough. If you’re just finding my work, start with my books. Protect Your Money and Prosper covers the big-picture macro cycle and why hard assets like gold matter in a world of unsustainable debt. The Bitcoin Blueprint (draft available now and final version – Accelerate Your Money and Prosper – coming soon) goes deep on Bitcoin, the crypto cycle, and why I believe we’re in a once-in-a-generation wealth transfer. Both are available at coast2coastfinancial.com.
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*Educational purposes only, not financial advice.
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