OP’s Hännikäinen was also celebrating this on X:
Good for Finland too. Things are looking up!
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Greetings! Soon the ECB’s interest rate decision will be announced, and it might turn out to be duller than dull. The central bank has no reason to shift its monetary policy in either direction, and even the rhetoric has been very neutral lately.
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I suspect the script for the press conference has already been decided. It will be stated that inflation is converging toward the central bank’s target and monetary policy is well-positioned at the moment. Perhaps there is even a hint of optimism in the air, as seen in the German industrial order books. Goldilocks might peek out from that ECB fairy tale I mentioned earlier in the macro review 
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According to Lagarde, the ECB’s interest rate decision was unanimous and the risk assessment is “broadly balanced” at the moment. At the same time, she reminded that the central bank does not have exchange rate targets, but of course it is being monitored. It was also discussed in the ECB’s Governing Council today, but the effects of exchange rate changes are included in the central bank’s baseline scenario. Based on this, no moves are expected.
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At the end of the press conference, Lagarde painted a relatively encouraging outlook for Eurozone investments and specified that AI investments are also spilling over into, among others, construction and other sectors. Here are the comments on the interest rate decision:
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There is a user on X who has been modeling this current market scenario for some time, along with Bitcoin’s leading position as an indicator of disappearing liquidity, which eventually translates into weakness for high-beta stocks. At the same time, liquidity moving out of high-beta (Tech, AI, Growth) stocks is flowing into, among others, the smaller Staples (XLP) sector, Utilities (XLU), and Healthcare (XLV), as well as mortgage/homebuilders and ultimately longer-term bonds. Based on his model and others, I have developed my own roughly 40-page thesis over the past year, and I will try to explain below as clearly as possible what I believe is happening.
According to David Levenson and the thesis derived from it, the markets are undergoing a “beta transformation phase shift,” involving a structural rotation from high-beta (e.g., Growth, AI tech) to low-beta (e.g., XLP staples, XLU, XLV, mortgage, housing, and bonds). This signifies a transition from high-risk, high-volatility asset classes (such as Bitcoin, AI stocks, and other growth companies) to low-volatility sectors (e.g., consumer staples, healthcare, utilities, and interest-rate-sensitive assets). This deleveraging is currently occurring with great force specifically in the high-beta space because:
- The era of “easy money” (negative or extremely low cost of capital) is ending.
- No recession, growth is flat or positive → capital flows away from overvalued innovation sectors.
- AI is reducing the need for capital itself on the software side → cancellations of orders, and eventually a slowdown in the CAPEX cycle.
- According to Levenson, Bitcoin and AI stocks are in the “8th or 9th inning” when measured by valuation metrics (meaning the equity expansion phase is near its end and the deleveraging process has begun and is spreading).
- The economy is actually strong, growth is better than expected (partly thanks to AI), meaning a severe recession is unlikely even if unemployment rises. Trump is doing everything he can to lower mortgage rates and win the election to avoid, among other things, criminal charges, and he is doing so even at the expense of a strengthening dollar, which would support the recovery of the housing market.
The primary mechanism sucking liquidity out of the system/market is the unwinding of leveraged rotation—a form of cross-asset deleveraging and waves of margin calls:
- Investors have previously shorted low-beta stocks (such as XLP, or borrowed against them) to fund high-beta purchases.
- As low-beta stocks now strengthen significantly and no longer serve as a cheap source of funding, these positions are being unwound at an accelerating pace.
- This forces the selling of high-beta holdings → liquidity flows out of the stock market, eventually moving toward:
- Initially toward gold and silver (which, however, is not ultimately sustainable).
- Fixed income investments.
- Mortgage bonds (I strongly believe in lower mortgage rates, the decline of which I expect to accelerate soon, supported by the fall in High Beta, which simultaneously lowers inflation).
- Government bonds (Treasuries).
- A faster-than-expected strengthening of the dollar would further tighten global liquidity. The situation in Japan adds pressure. The view is that the dollar will strengthen due to a “scarcity” of dollars and market conditions, contrary to what many other market analysts assume.
- Rate cuts at this stage of the cycle are not necessarily positive for growth stocks; low-beta stocks may benefit more (importers), as will bonds and the housing market. This mechanism provokes many dissenting opinions.
- A “death cross” in bond volatility (e.g., in the MOVE index) gradually lowers volatility → the bond market slowly but surely pulls capital away from equities.
- Short rallies (bounces) in the high-beta space are so far mostly traps, not sustainable reversals, because the deleveraging is massive and this is not a typical risk-off move. The stimulus liquidity from the COVID era is disappearing from the market and will not return.
- One must always be prepared for “policy interference” in the market—market disruptions caused by the Fed and other market participants, such as the massive COVID stimulus. These can reverse a trend, but currently, no such interference is in sight.
A highly simplified summary of the thesis’s view: The markets are not just correcting; they are undergoing a structural deleveraging phase where high-beta asset classes (Bitcoin, AI/growth) are losing relative value and absolute liquidity (e.g., yesterday) very rapidly. The force draining liquidity ultimately arises primarily from the unwinding of leveraged high-beta → low-beta rotation, combined with the strengthening of the dollar and the attractiveness of the MBS and bond markets.
This process is still ongoing and will likely take months or years depending on how quickly volatility decreases (i.e., “volatility suppression” occurs) and how much capital shifts to low-risk targets. During deleveraging, we will see significant bounces and uptrends; the decline, if it continues, will not necessarily be a straight drop, and the exit of liquidity was slow at the beginning. In Bitcoin and crypto, it has been most clearly visible, with over $2.5 trillion already vanished from the market.
There are still winners to be found in the market, and one place to scout for them now and throughout this chain of events is, for example, the 34- or 52-week High list, where you can find the strongest stocks for the current conditions into which liquidity is moving. For example, the Staples (XLP) sector has the potential to become a total bubble in the current market conditions within 6–12 months due to the sector’s small size and its safe-haven status.
The good side of this is that due to indiscriminate selling, even high-quality “multibaggers” with strong future growth are being sold down compulsively and often involuntarily. This ultimately provides incredible opportunities for those with the liquidity to execute purchases when they finally bottom out. In downturns, they also usually bottom out well before the major indices. Of course, a completely identical market and set of conditions has never existed in stock market history.
For flexible traders, this offers non-stop significant opportunities. I believe that tech will ultimately be the winner again, but the cleansing of “excess” liquidity from the market and the rotations are necessary sequences of events in market cycles. Furthermore, I believe current market cycles and event sequences have accelerated compared to previous years and historical cycles, so estimating the actual duration is challenging. By following market tips, macro, and a wide range of indicators, one generally gets a sense of where things are headed.
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While shifts are occurring between sectors and asset classes, they are also happening geographically between continents, e.g., S&P 500 +7%, Stoxx 600 +13% in six months, and within continents, e.g., OMXHPI +19%. It wasn’t long ago when capital was flowing in the opposite geographical direction, from peripheral exchanges to major ones and from Europe to the U.S.
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How likely do you think it is that your thesis will actually play out, and that this isn’t just a shorter-term rotation that could reverse at any moment? How are you monitoring the progress of the thesis and looking for confirmation?
The major indices are still quite high, but actual high-beta stocks and, for example, BTC have already halved, and even larger software companies have dropped by tens of percent. Aren’t we already quite far into the contraction phase?
US consumer staples
vs MSFT
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Here’s next week’s schedule again
https://x.com/eWhispers/status/2019781536279638148
Here is the action for Finland :), I especially would have liked to see a few more earnings reports for Thursday. 
And here are next week’s macro happenings
https://x.com/tradeswift/status/2020009400388538491
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I’m reading an article (WSJ paywall) about the decoupling of the US and Chinese economies, and China’s new goals caught my eye:
This shift was made clear in a November article by Vice Premier He Lifeng, Xi’s economic czar. He said developing China’s next generation of proprietary, high-tech industry for the next five years is an “inherent requirement for…securing the strategic initiative in the great-power competition.”
Beijing now calls for “decisive breakthroughs” in six key sectors in the next five years: semiconductors, software, high-end machines, medical equipment, advanced materials and biomanufacturing.
It is well-known and researched (see the China thread) that China destroys markets it fully commits to with its state subsidies. Familiar examples include electric vehicles and solar panels.
Now, from the top down, China has decided to go all-in on the “cream of the crop” of Western stock exchanges—high-tech and high-value-added products: semiconductors, software, high-end machinery, medical gadgets, and biomanufacturing.
I initially thought about posting this in the semiconductor thread, but there are so many sectors in that quote with a heavy weight in stock indices that I ended up here.
Peter Berezin raised the issue on X. What is stopping China from disrupting, for example, the memory card industry within the next five years?
For years, investors have wondered whether S&P 500 margins are at a sustainable level. I last discussed this topic in the autumn in Vartti from a competition perspective, which is still completely relevant.
The will of the Chinese Communist Party, whose arms the country’s companies ultimately are, should not be underestimated. In AI, for instance, China was completely lagging behind as recently as early 2024. Then authorities started pushing companies, regulations were relaxed, and now Chinese models are close to American ones.
I don’t know for sure, but I think this is an essential thing to follow in the coming years. In theory, competition should eventually correct companies’ excessive profits. If competition doesn’t arise homegrown in America, will China be the needle that bursts the margins?
From the perspective of general well-being, this reflection is also interesting. For example, in electric vehicles and solar panels, Chinese households—through taxes and other burdens—subsidize the Western consumer, who gets cheaper goods from China. On the other hand, this takes away jobs in those sectors from the West and makes countries dependent on Chinese production.
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The question of the sustainability of that Chinese model will likely be resolved in the coming years, as the state will have to start figuring out what to do about reckless indebtedness. The current centrally-led sector-investment model perversely resembles venture capitalism, where staggering amounts of money are first invested into a few selected sectors using a loss-making business model, hoping that at some point later, the last surviving companies can then raise prices from a duopoly position so that the money is recovered with interest.
In some industries, there is evidence of major successes from China’s investment policy, but contrary examples can also be found both there and globally. That model seemed to work poorly for our electric scooter companies, for example, nor has the Chinese solar panel industry really benefited anyone but the buyers of the panels and the factory workers—that is, us consumers. Regarding AI, a Reddit user made a great comment last year that stuck in my mind: “I can’t believe Chinese Communist Party is paying tens of billions for me to goon to my AI Waifu for free.” I bet that in this race, the Chinese state will run out of money long before Western high-tech jobs and industry are completely wiped out and replaced by unprofitable over-investments 
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Guidance in China to reduce US debt holdings. This may be more about their own risk management regarding the dollar’s decline than a global strategic move. Holdings have been on a downward trend for a long time.
Treasuries Fall as China Banks Asked to Limit Bond Holdings
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Strong growth in orders in December:
According to Statistics Finland, the value of new industrial orders in December 2025 was 37.7% higher than a year earlier. The growth is explained by a few large orders in the metal industry. During 2025, orders grew by 5.7% from the previous year.
Good growth momentum continued in construction:
A slightly quieter month for industry in between:
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Markets are undergoing a rotation, not a correction.
Even at the risk of boring the audience, I once again addressed the bloodbath in software companies and the investor rotation—the shift toward defensive stocks and global markets. A lot is happening in the sector right now as AI companies release new agent platforms to disrupt high-margin software companies.
I created a draft for Vartti regarding the vulnerability of different types of software and expert service firms to AI disruption.
Challenge me, and I’ll improve this for future Vartti segments!
Vartti also includes a word of warning for value investors who are currently scooping up software firms.
While the US market is stagnating, take a look at the performance of the world’s major indices.
The current economic environment is quite pleasant for stocks. Not too hot, not too cold. Inflation is just right. The biggest risk may well be the economy overheating! 
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What’s interesting about this rotation is that (some) AI companies, as well as companies feared to be replaced by AI, have dropped quite significantly in the stock market. It’s understandable that in the face of such potential disruption, there’s a shift toward more defensive stocks that perform relatively well, whether the threat is geopolitical or AI.
AI will surely hit the market harder than many currently believe, as I don’t think the MAG 7 folks would dare to make such CAPEX investments if they weren’t 99.9% sure about it. Zuckerberg burning 20 billion on the metaverse is quite a different thing than almost every MAG 7 company raising CAPEX to a level where free cash flow is no longer enough to cover it. So it’s not just some wet dream of Zuckerberg’s; now every single one of them is thinking the same way.
Still, I believe that from this SaaS bloodbath, there will be companies found that are undervalued, as well as companies that at least indirectly benefit from AI disruption, such as UiPath, which is used for building workflows for AI agents. I believe AI disruption is coming, but I don’t see ecosystems that are fully “vibe-coded” to function via AI for a long time. I’d say by then we’ll already have AGI at hand
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Yesterday, shares of many insurance companies fell quite significantly as signs of AI disruption in their businesses emerged.
OpenAI gave the green light to the first ChatGPT-based insurance application, developed by the Spanish company Tuio.
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That gives the impression that the investment is driven by the ‘sexiness’ of these sectors, but couldn’t it also be based purely on reducing dependencies?
Latest figures on stock investments published | Talouselämä
The world changes and economic cycles turn, but the Finnish investor does not abandon their principles:
Finns bought the decliners and sold the gainers.
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