Discover more from Kaoboy Musings

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.

Over 10,000 subscribers

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

Just read Zoltan Pozsar's excellent piece dated 5/13/22 and it corroborates a lot of my own views. Here are my thoughts.

Michael Kao

May 22, 2022

-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." (emphasis mine).

-As most of you know, I have been calling for a BEARISH STEEPENING.

Michael Kao @UrbanKaoboy

Musing of the Night: Some important nuggets out of tonight's banter about inflation and why I think Bearish Steepening might be a policy tool of QT.

Michael Kao @UrbanKaoboy

@vtKMH @PauloMacro Don't disagree, which is why I've held this Bearish Steepening view. Just like QE was the primary easing tool once we hit the zero bound, QT/Bearish Steepening can be the primary tightening tool if we're constrained at the front-end. Just my 2c.

-"Good is bad" - rallies, strong household balance sheets "mean the Fed needs to lean against the wind harder to shock demand lower."

-I would add that any fiscal policies that are STIMULATIVE would further embolden the Fed.

-"Consider the possibility that the Fed, on a singular mission to slay inflation, won't rest in its pursuit of tighter financial conditions until YIELDS SHIFT HIGHER, STOCKS FALL MORE, AND HOUSING TURNS AS WELL." (emphasis mine)

-"The crypto sell-off is just an unexpected bonus..."

I wrote last year about the transmission mechanism:

Opex commodity inflation -> hawkish Fed->higher rates->lower asset prices

Michael Kao @UrbanKaoboy

Re: Crude Oil/Macro-This Butterfly Has Big Wings. In this thread, I explain my theory on why commodity price inflation in what I call “capex/opex commodities” (vs. “store-of-value” commodities) is an ominous harbinger for risk assets. (Cont’d) #Oil #CrudeOil #inflation

Here are my Meta-Threads on

Inflation:

Michael Kao @UrbanKaoboy

* Inflation Meta-Thread *

Oil:

Michael Kao @UrbanKaoboy

Re: Crude Oil Meta-Thread. As I did with the GSEs, I’m going to create a “meta-thread” here that collates past threads and appends new threads. Cont’d.