Florian Kronawitter
@fkronawitter1
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Here to share what I've learned during 17 years on the frontlines of the economy and markets
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Joined April 2021
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こどもの日
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سعد اللذيذ
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Pinned Tweet
I just published a new post. In it:
- Why most of the AI value may end up with consumers and industrial profits
- Why upgrading the SME tech stack via "AI Buyouts" is a generational opportunity
It is free, if you like it, please share it!
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#Rolex
No relief in sight, prices continue to slide (ave. of 30 best selling models in USD)
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"BLACKROCK SEES 'SIGNIFICANT INTEREST' AMONG PENSION FUNDS TO CUT EQUITY EXPOSURE, LOCK IN YIELDS"
There is always enough demand for Treasuries. You just need to sell equities for it
When do you sell equities? When you think growth slows down (1/2)
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Over the past 12 days, hedge funds covered more US Tech shorts than at any point in the last decade (except meme blow up Jan 21)
With the cover bid gone, underperformance is now likely for the sector
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QRA Update:
- The Treasury upped coupon auction size to $348bn in Q1 vs $338bn in Q4. This is below their own guidance of $396-$460
- They caved in face of difficult 10yr/30yr auction and are prioritising bills
This is a huge policy decision
(1/3)
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The banking crisis is not over
4-week T-Bills are bid at 3.8%, a full 1% below FFR (!), as especially foreign banks scramble for access to this pristine collateral
Contrast this to 4.8% paid daily in the the RRP
What's next?
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The most important overnight news
After Fed Gov Bowman, now Janet Yellen herself heavily alludes to allowing big banks to hold MORE US Treasuries
This is QE, just named differently. Expect it to happen AFTER midterms, as oil likely rallies hard on it
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Yesterday's hedge fund short cover was the highest since January 2021 and ranks in the 99.9th Percentile since 2012 (GS)
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@Gerashchenko_en
“According to some reports he is a neo-nazi”??
He has an SS tattoo on his right collar bone!!
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#Rolex
prices trending down again (average of 30 popular models)
As you know I've been sharing this chart on a weekly basis
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Mastercard July spending pulse - notice trailing furniture, luxury and electronics
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Whenever ISM Manufacturing New Orders were as low as today, the Fed had already cut rates
Even under Volcker
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🇺🇸 January large bankruptcies highest in over a decade
Things you don't see in a soft landing?
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First Republic is turning up the heat on bank deposit competition, now offering 4.5% on 60-day time deposits (CD)
Will other banks have to react?
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M2 saw the steepest month-to-month drop since 1982
No wonder the Fed is getting nervous
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🇺🇸 Thirteen economists, NO ONE has acceleration on their bingo card
So guess that's what we'll get...
h/t
@darioperkins
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Today's CPI release is telling inflation's past
Recent oil price action is telling inflation's future
🚩
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I have heard so many people say they want to buy the S&P at 4200
It makes me think we either never get there, or we blow way past it
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Are you hoping that the QRA will bail out the stock market this week via bills instead of coupon (=long end) issuance?
Then you should read Assistant Treasury Secretary Josh Frost‘s speech from the 21st Sept
He reiterates coupon auction size will continue to increase (1/3)
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In the short run, this is positive for risk assets. In the long run, it is another step towards a world of structurally higher inflation
(3/3)
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Banks tightened their lending standards to historical extremes
In the past, default waves followed within 6-12 months
Will this time be different?
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@ianbremmer
Wild guess- it was both the Trump and Biden administration flooding the world with printed USD, encouraged by the Fed
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The nominal growth deceleration in retail has been tremendous
Black Friday YOY 2022: +15%
Black Friday YOY 2023: +2.5%
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Apple iPhone 14 production costs are 20% higher than predecessor $AAPL
Why? More proprietary chips and more US content
This is before production is diversified away from China
Geopolitics is inflationary - Sign of the times
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🇺🇸 Last week saw the biggest liquidity injection into financial markets since 2021
Treasury spending ($45bn) and RRP drawdown ($139bn) by far outweighed QT ($53bn)
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Lower rates will set US housing on fire
The industrial cycle is turning and inventories are low
Throw in the IRA
Sounds bullish commodities to me
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🇺🇸 M2 Money Supply for February saw the largest month-on-month decline since 1982
Deflation is coming
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#Inflation
Adobe ecommerce price index sees month-on-month inflation across most categories
January seasonal bump in full swing
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The risk?
Reflexivity gets to work. Equities sold to buy bonds. Lower stock prices get companies to cut. That slows the economy further. Etc.
This is why the endgame is *likely* more Fed liquidity. It creates additional Treasury demand - no one wants a downward spiral (2/2)
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The Q2 liquidity vortex is now in full swing, as I predicted in this extensive post some time ago
It seems probable that all assets are affected, with cash likely the best performer over the coming weeks. Asset rallies should likely now be sold (1/3)
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Milton Friedman: "Inflation is always and everywhere a monetary phenomenon"
M2 Money Supply currently shrinking - a historical anomaly
Deflationary prints ahead, in my view
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1 -
#ConnectingTheDots
The Bloomberg economist consensus for January is out
Expectations are for a "hot" month-on-month number, that annualises at ~5-6%
A significant step-up from recent prints
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Bond markets currently assume a calamitous event that forces the Fed to cut rates significantly by the Fall
Equities assume that said calamitous event has no impact on their earnings
One of the two is wrong 🚩🚩🚩
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The Treasury essentially told us that whenever the market will get difficult (which it did around 5.5%) it will listen
The cost of this is that the inflation-taming effect of higher long-end yields gets neutered
(2/3)
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I just published a new post. In it:
- Recapping the case for "Secular Reflation"
- What I look for to see if I'm wrong
- Still all cash and expecting market weakness, intending to use it to deploy into theme
It is free, if you like it, please share it!
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A gentle reminder that no one knows anything:
In 2019, the overwhelming consensus in markets and academia: "inflation is dead"
Two years later, the highest inflation in 40 years
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In their own slides, the US Treasury tells you that:
- It seeks the least cost (term premium!)
- It does not time the market
- Does not react to short-term demand fluctuations
- Bills mainly for rapid cash raises (eg Covid, TGA refill)
It's all there for those who care to look
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⚠️ General Mills results for Q4:
Price: + 11%
Volume: -6%
Also known as “Pay more, get less”
How can anyone think this is a sign of a healthy economy?
What happens down the value chain, at supplier biz, as volume declines?
What happens once consumer excess savings run out?
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Today is the second recent day that stocks fall while bond yields fall - the opposite of '22
Things don't change overnight, but a regime shift is under way. Pay attention to the market 🚩🚩🚩
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1- German Chemical co Lanxess issued a drastic profit warning last night
- Demand is "worse than Lehman"
- Weakness "even from usually stable consumer products"
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🇺🇸 The most important chart for 2024
Supply chains are getting tighter again, historically they have lead CPI by ~5 months
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The market went up in a straight for 3 months
The QRA was bad, but most ignored it hoping Powell would bail them out
He didn’t, so now the sale begins
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Some thoughts on Treasuries and TIPS:
The 30-Year Treasury ETF ($TLT) saw record trading volume yesterday, indicating forced liquidation which often occurs near a bottom (1/5)
Trading volumes in $TLT today set a record, breaking the March 6, 2020 pandemic peak.
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Yesterday, politics panicked
The flood of bills will loosen financial conditions and stimulate the economy
Parts of the US market are pricing in recession and dropped 20% (eg small caps)
I like long Russell 2000 here as the fastest horse
Not advice
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Powell basically ignoring the recent inflation hump should further fuel the already strong monetary debasement vibes
I've bought some Gold Miner exposure for it, which are at a multi-decade low vs Gold
Also sold some 30-yr
Not advice
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The following three are at odds:
ES at 4400 with 25% earnings growth until ‘25
2Y10Y at -40bps
Oil at 75
They are either too cheap, or too expensive in relation to another
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1- 🇺🇸 Why the US regional bank issue extends beyond Silicon Valley bank
Regional banks pay 0%-1% on deposits while the FFR is 5%
Many are unprofitable if they were to pay "market" rates (!) on these deposits
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I just published a new "Next Economy" post. In it:
- What 13 years of QE have done to the financial system
- Why levered loans likely are the next crisis flashpoint
- Why I've shifted my view toward a "hard landing" on recent data
Enjoy the read!
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🇺🇸 The issue with US regional banks in one *illustrative* chart
Profitability is gone once deposits pay market rates. No bank profits -> no lending -> credit crunch
Government deposit guarantees don’t fix this, only interest rate cuts do
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Many signs the US economy is accelerating
Only reason to buy 30-year bonds is recession/slowdown fears (or matching liabilities if pension fund etc)
High supply
Path of least resistance for 30-year yields seems up
What am I missing?
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I just published a new post. In it:
- Why demographic change could limit labor losses this time as corporates cut cost
- Why I am fading market consensus across equities, dollar, energy and vol
It is free, if you like it, please share it!
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🇺🇸 In the inflationary 1970s, unemployment rose only many months after the start of a recession (e.g. 8 months in '73-'75)
Why? Assuming a tight labor market, companies "hoarded" labor, until their margins forced them to change course
Will we see a repeat in '23?
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I just published a new post. In it:
- Recent data suggests the Fed's dovish worries have merit
- A corporate margin crunch is the key risk for '24
- How I adapted my positioning
It is free, if you like it, please share it!
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🇺🇸 Treasury auctions next week
Also known as "the wall of money" 😳
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🇪🇺 European Retail Sales are trending down in real terms
With everyone focussed on the US, is Europe the more concerning story?
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Small caps are saying loudly today that the current level of long-term rates is an issue for them
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#ConnectingTheDots
On Friday, the US released employment numbers
Of particular note was strong wage growth for November, +0.6% m-o-m (>7% annualised)
US bond yields should have RALLIED on this highly inflationary signal, instead they FELL
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To be clear, even if banks recede from headlines in coming days, the credit crunch will continue
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🇪🇺 While everyone's focus is on US banks and lending, EU credit already contracts at a persistent pace
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I closed all bearish positions
Keeping the longs
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My view on what's next:
- ECB won't hike 50bps anymore tomorrow
- US will give blanket guarantee for all deposits
- Fed will pause next week
All good for bonds. Equities may squeeze on this before falling apart, but uncertain on sequence
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I just published a new post. In it:
- Why a recession may finally come in '24
- How I've positioned in light of a market that is very long equities and very short the US Dollar (not advice)
It is free, if you like it, please share it!
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1-
#ConnectingTheDots
Commodities/Oil & Gas
We are currently in the ~4th inning of an economic slowdown
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Equity L/S Hedge Funds have high gross and low net exposure
Their short side is stuffed with high beta "trash". Regional Banks, Solar, Unprofitable Tech, Small Caps etc.
Their pain trade is these areas squeezing. This can become self-fulfilling as they are forced to cover
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So far this year, the drawdown of the Treasury General Account has de-facto neutralised QT
This changes from next week until mid-May, as taxes are paid and the TGA grows again
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Hard to see how this 30-year auction is not bearish
Supply issue front-of-mind again and equity sentiment very bullish
I am adding to equity downside bets on this
Could be wrong, not advice
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QRA:
Some coupon increase, especially in 2-7 year, but also 10-30 year
Removes the conspiracy bull case "The Treasury will manipulate markets to S&P = 6000"
Medium term = headwind on assets
Short term = FOMC tonight will dictate next move
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Delta Airlines is a great example for the margin crush corporates to come that I've discussed in many recent posts
Pricing power wanes but labor costs keep rising
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Small caps down while yields are down this week = not a bullish sign
Could be consolidation after last week's squeeze. Still, something to pay close attention to
Remember, small caps employ 50% of Americans
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🇩🇪 German factory orders are rolling over - when will the DAX follow?
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🇩🇪 Defence Minister Pistorius states in an interview today that Europe has 5 years to re-arm
Putin has the Baltics in sight, and is ramping up military production at a very aggressive pace
He is one of the few paying attention
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The slack in the global supply chain now exceeds the '08/'09 financial crisis
Goods inflation is dead, for now
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🇺🇸 US job cuts year-to-date are the highest since 2009
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I just published a new post. In it:
- Politics panicked and loosened fin. conditions
- Near term relief is traded for higher LT inflation
- Long Russell now for a short squeeze (not advice)
It is free, if you like it, please share it!
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I will be reaching for some US equity downside on the futures open. I see the very near-term path bearish into the week's first long-end auction on Wed
Beyond that I see several diverging, possible scenarios. I will lay these out in a post tomorrow
As always, could be wrong
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#Liquidity
This past year, the S&P 500 has tracked "Net Liquidity" closely
Over the next two weeks, this measure faces a ~$150bn headwind ⚠️
The Treasury Account increases by $80bn with tax payments + $60-90bn QT rolls off between today and month end
@kittysquiddy
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🇺🇸Soft landing seems unlikely, at least for US corporate profits
Expect a significant step down by Q2 (still some months away)
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🇺🇸 Dallas Fed Bank Survey shows a significant decline in loan volume post the Silicon Valley Bank crisis
The credit crunch is happening now, not at some vague date in the future⚠️
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Think we are entering short squeeze territory
Hedge funds have low net exposure and are short small caps, unprofitable Tech, biotech etc.
A panic-cover bid seems possible here
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#ConnectingTheDots
Lots of focus on what the Fed will do next, and whether inflation comes down
That is the WRONG debate
Yes, inflation has PEAKED. Yes, it will come DOWN
But why is the 10-Year is UP, despite declining inflation expectations?
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My current probabilities how the Treasury rout ends:
40% Equities sell off, growth outlook changes, gives bonds a bid
40% They drop until policy changes. UK gilt crisis playbook
10% Yields stabilise by themselves
10% Crack-up boom, yields and stocks keep rising
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I just published a new post. In it:
- The treasury rout likely needs a catalyst to end
- Equities are at risk just as the market bats for a rebound
- How I plan to play the coming weeks (not advice)
It is free, if you like it, please share it!
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The true measure of Central Bank liquidity?
Rolex prices stabilised since the Fall
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NAAIM Active Manager Exposure highest since April '22
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🇩🇪 German 2-Year interest rate now the highest in 14 years, from negative (!) just 12 months ago
The lags of monetary policy are supposedly "long and variable" - Milton Friedman
What could go wrong?
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🇺🇸 I mentioned increasing signs of labor market weakness in my post yesterday
Today's NFIB survey provides another datapoint in that trend, with Small Biz Hiring Plans now the lowest in 7 years
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Downside protection appears very cheap right now
"Hedge when you can, not when you must"
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1- BofA sees March wage growth down to +2%, based on their deposit data
This is significantly below other recent measures of wage growth (e.g. Atlanta Fed, NFP)
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Another argument that speaks for rotation within equities from leaders to laggards
Hedge Funds are maxed out on the Magnificent 7
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Happy Thanksgiving!
I just published a new post. In it:
- Why I have exited my equity long exposure
- Why I see increasing risk to European economies
It is free, if you like it, please share it!
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On the history of real rates (1/3)
Historically, many lengthy periods where real rates where depressed for a long time
Typically involved war or disease
1984-2021 the second longest on record
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How will we explain to our children that Europe de-facto financed Putin's war?
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Yesterday, equities sold off despite strong data and lower yields = good news in the price
Today, the NAAIM positioning survey shows a reading of 97 = near its historic max
Bond yields are pushing up
Equity downside risk now up materially, IMO. I've adjusted accordingly
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🇺🇸 Consensus is now convinced that US bond yields can *only* go higher
Time to buy Treasuries $TLT (and time to cover equity shorts)
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I wrote in my last post that I would buy the 2-Year on a bounce (in yield). I just did that
ISM Services employment component is falling off a cliff
Goods econ mislead everyone about direction of econ cycle in '22/'23, and think odds are it will again do so in '24
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I just published a new post. In it:
- 3 critical questions for the path ahead
- 3 scenarios that follow from them
- Very near-term bearish again. Need to see the dust settle for view beyond
It is free, if you like it, please share it!
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