Dynamic Alpha Macro Fund (DYMIX): September 2025 Overview

This Month’s Performance

The Dynamic Alpha Macro Fund gained 10.22% in September, outperforming both the S&P 500 Total Return Index (3.65%) and the S&P Target Risk Balanced Index (2.84%). Returns were broad-based, with gains in precious metals and a weaker U.S. dollar complementing steady equity exposure.

Macro positioning was the primary driver, while the addition of a short live cattle position provided a differentiated way to express softening consumer demand. The portfolio remains balanced—long Treasuries, long metals, short the dollar—reflecting our dual-strategy approach designed to deliver equity-like returns through diverse market conditions.

A better way to play an economic downturn

We’ve been thinking long and hard about how to play an upcoming economic downturn. The classic macro approach – long bonds and short stocks – has been a tricky proposition over the past few years. An elongated cycle based on an economy flush with fiscal spending post Covid allowed consumers to keep spending. Now that job growth is finally slowing down, the risk to the bear thesis is that large cap tech stocks continue to stay afloat: unlike during the dot-com era, the current crop of giants has strong fundamental earnings and cash flow. Does Microsoft have to re-rate from a forward P/E of 33x back to the 15x it traded at a decade ago? Maybe not.

Additionally, it’s tough to know how much overall consumer spending will drop in an upcoming slowdown. A chart that has made the rounds in the financial sphere lately shows that the share of spending by the top 10% of Americans (by income) now accounts for half of total dollars spent, from one-third roughly three decades ago. If we look at the top 20% of households, they control close to two-thirds of total spending. Will overall consumer spending (i.e. aggregate demand) fall nearly as much this time around as in the past? If it does not, it’s possible that we see a continued malaise in real income growth, spending, and economic health of the bottom 50-80% of households while overall economic activity is held up by those at the top.

Given these complicated dynamics, we’ve come up with a new framework for how to adjust our exposures in anticipation of economic weakness ahead. Relative to previous decades, we need to find an asset or commodity that better reflects a drop in spending at the household level, rather than at the overall national level.

Scanning across the futures markets we trade, the cleanest expression of this concept is shorting live cattle. At first glance, this appears to be an exotic and even strange idea. But we need a good/service/commodity that is widely consumed across many households, and one that is not a necessity. Food is a necessity. Expensive red meat – when cheaper pork and chicken are available – is not.

Which brings us to the current set-up in cattle. As with every commodity, what’s best understood by the analyst community is the supply side of the equation. On the supply side:

• We have the lowest herd size in 75 years
• We have drought and disease (screwworm infestation)
• We have ranchers up until recently making minimal (or even negative) margins

This has caused the cattle price to maintain a sustained bull market for the past four years. More recently, the price has gone parabolic. Bull markets like these always end. Normally demand is taken as a given: the American consumer loves red meat and hence beef demand has just grown in an inelastic fashion over the decades. These bull markets usually end when herd rebuilding begins, animals are held off the market for breeding, and new supply kicks in.

We’ve spent time listening to ranchers and are a bit skeptical that herd rebuilding will be as strong as in past episodes: ranchers have been squeezed by higher input costs, disease, and drought over the past five years and margins have just begun to recover. They may lack the impetus to expand herds as much as in decades past.

That said, the one thing that’s always hardest to model, whether for crude oil or live cattle, is end demand. And since it’s hardest to model and must be analyzed somewhat qualitatively, it’s where the alpha opportunity usually lies.

The white line in the chart below is the price of live cattle – note the steady uptrend over the last five years. The blue line represents the price of lean hogs, which has oscillated based on the farrowing cycle of sows and holiday-driven consumer demand; by and large, it has moved sideways. Finally, the orange line – which represents the spread between the two – has clearly shifted from a sideways band from 2015-2020 to a significant premium in favor of cattle today.

In addition, although we don’t show it on the chart, pork cut-out prices are rising, whereas beef cut-out prices are weakening, proving that demand in the cash market is being impacted by the extreme pricing of beef relative to cheaper animal proteins.

Our view is that outside of the top echelon, the U.S. consumer is experiencing a decline in purchasing power. A trade-down from expensive red meat is inevitable. Given the parabolic rise in cattle and extended speculative positioning by hedge funds and CTAs, this will likely lead to an unexpected bear market.

Figure 1  Source: Bloomberg

Short stocks and long bonds will probably work again. However, for now, we like the proxy of shorting live cattle futures as a cleaner way to play a broad-based slowdown in wage growth, job growth, and overall economic activity.

Positioning in September

Our positioning remains broadly the same as last month: long front-end Treasuries, short U.S. dollar, and long precious metals, with cattle as a new diversifying position.

Figure 2  Source: BCA Research

Thus far, the gold bull market that began in early 2024 has been a stealth advance. As a percent of total wealth (green line above), allocations to gold are lingering at low levels compared to the last time tectonic shifts in the monetary system took place in the 1970s.

Although we may be reaching an interim peak in the gold price soon given its recent advance, we believe we are still in the foothills of the overall secular bull market with years to go.

Silver’s mining supply deficits are finally showing up in the price. As with gold, although an interim peak may be at hand, the longer-term bull market is nowhere close to ending, as global solar panel growth adds a major incremental demand catalyst to already strained silver balances.

We continue to hold a long position in 2-year Treasury futures. Inflation has become entrenched at 3%, well above the Fed’s stated 2% target. Members of the Federal Reserve won’t admit it, but they are probably ‘fine’ with the current inflation backdrop and are instead laser focused on the labor market and the “non-Magnificent 7” economy. With job growth grinding to very low levels, it wouldn’t take much for the Fed to cut rates more than what the forward curve is pricing in. The risk/reward of a long front-end rates position continues to look attractive.

As we noted in last month’s letter, worries about the United Kingdom’s fiscal position never truly went away after Gilt yields spiked and the GBP cratered during the disastrous, short-lived Liz Truss government a few years ago. The pound – along with the euro, Canadian dollar, and other major FX pairs – is shrugging off negative internal fundamentals and trading more as an anti-dollar capital sink or repository. Hedging flows are all supportive of this trend, as large allocators attempt to hold onto their U.S. tech stocks while simultaneously shedding the long USD part of their investments. We remain long the British pound on a structural horizon.

Lastly, we swapped our long cotton position for a short cattle position – we fully stand by our cotton analysis but as with all our positions, we often probe the market with a series of entries. The timing on our cotton trade appears early, as the market needs more time to base. Cattle offers an equally compelling fundamental thesis and one where a near-term catalyst (waning consumer spending at the household level) exists.

We look forward to updating you again in November. Please feel free to reach out if we can provide additional clarification on specific ideas, or the portfolio more broadly.

As always, we continue to be nimble. If the data and/or our views change, we can pivot our positioning and find other trades within the 40+ markets we have available. This is also why we maintain a strategic allocation to U.S. equities in our overall fund strategy, balancing a buy-and-hold approach with active global macro long/short positions. 

We Are Here To Help

We appreciate your continued trust and partnership and look forward to updating you on our progress in the coming months. Please feel free to reach out if we can provide additional clarification on specific ideas or the portfolio more broadly.

If you are a financial advisor and would like more information on our multi-dimensional approach towards asset management, you can download our white paper titled Busting Seven Risk and Return Myths by visiting our website at DynamicWG.com, or email us at info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor, if so desired.