Craig Shapiro
@ces921
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Macro Advisor: Bottoms up industry/company fundamental analysis w/ top down macro framework.
Joined February 2009
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Hypothesis: The US used to fight wars to prevent the world from trading oil in currencies other than the US$. Now it seems like it has become in the strategic interest of the US to encourage the world to trade energy away from the US$.
The reason for this is that more expensive…
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Issuing more t-bills at an accelerating pace is a precondition to becoming a banana republic. This is the type of thing you see emerging markets do, not the issuer of the world's reserve currency and neutral reserve asset.
If you believe that the Fed's primary goal is smooth…
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Reminder. During the worse parts of Covid in 2020, the Fed increased the size of its Balance Sheet by about $3trn in the second quarter of 2020. Then it steadily increased its balance sheet further by an additional $2trn for the next 7 quarters. So when the Fed needs to add…
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Mexico considering reducing oil exports to achieve self-sufficiency in fuels and stop selling oil abroad by 2023. China has asked state refiners to consider pausing exports of gasoline and diesel. Hungary has discussed banning agriculture exports. Russia export bans are coming...
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As
@LukeGromen
points out, Russia could agree to sell its oil for 50/100/500 barrels per ounce of gold, up from 20 today. At that price, there would be a scramble to buy physical gold in order to get cheap Russian oil at discount. There would be a run to procure physical gold
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Occam's Razor: The Simplest Explanation is the Best One
Powell's dovish press conference yesterday, in the face of a drastic loosening of financial conditions which has re-ignited animal spirits, inflation expectations and actual inflation, can only be explained by the Fed's…
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Russia is not attacking Ukraine. They are attacking the US$. The end game has started. My thoughts below.
@LukeGromen
@SamanthaLaDuc
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Hypothesis Continued:
While the February 2022 decision to sanction Russian reserves and remove them from SWIFT post the invasion of Ukraine will be seen as a major spark that accelerated the decline of the UST as the world's hegemonic neutral reserve asset, I think that we will…
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Last week seemed like it lit a fire under folks regarding their lack of appreciation for the current and expected US govt fiscal situation. Growing deficits for as far as the eye can see. Treasury comes out and reminds the market how much borrowing needs to occur in 2H23 and we…
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*BIDEN: RATE CUT MAY BE DELAYED FOR A MONTH
*BIDEN: WILL BE RATE CUT BEFORE THE END OF THE YEAR
*BIDEN: STAND BY PREDICTION FOR RATE CUT
I guess there is no line between the Admin and the Fed.
And the Fed's independence dies a quiet death in silence.
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@LawrenceLepard
The battle doesn’t need to be right vs left. It’s more rich/corporate/centrist/elites/1% vs everyone else
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TGA is down to $140bn. Janet better hope that folks are coming in w/ tax payments next weekend otherwise she is really gonna be screwed. Hope her modeling is right but current trends in tax receipt data suggest she is way off. Debt ceiling debacle is coming quicker than expected
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Been saying this for several months now. The Fed didn't finish the job. They got spooked in late October (along with Treasury) about the rise in yields and term premiums and thus orchestrated a significant loosening of financial conditions to help the US govt finance its…
The Atlanta Fed's gauge of sticky inflation has risen to about 5% on a 3-month annualized basis. Inflation is moving in the wrong direction for the Fed, so it's interesting that the market's base case is still that the Fed is going to cut rates by about 100bp by January 2025.
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After going thru the TBAC releases and supplemental information yesterday, I think we are going to look back at this report as a key turning point for folks' understanding of the precarious situation the US government's finances are in currently, and not in the way that people…
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This should not be seen as trading advice for today's 30 year bond auction but in my view, there is simply no reason to buy the long bond of a government that is in a fiscal dominance regime, with a completely dysfunctional political environment that has no ability to slow down…
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Yellen is going on a UST selling spree in a holiday shortened 3 day window next week. $534bn in gross issuance (bills and bonds) with $85bn of net issuance of which $61bn comes from 3s/10s/30s. At some point, we are gonna be talking about real money!!
And we have the October tax…
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Yellen added $100bn in cash management t-bill sales for next week, in addition to the $123bn in 3m/6m t-bills that will be sold. In addition, 4w/8w t-bill sales have been running at $35bn/$35bn ($70bn total) since debt ceiling issues but were as high as $75b/$60bn ($135bn total)…
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The reason this KRE issue is different than last March is that this is not a duration issue but rather the beginning of a credit crisis, as banks are finally gonna be forced to recognize the losses on their CRE books. It is not about duration mismatch on portfolio holdings but…
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This debt ceiling resolution barely cuts the deficit at all, something Dems really should be happy about in the end. And since we know the government will remain woefully short on tax receipts (and getting worse as recession starts to occur later this year), this means that Janet…
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CHINESE STATE BANKS RESTRICT FINANCING FOR RUSSIAN COMMODITIES.
They are restricting US$ letters of credit but still allowing RMB letters of credit to purchase commodities. hmm. I wonder why...It's all connected
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Gold is trading like there is going to be a reset of the global financial/currency system over the weekend.
@LukeGromen
@wmiddelkoop
@LynAldenContact
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Super core inflation is reaccelerating. 0.596% mom gains is the second highest month basically ever. There is no proof that the Fed's policy is sufficiently restrictive to return inflation back to 2%.
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Pretty weak 6m tbill auction just done. Dealers had to take 49%, the highest amount since the SVB crisis. Bid to cover quite weak. Can't imagine that bodes well for demand at 1pm for 20 year auction.
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CBO has raised 2023 budget deficit to $1.5trn, up 9% from their estimate in Feb and that's even before the recession we are likely to have starts to really bite. As
@LukeGromen
points out, last three recessions have raised budget deficit by 6%, 8% and 12% of GDP, which suggests…
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"I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson
The
@federalreserve
continuously employs policy which…
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Let me get this straight: Today we have JPY intervention to prevent JPY from weakening too much and tomorrow we have accelerated emergency BOJ buying of JGBs in order to prevent yields from moving higher. How the fk is that gonna work? Tells you have screwed this situation is.…
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Janet in China on a sales missions, trying to convince China to help her sell a shitload of duration this week. $58bn in 3y, $39bn in 10y, $22bn in 30y are the agenda, the same week that Americans need to start raising cash to pay taxes. Depending on the tax receipt strength, we…
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Gold generally acts as a hedge against the idiocy of government, politicians and bankers over time.
This time ain't different.
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Why is it so hard for the
@federalreserve
to say "this time is different" when it comes to the level of US government debt to gdp levels at well above 100% and budget deficits running 5%+ of GDP for as far as the eye can see when it is discussing its monetary policy outlook?…
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Why isn't the Fed more active in reducing the size of their balance sheet and removing excess liquidity from financial markets and the banking system?
This would help deflate animal spirits and slow down asset price inflation and inflation expectations while not further harming…
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How does the Fed look at the price of Gold making new highs every day after hot inflation readings this week and much higher long end UST yields and think "you know what, the market believes we are going to bring inflation back to 2%."
Gold is calling bullshit
Wake up…
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OH MY BOND AUCTION
Why don't folks want to buy the toilet paper of a profligate government with a central bank that doesn't want to bring inflation back down to 2%?
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Federal Reserve's financial conditions index just updated thru February.
Positive numbers suggest tight conditions. Negative numbers suggest loose conditions.
Powell is gaslighting markets when he says financial conditions are restrictive. They aren't. He's lying.
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RUSSIAN FINANCE MINISTRY AS OF APRIL 5 TO INCREASE DAILY VOLUME OF CURRENCY/GOLD PURCHASES UNDER FISCAL RULE BY 2.4-FOLD TO 11.2
Got gold?
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@spectatorindex
Elizabeth Warren checking her 23 and me genealogy report to see if she qualifies
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Core PCE comes in at 0.26% mom (rounded up to 0.3%), confirming what Powell told us at the press conference last week that February core PCE would come in below 0.3%. However, January was revised higher to 0.452% (rounded up to 0.5%) so you could argue that the price momentum to…
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US govt weaponization of $ has been met by Russia’s weaponization of energy and China’s weaponization of supply chain. This will lead to a global FX market that trades based on balance of payments and current account deficit/surpluses where excess govt reserves are stored as gold
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2yr inflation breakevens breaking out to the upside, up about 50bps now on the year and back into the levels seen last fall when the Fed was talking about still doing another rate hike in 2023 which they somehow forgot to deliver.
Market's are calling BS on the Fed's ability to…
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If the Fed thought this through properly, and really wanted to be assured that they could get inflation back down to 2%, they would realize that what they need to do is engineer a way to raise term premiums so that private demand would stop chasing the longest duration nonsene…
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The Fed continues to say monetary policy is restrictive and financial conditions remain tight, despite the fact that the economy grows about trend, the labor market is "very very strong" and inflation is running higher than target.
Even though countless financial condition…
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Sounds like Powell heard Waller speech and is toning down the press conference performance.
"The fact that the US economy is strong right now and that the Labor market is very very strong allows us to be a little more confident before we start cutting rates...We don't think it…
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Risk asset markets will continue to rally until the point at which the Fed gets uncomfortable that inflation expectations and actual inflation are running away from them again. There are clear signs to start the year that this is already under way after the significant loosening…
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Dealers had to step up in a big way for that 4m t-bill auction just done. 52.3% to primary dealers is the highest in about a year (back to debt ceiling debacle last May). Indirects only took 38.7% which is lowest basically ever.
Not really the sign Janet was looking for to…
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There is growing societal angst in America which pundits and the ultra rich are failing to recognize. The common man is starting to realize that the govt / Fed is gaslighting them to believe there is no inflation and they should be happy today with their economic position.…
"Cheer the f*ck up" says a multi-millionaire to people struggling to survive.
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Treasury often gets their initial borrowing estimates wrong so there really was no risk for Yellen to announce a low borrowing number for the 2q. They were wildly wrong last year. She can always issue more bills if necessary later in the quarter if they are light on revenues.…
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The RRP typically rises in the last two weeks of the quarter on banks window dressing and risk reduction. Over the last 8 quarters, the average growth in RRP has been $304bn (range $151bn-$472bn). On its own, this is a significant liquidity drain that often leads to risk asset…
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Janet is still hard at work this week with her IMF buddies to get them to buy her heavy auction supply next week to end the month. It is the last round of duration supply ahead of the next QRA announcements on 4/29 and 5/1.
She is selling $69bn of 2year notes, $70bn of 5 year…
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Gold has acted as a discipline enforcer on profligate government spending for generations. Once the gold standard era was ended in 1971, it needed to be replaced by some other enforcement mechanism to deal with inflation and government deficits. This was supposed to be done by…
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Powell told us today that he is not uncomfortable with the current loosening of financial conditions even though animal spirits are re-ignited, inflation expectations rising and inflation has already bottomed.
As a result, we should see inflation assets rip further and with…
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Back in the middle of October 2023, markets were disappointed by a fairly crappy 20 year UST auction result which helped kick off a fairly nasty 1-2 week market correction into the end of October.
This tightened financial conditions and helped cement the stage for the Yellen…
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3m tbill auction just done was pretty weak. Dealers had to take about half. Worst since late May 2023 debt ceiling deadline debacle
Good luck this week Janet with all that duration for Sale.
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*BIDEN CALLS ON COMPANIES TO USE RECORD PROFITS TO CUT PRICES
*BIDEN: INFLATION DOWN MORE THAN 60% FROM PEAK BUT MORE NEEDED
This is the narrative from Biden administration as they come to the realization that the Fed is not going to be able to assist them this year with a rate…
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Supercore up 4.77% yoy, up 0.65% mom, 11m highs yoy.
Enough with the gaslighting.
#removethecuts
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We are moving into a new world where procurement of critical resources by governments will be prioritized at any price. Their need to acquire goods without regard for price will exacerbate inflation globally. This will further embed itself into the psyche of citizens. The Fed's..
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TGA ended last week at $110bn. Tax payments coming next but we are running risk of TGA running out of money in early June before the 6/15 payment unless tax receipts positively surprise which seems unlikely. Discussion on payment prioritization for Treasury coming quickly.
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As we look ahead to the all important CPI figure out tomorrow, I wanted to shed some light on this very interesting breakdown of the composition of the CPI indexes which looks at the % of components which are above 2% and above 4%.
Various Fed members in recent weeks have…
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@JakeSherman
How many pages devoted to her insider trading and turning her $150k salary into a nine figure net worth via YOLO tech call options?
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Powell putting up some hawkish pushback in his speech today.
Key line: "While the broader supply recovery continues, it is not clear how much more will be achieved by additional supply-side improvements. Going forward, it may be that a greater share of the progress in reducing…
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1 year inflation expectation median comes in at 4.2% vs 3.8% prelim. 5 year is 3%. This is re-accelerating. Not clearly well-anchored in my view even if Fed continues to believe it so.
Let's see if the Umich final reading on inflation expectations supports the prelim reading which showed a pretty sizable pickup in both 1 year and LT inflation expectations. Fed continues to say inflation expectations are well-anchored but amidst elevated energy prices and…
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We favor a pro-inflation playbook as the Fed remains woefully behind the curve addressing this new economic world order. Sticky inflation will be with us for longer than expected. Own commodities/hard assets, sell bonds, value over growth, bitcoin.
@SamanthaLaDuc
@LukeGromen
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Bostic (voter) went to one cut from two. Let the pushback begin. Powell doesn't speak for the entirety of the Fed and there will be difficulty pushing thru the start of a rate cut regime with dissents in an election year without looking political.
FED'S BOSTIC SAYS HE NOW…
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@JakeSherman
It’s a logical play for Trump to be disruptive here because once he signs the bill, he becomes instantly irrelevant in DC. There is nothing else to pass so he loses all his leverage and power. This is about staying in the game, likely using it to get acceptance for his pardon
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Japanese banks down 4% last night, down 10% in two weeks. Canadian banks making lows. European financials credit spreads blowing out. BAC making lows.
Seems like global banks are sniffing out a much larger probleme for risk.
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Bond volatility is breaking out of a range today. Should see that in MOVE index at the close. I suspect we are seeing some systematic deleveraging of bond portfolios as bond vol rises which is selling begets more selling dynamic. That's gotta be part of the higher yields story…
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It’s already massive gold holdings (probably larger than has been disclosed). This could be something Russia has in mind now that the west is freezing it’s overseas central Bank reserves. Economic warfare is mean AF. Big boy implications here. Buy gold.
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1m T-bill yields vs 3m T-bill yields have never been this inverted. Clearly there is something going on here with concerns about the debt ceiling debacle coming sooner rather than later as well as growing collateral shortages. Something aint right
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Notice a pattern here. The Fed has a major blind in its view of the supply chain and the inflation stemming from it being transitory. Monetary policy can not force people to buy sanctioned Russian goods. Monetary policy can not force countries to sell energy and food abroad..
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From depleted Storage facilities at LBMA and Comex, which would lead to a larger squeeze for gold and would screw over western banks that are massively short paper gold contracts. Russia would attract this physical gold and would be a large beneficiary of rise in gold price given
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With the UAW strike, potential for Kaiser healthcare strike and Fed govt employees locking in 5.2% wage growth in 2024, the Fed is staring down the barrel of a wage / price spiral dynamic that they haven't modeled for because collective bargaining power resuming hasn't been the…
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@Schuldensuehner
"I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." - Thomas Jefferson
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*BOSTIC SAYS OPEN TO RATE HIKE IF INFLATION MOVES HIGHER
Slowly they creep toward reality.
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Super hot PPI which will filter into positive momentum for core PCE. When do we start to price in some probability of the next move being a rate hike?
@TheWineSwine
We get the UMich inflation expectations survey reading today. Reminder of the reasonably firm correlation between gasoline prices (which have bounced off the lows in recent weeks) and 1yr forward inflation expectations.
The Fed continues to talk about inflation expectations…
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@kaitlancollins
Equating the views of Andrew Yang with several Democratic committee chairs about the inadequacy of the WH stance on this bill is a joke and Wolf should have known better. Nancy needed to put him back in his place and she did. Why are we not asking WH to "just take" the HEROES act
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In my view, the Fed has flinched massively to what it saw as deteriorating economic conditions I pointed out from the Beige book last month where they downgraded their assessment of growth quite sizably.
They figured that they have done enough tightening for this cycle and…
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It looks like we could have a replay of the October 2023 trading period where we get $ up, yields up, oil up, however this time, the economic momentum remains firm with labor market "very very strong" according to Powell and inflation having already started to re-accelerate.
So…
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Here are some updated thoughts on Russia's recent actions to harden their currency and establish a new multi-lateral FX regime. TL/DR - With RUB to gold pegged at 5000/g, watch next for Russia to peg oil to gold at as high as 1g/1bbl. Then fireworks!
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While markets see a dovish Fed because it's an election year, and believe it's only a matter of time before the rate cutting cycle commences as growth slows and labor market softens, I believe that Powell will not support a rate cut this year without unanimous consent while…
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Primary dealer holdings of USTs are roofing to new highs. Why don't foreigners want to buy the securities of a perpetually profligate spending banana republic?
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A re-acceleration of core PCE out this morning with better spending data too. It is simply not clear that the Fed is able to restrain the economy at the current level of rates and that is likely being exacerbated by the fact that the US govt's borrowing costs continue to rise…
When do we get to the point of the narrative as
@LukeGromen
describes where folks wake up and realize that the more the Fed raises rates, the more inflationary it is. These higher interest rates translate to higher interest expenses for the US government, which at 25% of GDP, is…
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Janet in China on a sales missions, trying to convince China to help her sell a shitload of duration next week. $58bn in 3y, $39bn in 10y, $22bn in 30y are the agenda, the same week that Americans need to start raising cash to pay taxes. Depending on the tax receipt strength, we…
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Another crappy T-bill auctions, where Primary Dealers had to take 47.1% of this 42-day bill with indirects under 50%.
This is the second largest amount primary dealers have had to take of this 42 day bill this year.
Yuck.
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My quick look ahead to the next few days of trading is as follows:
There is likely to be volatility selling today as folks believe this geopolitical stage of fighting is over for now but we still don't really know if/how Israel is going to respond. We also don't really know how…
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Just in case anyone wanted to be gaslit further by the Fed saying that monetary policy is restrictive and financial conditions are still tight, we get the updated reading from the Chicago Fed's Financial Conditions Index (one of the 4 indicators that Fed's Logan said she watches)…
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Give them bread and circuses and they will never revolt" ---Ancient Roman poet Juvenal.
When I look at the performance of $DJT (Digital World - Trump SPAC - Truth Social), this is the only thing that comes to mind. Peak "bread and circus"
The public is being gaslit by our…
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Gold Up, Oil Up, BTC Up, Treasuries Down = Economic Warfare playbook against the US
@LukeGromen
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@SenSanders
It is a national security issue and public health hazard to not have Medicare for All. We cannot live in a society where our citizens dont see a doctor or visit a hospital for fear they will be saddled with medical debt. Medicare for all will keep America safe and healthy
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I know the Fed doesn't care about agriculture prices because people don't need to eat but I would say a breakout in DBA Ag ETF is probably not gonna bode well for headline inflation momentum in the coming months.
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Let me be the first to say: "Beware the Ides of March"
Over $3trn in expiry comes off the board tomorrow and that doesn't include the fact that every stock will have 0DTE trading tomorrow. The volumes are going to be massive.
Come next week, expect vol to become unpinned as…
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It is becoming more difficult to see how they are going to stop this fixed income selloff in duration USTs. The US govt has no ability to raise taxes or cut spending any time soon, particularly amidst the completely dysfunctional current state of affairs in the House of…
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We are getting closer to point where the ECB needs to raise rates more aggressively to defend the euro in order to pay for higher energy/power costs but cause a recession or Europe is going to have to abandon US$ system and come crawling back to Putin to beg for gas.
@LukeGromen
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After a modest pickup in cash at TGA yesterday (reported today), expect the TGA to fall to a new low sub $70bn when reported at the close tomorrow as Treasury continues to deplete its cash hoard while paying more out in interest expenses and receiving less in tax receipts. While…
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When thinking about the relationship between the US and China and the $/CNH exchange rate, it's important to remember that history often rhymes:
"There is considerable evidence to suggest that the Plaza exercise was more than a strategy to buy time. At least from the US…
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@DonDurrett
First step, peg RUB to gold at 5000/g. Second step is peg gold to oil. Historical range around 1.5-2g/bbl. I suspect they do it at 1g gold per 1bbl oil. Nice symmetry there. At current oil price, gold goes to $3500+ and facilitate run on physical gold at western banks.
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While I'm not really sure there is breaking news in here, what it says to me is the politicization of the Fed is growing rapidly and makes it much harder to conduct policy in an election year. Fed independence is waning quick. Credibility is slipping.
You have Biden today…
BREAKING, INSIDE THE FEDERAL RESERVE: Hidden Camera captures Principal Economist
@federalreserve
talking about Jerome Powell’s legacy as “somebody who held the line against like, Trump.” The influential agency responsible for maintaining a stable monetary system appears to not…
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Financial conditions began to ease when the market figured out that the Fed's next move was going to be an interest rate cut. Recall the Fed was going to hike rates in the 4Q23 but got spooked by data slowing and bond market selloff in October/November and decided to pivot. Once…
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only real job was to prevent inflation expectations from becoming embedded in the public and to keep inflation well-anchored. With breakeven yields breaking out to new highs, they are failing miserably. Their "power" stemming from their communication tactics has become inept.
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