I think that the energy market still remains disinflationary. Even after the Permian basin peaks in liquids production, remember that a tight oil well becomes a gas well. Without LNG exports North American natural gas would be a negative number.
That said, a combination of robust global liquidity and moderate commodity prices should be very bullish on EM assets. How does an EM ex-China trade sound?
Russell I agree. My short TLT position got smacked down yesterday but I took the opportunity to avg down.
The market is hearing what it wants to hear. I listened to the entire post-FOMC press conference, and don't actually think Powell was that dovish. At least a couple times, reporters tried to bait him into saying xzy condition would trigger a rate cut, but he swatted those questions away.
The 2022 dot plots had indicated rate cuts this year, which obviously didn't materialize. I think the same thing can happen in 2024. Even the Fed is still digesting its own 'higher for longer' messaging.
With QT continuing on track (Powell confirmed this) and lots of new Treasury issuance to fund the debt, I don't see how rates aren't structurally higher in the coming years.
I think your broad thesis of labor getting treated better than capital going forward remains a good baseline. this is especially true given the political changes we are seeing throughout Europe and the US with populism rising everywhere, and that is definitely inflationary. My take is Powell just cemented his legacy as Arthur Burns the 2nd not Paul Volcker as regardless of who is elected in 2024, more spending is the way of the future. absent an increase in productivity to 5% over time, not just in one quarter, this really feels like it has a quarter or two at best before reality returns.
As measured by the overall CPI yes, since tech is becoming more and more of a factor in our lives, than it makes sense CPI will go down, is shadow stats that show the CPI-as measured by 1980 numbers-is 15%. However you don't have to go there, you can look in the CPI report and it shows the goods and services that are not easily substitutable are going straight up: healthcare, education, child care, etc. A large reason why this a occured, is because the political incentives with respect to social spending. Most goverment spending program increases are tied to CPI so the higher the CPI the more spending which will force budget rules to kick in.
That is quite unlikely in the western world. I do acknowledge changes in behavior of politicians compared to a decade ago, but this is still not sufficient for them to go against markets. Also, Higher S&P means generally higher wealth for (not only the wealthiest but also) the average American. Politicans themselves are participants, in the same market, with their wealth being locked up there as well. Going against it, means losing voters. I wish you end up being right, but I have hard time seeing it realizing.
Curious how much of this will be impacted by politics in the US. Even if inflation reaccelerates, I think Powell might be hesitant to raise interest rates in a Presidential election year.
I think that the energy market still remains disinflationary. Even after the Permian basin peaks in liquids production, remember that a tight oil well becomes a gas well. Without LNG exports North American natural gas would be a negative number.
That said, a combination of robust global liquidity and moderate commodity prices should be very bullish on EM assets. How does an EM ex-China trade sound?
Thoughts on the agriculture commodities?
Russell I agree. My short TLT position got smacked down yesterday but I took the opportunity to avg down.
The market is hearing what it wants to hear. I listened to the entire post-FOMC press conference, and don't actually think Powell was that dovish. At least a couple times, reporters tried to bait him into saying xzy condition would trigger a rate cut, but he swatted those questions away.
The 2022 dot plots had indicated rate cuts this year, which obviously didn't materialize. I think the same thing can happen in 2024. Even the Fed is still digesting its own 'higher for longer' messaging.
With QT continuing on track (Powell confirmed this) and lots of new Treasury issuance to fund the debt, I don't see how rates aren't structurally higher in the coming years.
I think your broad thesis of labor getting treated better than capital going forward remains a good baseline. this is especially true given the political changes we are seeing throughout Europe and the US with populism rising everywhere, and that is definitely inflationary. My take is Powell just cemented his legacy as Arthur Burns the 2nd not Paul Volcker as regardless of who is elected in 2024, more spending is the way of the future. absent an increase in productivity to 5% over time, not just in one quarter, this really feels like it has a quarter or two at best before reality returns.
As measured by the overall CPI yes, since tech is becoming more and more of a factor in our lives, than it makes sense CPI will go down, is shadow stats that show the CPI-as measured by 1980 numbers-is 15%. However you don't have to go there, you can look in the CPI report and it shows the goods and services that are not easily substitutable are going straight up: healthcare, education, child care, etc. A large reason why this a occured, is because the political incentives with respect to social spending. Most goverment spending program increases are tied to CPI so the higher the CPI the more spending which will force budget rules to kick in.
Mr. Market wants lower rates. Perhaps we could spin out Jin Kichi if all else fails.
My idea is that politicians don't give mr market what they want anymore...
That is quite unlikely in the western world. I do acknowledge changes in behavior of politicians compared to a decade ago, but this is still not sufficient for them to go against markets. Also, Higher S&P means generally higher wealth for (not only the wealthiest but also) the average American. Politicans themselves are participants, in the same market, with their wealth being locked up there as well. Going against it, means losing voters. I wish you end up being right, but I have hard time seeing it realizing.
Curious how much of this will be impacted by politics in the US. Even if inflation reaccelerates, I think Powell might be hesitant to raise interest rates in a Presidential election year.
Which could make an EM trade very interesting
How do see expressing that equities, bonds, own commodities?
Will have a think and do a post