Danny Dayan
@DannyDayan5
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Ex Hedge Fund Manager; Global Macro Volatility Portfolio Manager. Chicago Booth MBA & CFA. My views do not consist of investment advice.
Joined October 2022
Had a great time joining the Forward Guidance crew for a wide ranging conversation. We covered the growth vs. inflation tradeoff, inflation expectations and the potential for a Dollar Doom Loop. We also discussed how I am trading this challenging market. Hope you enjoy!.
NEW WEEKLY ROUNDUP! 🔥. We discuss:.📌 Danny’s dollar “Doom Loop”.📌Why inflation expectations are unanchored.📌The importance of remaining nimble in fast-moving markets.📌How we’re seeing equities, rate cuts, and bonds through 2025.📌Whether the Fed can rescue growth.📌Why the
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Bernanke and Yellen using the post WW2 argument for Fed independence. They are far smarter than me. Listen to them.
nytimes.com
Political pressure interferes with a mandate to work for stable prices and maximum employment.
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The UK is an economy with building conflicts for its two mandates. Unemployment is rising, while so is inflation. Brexit has resulted in a contraction to the supply side, so it is prone to stagflationary situations. The Fed has no such conflict. I do not envy the BOE here.
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There has been fear that rising goods prices will crimp services consumption. There has been some of this in the last couple months but last week's data showed the opposite. Discretionary services categories were strong in retail sales and CPI showed rising prices.
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With politically captured Fed members using assumptions that have been wrong all cycle to guide policy, risks continue to build for inflation. La Deuxieme looks to be around the corner.
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Potential GDP for the economy fell by 1% this year. Unlike past periods where this was due to a shock, this is by choice from the government. The impact of this remains poorly understand by most people.
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Waller: Inflation expectations are well anchored, but that's because I ignore all the evidence they aren't. Neither of the two mandates meet criteria for a cut, but we should anyways because in my imagination neutral is 3%. In any other profession he would've been fired yday
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Equilibrium between SPX: 10y from an FCI framework would be 5.05%. This would merely neutralize FCI, not even tighten it. The Fed is indeed late. to hiking rates, not cutting. Thank you for your attention to this matter.
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Stopped out of this fwiw. Garbage is on fire. Flaming garbage.
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Inflation is rising, and unemployment is falling. A truly data dependent Fed would be hawkish. They say they are neutral but neutral is not projecting rate cuts at every meeting for 3 years, and talking about it at every speech. This is why the Fed has not tamed inflation.
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I am seeing some price action that makes my spidey sense tingle. It may pass, but there are some early reasons for caution here.
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RT @lord_fed: Most traders don’t lose on bad ideas. They lose on bad execution. Part 1 was the map, this is the manual. Zero to Stock Her….
lordfed.co.uk
Part II
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November 1999. The labor market continues to tighten (UR 4.1%, today 4.1%), but the Fed is most concerned about the speculation in tech stocks. NDX has gone up by 25% in the last 6 months (today 40% in 3 months since the low). They hike 25 bps to 5.5%.
June 1999. The Fed is concerned about:. -Rampant equity speculation and its impact on wealth (SPX PE 24x, today 23x).-Too tight labor markets (UR 4.3%, today 4.1%).-Too high wage growth (ECI 3.5%, today 3.6%).-Inflation (Core CPI 2.3%, today 2.8%). They hiked from 4.75% to 5%.
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Even if this was a trial balloon, there is no line they will not cross. Dollars and bonds are to be rented, not owned.
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My view on tariff inflation is the supply side impacts are persistent. On the demand side, it can go 4 ways:. 1. Demand destruction (consensus, rate cuts) .2. Rotation back and forth w/services (on hold).3. Wage demands (hike).4. Increased borrowing (hike) . Too early to say.
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2nd leading tech market in the world vs. garbage can?. I am in.
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The FCI loop framework has been a huge source of alpha for me. The economy and market dynamics have changed, so it's time for an updated framework. Nobody, not even the original authors of FCI, have done the work we did. I expect the note out next week. It is a game changer.
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It is nearly impossible to predict any single CPI number, at least for me. I expected a hotter print because of used car prices, which surged 2.7% in April, yet Apr-Jun had 3 straight negative prints in CPI, down 1.7% total.
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The unemployment rate is headed below 4%. I can’t wait for the excuses from the bears. Birth-death model, or maybe some astrology pattern or whatever else nonsense they can come up with. This will only be a surprise to people who dismiss FCI.
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For the life of me, I still don't understand why healthcare inflation is so disconnected from reality. Healthcare spending rose by 7.5% in 2023 and estimated to grow 6% per year for the next decade, yet PCE inflation has it at 2.5%. Real world inflation > measured.
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