Founder and CEO of Vandelay Industries. Austrian economics student and unregistered investment advisor in training. Radicalized by Ron Paul.
Joined February 2024
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I am upgrading (downgrading?) my recession forecast to a super-mega-ultra Great Financial Crisis Part 2. The Fed is going to invert the yield curve again and do untold damage to the broader economy, which is already damaged much more than the Fed says. Tightening into supply driven inflation with underlying consumer weakness is how you create massive demand destruction.
They’re going to destroy the consumer, destroy the labor market, destroy the credit market, destroy real estate, destroy the equity market, and destroy just about everything to force everyone back into dollars and treasuries. For several years now, everyone has wanted to get out of the dollar into stocks, commodities, crypto, real estate, etc. They are forcing everyone back into the dollar. And eventually they will force everyone back into USTs. The Petrodollar system was never going to go quietly into the night.
Personally I will be doubling, tripling, quadrupling, and probably even quintupling down on my core positions of $TLT $GOVT $TIP and $SJB. Keeping some extra cash is probably not a bad idea too. Everyone still holding risk assets is now officially fighting the Fed, which they say you’re really not supposed to do. I would plan accordingly. Thank you for your attention to this matter.
I know my fellow $TLT bagholders are growing restless, but all things considered we are holding up very well. We just had a blowout jobs report (if you believe it), which a couple months ago would have sent yields 15 points higher.
Instead TLT closed basically unchanged. Perhaps disappointing if you’re getting impatient for the rally, but I’m feeling pretty good about all this myself.
What do you guys think, should I rebrand this account to a more serious name? Maybe I’ll use a historical American like @SmedleyButlerUS
It’s all fun and games using the name of a fake businessman from a comedy show, but it feels like a stern persona is more appropriate given America’s overall state of affairs (I’ve felt this way for years, not just because of the stupid election).
Thanks for the feedback everyone. Vandelay Industries will remain open for business.
I also switched my picture back from the Yen carry unwind hamster. Sorry @leadlagreport I still think you’ll be right but it’s taking too long and I want my regular picture back
So are we not saying “Own assets or be left behind” 5 days a week anymore?
What's happening now in the stock market is more than just a "correction in tech stocks."
Sure, AI CapEx concerns are legitimate and investors will always care about profitability.
But, there's more beneath the surface here.
The reality is that the market is pricing-in a major shift in the political landscape of the US.
Over the last 12 months, market expectations for a Democrat "sweep" of the US Midterm elections have tripled.
Over the last 45 days alone, these expectations are up +30 percentage points.
As it stands, markets themselves now see a near-80% chance of a Democrat "sweep" of the US Midterm elections.
President Trump has already vowed to become "Mr. Veto" if this in fact does happen.
This is post is not political, it's objective. A change in the political landscape always comes with uncertainty; markets hate uncertainty.
Objectively, the market is in the process of pricing-in two years of political gridlock.
Could this change? Of course. But markets price-in the most probable outcome, and the odds now overwhelmingly favor the aforementioned scenario.
Tomorrow sets the stage for the next two years.
Bull steepening, as expected. Wouldn’t be surprised if there’s no December hike.
Bull steepening is seen as bullish for the stock market because it implies the Fed is less likely to hike and may even plan to cut.
This would be a great error in my opinion, as bull steepening also precedes crashes and recessions. The Fed always acts too late to avoid downturns, which is an intentional part of the business cycle.
Rotating a little TLT into short and medium duration ($SCHO $SCHR). I’m still very much long TLT, but short and medium duration seems like a screaming buy right now.
I’m not making any big changes, just being transparent about my positioning. Again, I’m still very bullish TLT, but I expect the yield curve to bull steepen soon, meaning short rates to fall faster than long rates.
10 year yield in red, WTI oil in blue
All summer they were positively correlated, moving in the same direction. But then in the last week of September, something changed and they have begun to have an inverse correlation.
Perhaps the market is finally realizing that spiking energy prices and producer prices will cause demand destruction and margin compression?
3 month chart of $USO vs 10Y yield. This is not what a sovereign debt crisis looks like. This is a liquidity crisis disguised as a debt crisis. If this was a real sovereign debt crisis and rates were actually expected to keep going vertical, gold would not be 20% off its high with the S&P only 2% off its high.
Every bond market is selling off because the world needs cash. They’re leaving stocks alone so the lemmings don’t panic yet. Every country needs cash to buy energy, meanwhile the big institutions have begun unwinding the Yen carry and basis trades. This is all VERY LIQUIDITY NEGATIVE.
Cash is pulled first out of the most liquid markets, that being sovereign debt markets. It will inevitably cascade to risk assets. Stock markets will start panicking after bond markets stop panicking. For now the music is still playing, but the chairs are quickly being removed.
Dammit @Coffee__Capital beat me to it
teapaw.org/coffee__capital/status…
Spread between PPI and CPI (PPI-CPI), since 1970
You’ll notice the biggest spikes, other than now, were 1974, 2008, and 2022. In both 1974 and 2008 the S&P fell about 50%. 2022 was a non-recessionary bear market, but perhaps is less statistically important due to a lot of data being skewed by Covid. The oil spike with the Russia-Ukraine war also spiked PPI. Nevertheless 2022 was still a 25% bear market. And it may have been worse, had the Fed not bailed out regional banks in 2023.
Today, we have a very high PPI level which should actually be higher than this chart shows, since the most recent report isn’t yet in FRED data. Including this week’s PPI data, this chart would likely be around 2008 levels (I’ll post an update when it’s available). And remember, this is the difference between producer prices and consumer prices.
The difference can be resolved in two ways: producers pass on higher costs to the consumer, or costs cannot be passed on and business margins compress and earnings fall. The fact that the bond market rallied on hot PPI implies the market thinks these costs cannot be passed on. I agree, mainly because the personal savings rate is very low and real wages are negative. The consumer isn’t strong enough to absorb these prices. Assuming this plays out, I would expect a similar downturn to 1974/2008.
@SmedleyButlerUS Maybe if you find this interesting you can work some of your TradingView magic and glean more than I did with the basic FRED data