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KAOBOY MUSINGS and its associated podcast KAOS THEORY focus on the intersection of Financial Markets, Macroeconomics and Geopolitics. I've spent 30+ years as a trader/hedge fund manager and now manage money for my family office across many asset classes.

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* Inflation Substack Directory *

Michael Kao

Oct 21, 2023

2/23/21 - Re: Crude Oil-Best Inflation Hedge?

Re: Oil-Best Inflation Hedge?

Michael Kao

February 23, 2021

From JP Morgan: “Energy outperforms other sectors when US headline CPI is above 2% and rising. However, on a volatility-adjusted basis, returns from energy are largely comparable to the broader BCOM.”Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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3/8/21 - Re: Crude Oil/Macro-This Butterfly Has Big Wings.

Re: Oil/Macro-This Butterfly Has Big Wings.

Michael Kao

March 8, 2021

Re: Oil/Macro-This Butterfly Has Big Wings.

“Capex commodities” include lumber and industrial metals that are required for building things. “Opex commodities” like food and especially energy/oil (the biggest cap-weighted commodity by far) are consumed on an ongoing basis just for human survival.

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4/30/21 - Re: Crude Oil/Inflation-Feedback Loops & Weimar Discussion.

Re: Crude Oil/Inflation-Feedback Loops & Weimar Discussion.

Michael Kao

April 30, 2021

Re: Crude Oil/Inflation-Feedback Loops & Weimar Discussion.

Here is that video:

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5/13/21 - Re: Oil/Inflation-“Are we headed for Weimar, or is it just Hyperinflation Hyperventilation?” / Our Geographic Advantages.

Re: Oil/Inflation-“Are we headed for Weimar, or is it just Hyperinflation Hyperventilation?” / Our Geographic Advantages.

Michael Kao

May 13, 2021

Re: Oil/Inflation-“Are we headed for Weimar, or is it just Hyperinflation Hyperventilation?” / Our Geographic Advantages.

My Thesis: It will create inflation for sure, but this in and of itself will force a self- correcting negative feedback loop that may prick asset bubbles but will prevent a much worse positive feedback loop that eventually breaks the system. When you analyze a company’s creditworthiness, you have to focus not just on its cashflow/income statements, but a…

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5/21/21 - Re: Mental Models-Bubble Assets As Capacitors.

Re: Mental Models-Bubble Assets As Capacitors.

Michael Kao

May 22, 2021

Re: Mental Models-Bubble Assets As Capacitors.

I mentioned that there many examples of “Financial Hernias”: “Bubble” assets that have benefited most from low/neg risk-free rates and too much EXCESS LIQUIDITY: Crypto, NFTs, SPACs, high tech stocks/stonks, etc. The problem with the “Hernia” Mental Model is that Hernias are injuries resulting from excess pressure. In financial markets, the injury comes …

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5/28/21 - Re: Mental Models-Inflation Feedback Loops As Recursive Algos.

Re: Mental Models-Inflation Feedback Loops As Recursive Algos.

Michael Kao

May 29, 2021

Re: Mental Models-Inflation Feedback Loops As Recursive Algos.

In computer science, a RECURSIVE function/algorithm involves a function that calls itself, much like the mythological “Ourobouros” consumes itself — there is no seeming end to a recursive loop. A simple example of a problem easily solved by recursion is a function that computes the factorial of a number n. Recall that factorial(n) is mathematically repre…

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1/30/22 - Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Michael Kao

January 31, 2022

Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Last year I got captivated by octopuses (these things happen) and read several books on cephalopod consciousness, and an interesting word caught my eye: “Umwelt.” “Umwelt”: “the world as it is experienced by a particular organism.” For instance, it is hard for us vertebrates to envisage the umwelt of an octopus that has invertebrate, distributed intellig…

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5/22/22 - Re: Inflation-"Ride of the Volkyries" Thoughts.

Re: Inflation-"Ride of the Volkyries" Thoughts.

Michael Kao

May 22, 2022

Re: Inflation-"Ride of the Volkyries" Thoughts.

-Overton Window has shifted from protecting asset values to creating demand destruction via recession if necessary to tame inflation. -Those expecting a quick return to QE are going to get rug-pulled. -He quotes Bill Dudley: "one way or another, to get inflation under control, the Fed will need to push BOND YIELDS HIGHER and STOCK PRICES LOWER." (emphasi…

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6/23/22 - Re: Inflation-The Case for Bear Steepening/Why The Fed Won’t Pivot Soon.

Re: Inflation-The Case for Bear Steepening/Why The Fed Won’t Pivot Soon.

Michael Kao

June 24, 2022

Re: Inflation-The Case for Bear Steepening/Why The Fed Won’t Pivot Soon.

I have written several Musings in the past several months on this theme and have collated them here in an ad hoc thread: This thread attempts to structure the argument more cogently and explain why I think a Bear Steepener might be the Fed/Tsy’s best hope of engineering a “Controlled Demolition” of asset prices WITHOUT engineering a CREDIT CRISIS.

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7/18/22 - Re: Inflation-Demographics & Secular Stagflation.

Re: Inflation-Demographics & Secular Stagflation.

Michael Kao

July 19, 2022

Re: Inflation-Demographics & Secular Stagflation.

I agree with @FedGuyI2 that DEMOGRAPHICS are going to be a key driver of SECULAR INFLATION, but I arrive at slightly different conclusions regarding the primary drivers.Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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8/20/22 - Re: Inflation/Macro-Asian Contagion 2.0?

Re: Inflation/Macro-Asian Contagion 2.0?

Michael Kao

August 21, 2022

Re: Inflation/Macro-Asian Contagion 2.0?

Pretty much everything on my list has since been litigated ad nauseum by everyone EXCEPT for my allusion to “’97-’98” which I will dub “Asian Contagion 1.0,” or “AC1” for short. No, I’m not talking about a pandemic; I’m talking about a CURRENCY CRISIS and its impacts on everything else.

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9/20/22 - Re: Inflation/Real Estate-Around The World In 90 Minutes.

Re: Inflation/Real Estate-Around The World In 90 Minutes.

Michael Kao

September 21, 2022

Re: Inflation/Real Estate-Around The World In 90 Minutes.

As the only non-RE specialist on the panel, I was invited to give a big picture macro backdrop. I opened the discussion with my thesis of the last 18 mos: The return of STRUCTURAL INFLATION spells the END OF THE LIQUIDITY LOTTERY of the last several decades and has far-reaching ramifications on Risk Assets of ALL stripes, from Equities to Bonds to Real E…

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10/8/22 - Re: Inflation/Geopolitics-Geopolitical Mosh Pits & Sovereign Debt Endgames.

Re: Inflation/Geopolitics-Geopolitical Mosh Pits & Sovereign Debt Endgames.

Michael Kao

October 9, 2022

Re: Inflation/Geopolitics-Geopolitical Mosh Pits & Sovereign Debt Endgames.

I am not just talking about the obvious geopolitical conflicts like Russia/Ukraine or China/Taiwan/US. I am talking about conflicting ECONOMIC incentives between regions even among traditionally allied economic/geopolitical blocs. STRUCTURAL INFLATION is at the HEART of the matter, not just from an energy/resource scarcity dynamic, but also from the CONF…

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11/17/22 - Re: Inflation/Real Estate-Train Wreck In Progress.

Re: Inflation/Real Estate-Train Wreck In Progress.

Michael Kao

November 18, 2022

Re: Inflation/Real Estate-Train Wreck In Progress.

First, we heard from a REIT operator for some public market perspectives. A couple of choice quotes that summarize the current zeitgeist:Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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1/11/23 - Re: Inflation/USD Wrecking Ball-Who's Gonna Out-Hawk the Fed?

Re: Inflation/USD Wrecking Ball-Who's Gonna Out-Hawk the Fed?

Michael Kao

Jan 12

Re: Inflation/USD Wrecking Ball-Who's Gonna Out-Hawk the Fed?

I've been expressing this sentiment for a while. CB's can jawbone, but they have yet to back up tough talk with tough action.

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2/25/23 - West Point Paper: “US Dollar Primacy in an Era of Economic Warfare”

West Point Paper -- Part 1/4

Michael Kao

Feb 25

Introduction US national security is now firmly focused on Great Power Competition (GPC) and how to reorient policies to face the country’s challengers. Competition with China in particular is now front- of-mind, but the list of additional challengers will likely grow. The US-led Rules-Based Order (RBO) is changing in an increasingly multipolar world. Ne…

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3/11/23 - Re: Geopolitics/Inflation/USD-Ball In A China Shop.

Re: Geopolitics/Inflation/USD-Ball In A China Shop.

Michael Kao

Mar 11

Re: Geopolitics/Inflation/USD-Ball In A China Shop.

While the past week in the financial markets has revolved around the demise of Silicon Valley Bank and the ramifications therein, I personally don’t think the extremely poor risk management practices of a bank focused on banking the most speculative sector of the economy will lead to a major domestic banking crisis. Consequently, I do not believe it der…

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3/26/23 - Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

Michael Kao

Mar 26

Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

In recent weeks, I have read many incorrect and misleading takes on Twitter by folks who are decrying recent interest rate volatility as some kind of “false advertising” of the term “Risk-Free” when it comes to US Treasury securities (USTs). These takes go something like this:

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4/2/23 - Re: Oil/Inflation/USD-Clash of the Titans.

Re: Oil/Inflation/USD-Clash of the Titans.

Michael Kao

Apr 3

Re: Oil/Inflation/USD-Clash of the Titans.

The Greek mythology nerd in me can’t help thinking about this old 80’s flick given today’s surprise OPEC+ cut:

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5/6/23 - Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

Michael Kao

May 6

Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

The Clash of the Titans between the Fed & OPEC+ could cause a Toxic Tug-of-War between Inflation and Deflation with a "Squid Game" outcome. I will build my case with several key observations.Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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6/17/23 - Re: Geopolitics/Demographics/Inflation - The Great Power Competition Between US & China.

Re: Geopolitics/Demographics/Inflation - The Great Power Competition Between US & China.

Michael Kao

Jun 17

Re: Geopolitics/Demographics/Inflation - The Great Power Competition Between US & China.

Introduction As a child of parents who fled from China to Taiwan in 1949 and then immigrated to the United States, you could say that I’ve been following the topic of US/China/Taiwan relations closely my entire personal and professional life. The global

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7/29/23 - Re: Inflation/Real Estate - CRE Trends / The Strong US Consumer & The "Ivan Drago" Fed.

Re: Inflation/Real Estate - CRE Trends / The Strong US Consumer & The "Ivan Drago" Fed.

Michael Kao

Jul 29

Re: Inflation/Real Estate - CRE Trends / The Strong US Consumer & The "Ivan Drago" Fed.

For the last several quarters, I’ve participated in several private roundtable discussions alongside a group of CRE developers/operators as well as public REIT CEOs. Here is the last summary I wrote up from last year: This week, I presented alongside such a panel of experts again, where I closed with my Macro views. This is a summary of my learnings and …

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9/6/23 - Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

Michael Kao

Sep 6

Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

I recently wrote a piece in which I compared the Fed to Ivan Drago, who famously said “I must break you” to Rocky in Rocky IV. As with most analogies, this one is imperfect, because in my Bizarro version of this tale, the Ivan Drago Fed will be the last man standing in its Inflation Fight.

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10/21/23 - Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Michael Kao

Oct 21

Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Revisiting Bear Steepening In June, 2022, I wrote a thread that proposed an “out-of-the-box” solution to the Fed’s dilemma of how to cure Inflation without potentially also creating a Credit Crisis. In short, I said that the Fed and Treasury needed to work together to

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