Gold’s Dip Tied to Rising Yields, Not Inflation Fears
A guest on @business questioned this morning why anyone would buy gold when you can buy inflation protected securities yielding 2.7%. Excellent question. A few answers: First, maybe I misheard him, but TIPS yields are currently just a tad under 2% and have not been at 2.7%, see attached Bloomberg chart. But, sure, if you get close to 2%, that's competition to gold. It's worth noting that in my assessment, this is a key reason the price of gold fell when the Iran war started: bond yields rose, but inflation expectations did not budge, leading to higher long-term real yields. That's in part because the market so far has priced in the Iran war as a shock, not as a structural shift for markets. Note, though, that we are off those peak yields and the price of gold has recovered quite a bit. Second, the risk profiles for gold and TIPS are vastly different. When you purchase inflation protected securities, you are buying interest rate risk. Those favoring TIPS will argue that if you hold them to maturity, you don't care. That is correct -- what I would like to point out is that most do NOT understand how TIPS work - and that includes some well known academics that advocate them. In 2022, we wrote a primer on TIPS to de-mystify them: https://t.co/WqhVY5hQkH "Gold bugs" don't trust the CPI that TIPS yields are linked to. If so, keep in mind, you're still getting the CPI compensation, so there's that. It turns out gold is also an often misunderstood investment, although I would argue it's much simpler. I'm not arguing for or against TIPS versus gold here. They are very different. And yes, in some ways, they compete with one another, but it's a rather indirect competition. There's one other type of bond, often overlooked, so called I-Bonds. They are retail products, you purchase them directly from Treasury, see https://t.co/TINLeeHWjb ; they are much simpler than TIPS, worth exploring when short-term inflation is up. The "downside" of these is mostly that you are restricted to $10,000 per person per year in these. None of this is investment advice.
Market Will Adjust to Iran’s Transit Fee Pressure
Let’s assume Iran will impose a hefty transit fee, creating incentive for others to build new pipelines. It also increases pressure for the world to diversify their energy supply. -> the market will "solve" this over medium term regardless...
Rising Yields, Stable Inflation Expectations Pressure Gold
The market priced as a short-term shock, not structural change: bond yields rose, but long-term inflation expectations did not -> real yields moved rose, a headwind to price of gold.
Early Ceasefire Needed
“5/15..the [oil] storage..deficit becomes mathematically irreversible for winter 26/27... rationing...” “On 4/28,..spring nitrogen application window closes. No ceasefire..after..can restore '26 crop yields.” “ceasefire by 4/14..constitutes cascade deceleration [not recovery].“
Ground Invasion of Kharg Island Likely After Deadline
If I were betting, I’d say that after today’s deadline, a ground invasion of Kharg Island is coming. That would align with today’s bombing of the island; a serious escalation without targeting civilian infrastructure. And Trump would have succeeded in...
Sanders' AI Moratorium Risks Talent Exodus Abroad
Bernie Sanders calls for a 6 month AI moratorium, suggesting it would be good for privacy, well-being, democracy, wealth distribution. IMHO, a moratorium would mostly mean that the technology is going to advance abroad, including an exodus of talent. https://t.co/N894mtXzOU
Dollar Weaponization Reshapes Finance, Gold, and Investment Flows
The “weaponization of the dollar” has profound implications for financial plumbing, the dollar itself, and investment flows—including gold. @edwardfishman’s Chokepoints is a must-read on history/key players/dynamics. Thanks @nfergus for the recommendation. https://t.co/4AcmzUniud
Billionaire Tax Threshold Drops to $50 Million—You Might Be Next
For those who think a billionaire’s tax doesn’t affect them, the threshold has just been lowered to $ 50mm. At this rate, you’re next?!
Europe Backs US Iran Strategy, Prefers Covert Support
Europe is supporting US efforts in Iran, they just don't want to be seen doing so publicly: https://t.co/wmNKRdls6g
Fed Rate Path Likely Unchanged Under New Chair
WSJ's @NickTimiraos discusses the awkward Fed Chair transition to come, pointing to, amongst others, the "break" and "lack of continuity". That's mostly right, subject to an important caveat: Powell last December talked up productivity gains - a core argument by...
WTI‑Brent Spread Reveals Iran Market Tension
one of the more useful ways to track market tension in Iran is the spread between WTI and Brent crude (nearest contract). Here a 1 yr chart, lower pane shows the spread. src: BBG https://t.co/o0tLpkaSdP
Weekend Read: Paul Krugman on the Hormuz Shock
As a first for me, I'm recommending @paulkrugman as a weekend read/listen. @robin_j_brooks makes it possible with a discussion on the Hormuz shock. https://t.co/aQ64hxAHxb
CFTC Data Shows USD as Preferred Iran Hedge
CFTC positioning: USD as Iran hedge Chart: dollar weighted exposure in million dollars versus number of non-commercial participants (speculators) large dot: most recent small dots: last year grey dots: last 10 years green: long red: short src: BBG, Merk https://t.co/LDLtec7oXv
Gas Prices Outpace 2022; Long‑term Real Rates Rise
3w into conflict, gas prices on higher trajectory than in 2022 (Ukraine invasion). WTI 1M/6M spread off peak inversion, so are implied vols for WTI. 2YR inflation expectations on similar trajectory as 2022. LT inflation exp not reacting much...
Germany Expands Intelligence, Creating Its Own NSA
Separately, Germany is building its own version of the NSA. Germany's intelligence service is vastly expanding what has to date been a small section. https://t.co/v3wcztzBqI
Germany Loosens Arms Export Rules for Six Months
Germany to ease weapons export restrictions for 6 months to support Gulf states & Ukraine, according to @BR24. Previously, every single transaction had to be approved, now focus on reporting requirements.
Quadruple Witching Ahead; Options Hedging Fuels Today's Volatility
just a reminder that tomorrow is "quadruple witching" volatility today may in part be attributed to the hedging of options traders
Predict Gold's Price One Year From Today
Perfect day to ask the question... the price of $gold a year from now will be
Lagarde Leans on “Propagation” Amid Inflation Uncertainty
ECB's Lagarde is asked to be specific on inflation in a bad case scenario. Instead of Powell's "I dunno", Lagarde says: be patient, I'll expand. Longer speech on "particularly attentive to..." -- uses the magic word "second round effect" --...
Powell Shrugs Diesel Prices, Prefers Not Driving Trucks
Q: the question is whether we are concerned about Diesel prices. Powell: shakes his head before answering. I gather Powell's preferred commuting vehicle ain't no truck.
Powell Hints at Skipping SEP, New Chair Needed
Powell: if we ever were to skip an SEP (Summary of Economic Projections), this would be a good one. We just don't know. Um, the Fed does have the power to skip the SEP. But I gather it takes a new...
Markets Signal Persistent Oil Shock Beyond Short-Term
The market is gradually pricing in that this is more than a short-term oil shock. Below: white: oil futures curve, current blue: oil futures curve, a week ago orange: oil futures curve, 6 months ago https://t.co/8wQF3jaa8y
European Aid to Ukraine Fuels Iran War Effort
~200 Ukrainian anti-drone experts now deployed to the Middle East isn’t happening in isolation—Kyiv’s ability to provide that expertise depends heavily on continued European support at home. In that sense, Europe supports the war in Iran. https://t.co/XxqEEUt8f4
Fragmented Alliances Will Boost Global Security Risk Premium
"The ongoing rewriting of the rules of world order and the resulting fragmentation of global alliances in defense, trade and finance will raise the security risk premium across asset classes and geographies." @ctorresreporter writes in https://t.co/48SyYtQz8S
Analysts Predict Future Hikes Already Passed
A hallmark about most fancy analysts, including many I respect, is that they don't appear to be filling up at the gas station. Most of them talk about future price hikes in the coming days, not realizing that they have...
Regime Change Impossible; Short‑Term Pain Required for Strategy
A discussion with @CondoleezzaRice — she visited the White house a week ago. Very helpful as she makes it clear that regime change is not only not the goal, but not even feasible, pointing out that autocratic regimes are...
Markets View Iran Conflict as Brief, Not Prolonged Crisis
Rational arguments are made as to why the Iran war won't be over soon, even as it "should" be over to prevent an economic calamity. Yet the market prices this as a temporary shock. What gives? What's the market seeing that...
Deutsche Bank Repeats Risky Credit Expansion Despite Past Missteps
When the financial crisis was heating up, geniuses at Deutsche Bank opted to buy more "highly rated" tranches of mortgage backed securities. With that in mind, when I see that DB says they are expanding their private credit exposure, I...
AI Cuts Chores, Amplifies Mental Overload and Burnout
Will AI give you lots of free time? The opposite is happening: AI allows you to skip unproductive tasks, with the result that you constantly focus on complex topics, risking cognitive overload and burnout. https://t.co/mKYhukwThs
Crude and Gas Prices Mirror Each Other After Nine Days
9 trading days into the conflict, crude and gas price trajectory has been very similar oil: https://t.co/O0orfuxpnw
Two-Year Oil Futures Spike Since
Oil price futures, 2 years out: White: current blue: a week ago purple: 6 months ago Source: Bloomberg. https://t.co/IjF2clfIGe
Markets Price Supply Shock, Real Rates Rise
FWIW/IMHO: markets are pricing in a supply shock. Different from the pandemic, no expectation of rate cuts that wouldn't help. Real rates up.
Fed's Massive Balance Sheet, Not Warsh, Needs Trimming
"Kevin Warsh Isn’t Crazy, the Fed’s Big Balance Sheet Is" The obvious path to shrink the Fed's balance sheet is to go back to a corridor system. It worked for over 100 years as @josephsternberg points out. The problem: the establishment...
EU Debt Issuance
If the EU were only able to issue its own debt, imagine the possibilities… Yeah, imagine if you gave EU bureaucrats the power to spend an astronomical amount in addition to its power to regulate https://t.co/KAqbSOG71R