Bonds!

[cubsfan]

38 minutes ago, Malmqky said:

I remember when we got a new director at work, and we were going to clear out the backlog, get rid of DB2/mainframe completely, refactor half our code bases, and migrate everything to Azure in a three year timeframe.

 

Three years later, guess what actually happened?

 

Haha - I sold mainframe software- and I remember all those attempts starting in 1990!  Here we are 35 years later with DB2 data bigger than ever. 

 

Not so easy...

[weighingmachine]

when a Unix server goes down you have a bad weekend.

when a mainframe goes down the earth stops rotating on its axis.

[Spooky]

54 minutes ago, gfp said:

I am looking forward to Warsh actually starting his job so we can start dispensing with all this "Warsh will be different" chatter that we are SO sure of

 

I would hate to be Warsh right now coming in to lead the Fed when the economy is facing down stagflation due to the Iran war. Going to be some hard decisions ahead. 

[Gregmal]

12 minutes ago, Spooky said:

 

I would hate to be Warsh right now coming in to lead the Fed when the economy is facing down stagflation due to the Iran war. Going to be some hard decisions ahead. 

Definitely shouldn't be that hard. Stagflation is some made up term by macro nerds. If the economy is in the shitter and prices are considered high with no demand, almost exclusively because of a one off like a war, stimulus is the correct monetary policy as it will simply make those items "less" expensive. Even dumb dumb Jerry Powell just recently admitted the war is not something thats gonna be a reason to consider rate hikes. 

[cubsfan]

20 minutes ago, weighingmachine said:

when a Unix server goes down you have a bad weekend.

when a mainframe goes down the earth stops rotating on its axis.

 

That's why they don't go down!

[Castanza]

22 minutes ago, weighingmachine said:

when a Unix server goes down you have a bad weekend.

when a mainframe goes down the earth stops rotating on its axis.

 

That's when they call the guy who's been retired for 10 years and offer him a sweet sweet incentive to come back for a year. 

[Marco Van Basten]

57 minutes ago, Spooky said:

 

I would hate to be Warsh right now coming in to lead the Fed when the economy is facing down stagflation due to the Iran war. Going to be some hard decisions ahead. 

Why do you think we are facing stagflation?  Yes, healthcare costs are continuing to rise sharply, but in NYC, a hospital chain is trying to replace radiologists  with AI which should help costs, meanwhile housing costs seem to be coming down around the country or flat, with the exception the NYC metropolitan area.  300,000 federal employees have been fired by Trump, is that not good for price stability?   Until the Iran war started, budget deficit seemed to be coming down by several hundred billion dollars, that also tends to be good for price stability.

[Spooky]

20 minutes ago, Marco Van Basten said:

Why do you think we are facing stagflation?  Yes, healthcare costs are continuing to rise sharply, but in NYC, a hospital chain is trying to replace radiologists  with AI which should help costs, meanwhile housing costs seem to be coming down around the country or flat, with the exception the NYC metropolitan area.  300,000 federal employees have been fired by Trump, is that not good for price stability?   Until the Iran war started, budget deficit seemed to be coming down by several hundred billion dollars, that also tends to be good for price stability.

 

Roughly 20% of the world's oil & gas went through the straight of Hormuz which has now ground down to a halt and energy infrastructure in the gulf has been damaged and could take 3-5 years to repair. The war is considered the largest oil shock in history. Pretty simple to see that unless they can get the straight open again quickly, which is unlikely, energy prices will remain elevated for a long time which will feed into inflation. It is also having an impact on other products like helium and fertilizer. US is in a better position than most but that is a big blow. Fed should probably look through the shock when setting rates but Powell came out lately and said they can't ignore elevated inflation for long.

 

I'm not a macro forecaster and I'm not betting accordingly but the above seems logical to me as one scenario to consider.

 

I don't know why anyone would want to be Fed chair TBH.

Edited April 1 by Spooky

[rogermunibond]

I don't think we're looking at a stagflation scenario.  The 70s scenario was GDP contraction, high unemployment AND high inflation.

 

2026 scenario looks like positive GDP growth, low unemployment, AND possibly rising inflation.

 

Bigger drivers of growth like federal budget, OBBB tax refunds, and AI capex will likely keep driving GDP growth.

Edited April 1 by rogermunibond

[gfp]

13 minutes ago, Spooky said:

I don't know why anyone would want to be Fed chair TBH.

 

Imagine you have low inflation, near the target you set because you really don't want zero inflation, and then a war pushes the price of certain commodities up and you are the Fed chair tasked with deciding precisely what level of overnight interest rates will result in lowering those commodity prices.

 

The answer is - you have absolutely no power over oil / commodity prices unless you can manage to cause a recession/depression big enough to destroy sufficient demand for those commodities.

 

There isn't a magic level of overnight interest rates that re-opens a waterway or pumps more oil.

 

Meanwhile high oil prices are more like a tightening / tax than "inflation" so you should probably not be piling on with more tightening but, you know... CPI number go up

[Gregmal]

11 minutes ago, gfp said:

The answer is - you have absolutely no power over oil / commodity prices unless you can manage to cause a recession/depression big enough to destroy sufficient demand for those commodities.

 

There isn't a magic level of overnight interest rates that re-opens a waterway or pumps more oil.

 

Meanwhile high oil prices are more like a tightening / tax than "inflation" so you should probably not be piling on with more tightening but, you know... CPI number go up

It’s stunning to me, how like clockwork every time there’s an oil spike, people fall for this sorta “Fed inflation pickle” thesis. A close comedic relative to the “Fed gonna have to hike because of tariffs” thesis that….never even remotely happened.

Edited April 1 by Gregmal

[TwoCitiesCapital]

3 hours ago, Blake Hampton said:

But how will Warsh respond during a crisis?

 

He will do what every Fed chairman before him has done. 

 

When confronted with systemic failure that will be blamed on him due to inaction or inflation to save the system, he will choose inflation. 

 

Nobody is going to take the blame for the system failing on their watch even if it's failure is inevitable and the summation of all the bailout decisions made before their time. 

 

They will kick the can down the road until kicking it becomes ineffective. At that point, you'll probably be using the currency to keep your fire lit for warming your home. 

[gfp]

It's a lot cheaper for the government to nip a crisis in the bud before too many dominoes fall than it is to run the massive deficits a "great recession" or depression causes.  The flip side is that old dude in Nebraska doesn't get to go grave dancing like he used to.  Plus we get a fun new acronym each time.  BTFP?  Was that the latest one?

 

Maybe the next one will be PCPG - the "Private Credit Parking Garage" where you can park your suspect loans for 12 months at 100 cents on the dollar and figure it out next year.

Edited April 1 by gfp

[dcollon]

PCPG is really f'ing funny.  Thank you for the laugh gfp

[Spooky]

4 hours ago, rogermunibond said:

I don't think we're looking at a stagflation scenario.  The 70s scenario was GDP contraction, high unemployment AND high inflation.

 

2026 scenario looks like positive GDP growth, low unemployment, AND possibly rising inflation.

 

Bigger drivers of growth like federal budget, OBBB tax refunds, and AI capex will likely keep driving GDP growth.

You could certainly be right. The oil intensity of global GDP has decreased significantly from the 1970s.

 

Increased energy and food inflation will be discounted by the Fed in any event.

 

I just hope this war ends soon.

[Spooky]

4 hours ago, gfp said:

 

Imagine you have low inflation, near the target you set because you really don't want zero inflation, and then a war pushes the price of certain commodities up and you are the Fed chair tasked with deciding precisely what level of overnight interest rates will result in lowering those commodity prices.

 

The answer is - you have absolutely no power over oil / commodity prices unless you can manage to cause a recession/depression big enough to destroy sufficient demand for those commodities.

 

There isn't a magic level of overnight interest rates that re-opens a waterway or pumps more oil.

 

Meanwhile high oil prices are more like a tightening / tax than "inflation" so you should probably not be piling on with more tightening but, you know... CPI number go up

You make the rational decision and everyone still hates you anyway!

[Spooky]

4 hours ago, Gregmal said:

It’s stunning to me, how like clockwork every time there’s an oil spike, people fall for this sorta “Fed inflation pickle” thesis. A close comedic relative to the “Fed gonna have to hike because of tariffs” thesis that….never even remotely happened.

 

You are mostly correct. The tariff issue was a clear one time price hike so the fed was right not to act. Here there is still a lot of uncertainty in terms of how this war will develop and its impact on the global economy. It's not looking pretty for Europe and Asia. If this thing drags on or escalates and inflation expectations start creeping up the fed might need to act. Let's hope it doesn't come to that.

 

This Eye on the Market piece from JPM was pretty good, goes into a lot of detail about the impact of the energy shock so far: https://cdn.jpmorganfunds.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/pandoras-bog-amv.pdf

 

 

[Gregmal]

11 minutes ago, Spooky said:

 

You are mostly correct. The tariff issue was a clear one time price hike so the fed was right not to act. Here there is still a lot of uncertainty in terms of how this war will develop and its impact on the global economy. It's not looking pretty for Europe and Asia. If this thing drags on or escalates and inflation expectations start creeping up the fed might need to act. Let's hope it doesn't come to that.

 

This Eye on the Market piece from JPM was pretty good, goes into a lot of detail about the impact of the energy shock so far: https://cdn.jpmorganfunds.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/pandoras-bog-amv.pdf

 

 

I think it really just comes down to people understanding that prices rising because of an overheating economy and supply/demand instability...is a monetary policy issue, and prices rising because of external issues totally unrelated to the economy or fiscal policy, is not. As GFP said, Fed has no ability to control oil prices and higher energy prices themselves are the equivalent of tightening. 

[Spooky]

1 hour ago, Gregmal said:

I think it really just comes down to people understanding that prices rising because of an overheating economy and supply/demand instability...is a monetary policy issue, and prices rising because of external issues totally unrelated to the economy or fiscal policy, is not. As GFP said, Fed has no ability to control oil prices and higher energy prices themselves are the equivalent of tightening. 

 

Yea I agree. There will also potentially be some demand destruction so could slow the economy offsetting inflation.

[rogermunibond]

@Spooky my comment on stagflation was only about the US economy.

 

Yes, oil intensity of growth has lowered but that's mostly developed economies.

 

there's going to be real chances of stagflation in emerging and frontier economies - Egypt, Pakistan, India, SE Asia etc.

 

very good chances (if the oil price stays high for 1 year) that we could see geopolitical tensions rise and govts overthrown.

 

many of the emerging economies are burning through USD currency reserves to keep gasoline/diesel/kerosene costs contained and then they may have to do the same for grains and seed oils very soon.

 

 

[gfp]

1 minute ago, rogermunibond said:

many of the emerging economies are burning through USD currency reserves

 

well its nice to see someone acknowledge this.  I'm used to hearing "they are choosing to ditch the dollar!!"

[rogermunibond]

Developed market central banks have diversified from the dollar.

 

Emerging CBs are a lot more dependent on USD reserves iirc

[Marco Van Basten]

There might be a number of deficit lowering provisions in the big beautiful bill that have not had a chance to impact the budget deficit yet.   Cuts to the food stamp program come to mind for instance, another is the crackdown on Medicaid for able bodied adults.  

According to an article in the Yale Daily News, the endowment tax is only going into effect this July.  So while it is not a meaningful amount - say $3-10bn per annum in increased taxes, the more interesting question is are there other taxes and spending cuts that did not go into effect in July of 2025, but were delayed?  If so, what will be the impact on the deficit.  Before the Iran war, the deficit has been coming down in absolute dollars, and even more so as a % of GDP.  If you have Medicaid, food stamps & other social services cuts + endowment tax increases, you could see the deficit cut by another $100-200bn per annum.   So down from $1.8 trillion or 6.4% of GDP in fiscal 2024, and adjusting for timing shifts, it was $1.905 trillion according to Peter Peterson foundation.  In fiscal 2025, it was $1.8 trillion or 5.9% of GDP, and in the calendar 2025, it fell to $1.7 trillion.  Assuming that the Iran was is over in a month, and say $200bn of cuts & tax increases kick in from Big Beautiful Bill, the deficit shrinks to $1.5 trlllion, stick too high, but under 4.7% of GDP based on 2027 forecasts.  

[rogermunibond]

 

 

CGB ETFs doing good.

 

https://giftarticle.ft.com/giftarticle/actions/redeem/7e4c4249-23b1-4f90-8d5c-e7d2be08f765

 

[gfp]

WSJ article on how dumb it is to expect central banks to increase rates due to this spike in oil prices.  Author wishes he bought the 2 year at 4% but of course it was gone in an instant.

 

"gift article link"

https://www.wsj.com/economy/central-banking/pain-at-the-pump-should-mean-pain-in-the-economy-not-higher-rates-02fbd9ba?st=R4Dh4C&reflink=desktopwebshare_permalink