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ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).
As always, I start with my Musings of the Day, followed by broad THEMES that bubbled up to the surface.
As always, I start with my Musings of the Day, followed by broad THEMES that bubbled up to the surface.
3/19/23:


3/20/23:


3/21/23:

3/22/23: FOMC Decision = 25 bps

Spoke on this Twitter Space Panel today:
3/23/23:


3/24/23:

THEMES OF THE WEEK:
THEME 1:
RISK-ON / RISK-OFF DRIVEN BY VOLATILITY IN RISK-FREE RATE EXPECTATIONS.
IF RISK-FREE RATE IS THE BEDROCK UPON WHICH ALL RISK ASSETS ARE VALUED, THEN THE VOLATILITY IN RISK ASSETS IS JUST THE “TIP OF THE WHIP”!




THEME 2:
RIFLE-SHOT POLICY PRECLUDES BAZOOKA POLICY.
THESE RING-FENCED ACTIONS ARE NOT QE.
DEPOSITOR BAILOUTS ARE USUALLY TERRIBLE FOR INVESTORS.
BTFP ≠ BTFD AND FED IS NOT DONE.





THEME 3:
BY THE TIME THE FED FEELS THE NEED TO PUT OUT FIRES HERE, IT WILL LIKELY BE SCORCHED EARTH ELSEWHERE.
WHO IS GONNA OUT-DOVE THE FED?











THEME 4:
OIL SUPPLY CURVE LIKELY TO BECOME MORE SUPPLY INELASTIC NEXT FEW YEARS BUT THIS DOES NOT MEAN YOU CAN’T HAVE SHARP DRAWDOWNS FROM DEMAND SHOCKS.
BE CAREFUL OF PROCYCLICAL PLAYS IN SHORT TERM.





THEME 5:
USD FX SWAPS ARE A SIGN THAT USD SHORTAGE IS ACUTE AND HIGHLIGHTS HOW ENTRENCHED USD SYSTEM IS.
ANOTHER EXAMPLE OF EXPENSIVE, COLLATERALIZED RING-FENCING, BUT ONLY TO ALLIES.




THEME 6:
CHINA SLOWDOWN/CNY DEVALUATION IS THE BIG ELEPHANT IN THE ROOM — ESPECIALLY WHEN WE DON’T EXTEND FX SWAPS TO OUR BIGGEST GEOPOLITICAL RIVAL.







THEME 7:
EPICENTER OF THIS CRISIS IS UNLIKELY TO BE IN BANKING SECTOR (AT LEAST DOMESTICALLY) AND MORE LIKELY TO BE IN LESS-REGULATED SHADOW BANKING SECTOR.
ICEBERGS IN SHADOW BANKING CAN TAKE A LONG TIME TO SURFACE.






THEME 8:
FED WANTS UNEMPLOYMENT TO BE MUCH HIGHER.
TRADEOFF BETWEEN DUAL MANDATE IS SIMPLY NOT HERE YET.








THEME 9:
USD/UST DOOMSAYERS OFTEN CONFLATE INTEREST RATE RISK WITH FUNDAMENTAL LOSS OF FAITH IN THE US, YET IN TIMES OF CRISIS THE WORLD INVARIABLY FLOCKS TO USTS AS THIS WEEK AS SHOWN.
SUPPLY INELASTIC COMMODITIES LIKE GOLD AND BTC CANNOT REPLACE USTS AS LIQUID RESERVES.
THE SWORD OF INELASTIC SUPPLY CUTS BOTH WAYS, AND IT IS A FATAL FLAW IN THE HAYEKIAN THESIS IN A WORLD ALREADY DEPENDENT ON FIAT.










THEME 10:
BEWARE OF SECURITIES HELD UP ARTIFICIALLY BY HIGH YIELDS OR IMPENDING MATURITIES/EVENTS, ESPECIALLY IF UNDERLYING CREDIT/FUNDAMENTALS ARE DETERIORATING.




ORDERED KAOS: Themes of the Week (3/19/23-3/24/23).
Great piece. I have a hard time keeping up with everything you put out, despite wanting to read it all.
Problem solved.
Excellent post, Michael.