Thread by @gamesblazer06

Real Rates... don’t rise initially in a V Recovery from a Deep Recession.. the Reason u get a V is coz of Low Rates with the Rate Sensitive Consumer.
#CreditCycle

It’s simple aggregate Duration + Convexity math of Monetary + Fiscal Stimulus (Every Recession sees both).. It works a lot better at Peak Unemployment & Trough GDP than vice versa.. coz of a Mean Reverting Consumer’s Human Nature that oscillates between Fear & Greed.

The linear part is rates (duration)... the non linear part of price improvement (convexity) is a return to normalized unemployment over time that’s bridged by monetary + fiscal stimuls. This is time is a much bigger kicker coz trough is deeper.

#Reflation

Add Duration & Convexity together & u get a Powerful Recovery.. that will not necessarily continue to go up in a straight line..coz of Covid incremental shuts (less & less of a spending shock with each wave).. but whoever wins in November is gonna want to own a 23% Savings Rate.

& Macro accounts perhaps figuring out what Buffett already knows... Long Bonds 2 Moon is an issue & is harbinger of slow down w Inverted Curve at Mid or Late Cycle.. not in a Massive Recovery w Positive Curve.. where Break Evens & Copper lead the way out..

... Context is key.. when u look at signals imho.. all it says now is the Fed wants to reduce the Provisioning/Reserve losses for Banks with 👆 Asset Prices.. key for an earnings recovery... & thawing of Peak Tight Lending Standards... with a flood of .. that’s good...

...Long Bond (In a Recovery) is now expressing fact there is
coming out of the pores of every GSIB Sheet & they are buying + Agencies & Reverse Repo..for now.. coz nowhere to put XS .. but at same time Credit Costs are healing... even more important than NIM.

plus NIM getting incrementally more useless..it’s about NII Dollars..now Deposit costs are close to <10bps (across entire GSIB franchises)..Fed now giving Banks literally Free Money...here’s QE Deposits.. go buy + Agencies + Rev Repo w 0-20% Capital against it..

the act of that Free Money arbitrage is gonna help the Rate Senstive Customer with Housing, Cars, RVs etc... & u already have 9-13% Reserves against Unsecured Cards (biggest loss content)... this will eventually catalyze process of Releases as we ReOpen & jobs get filled.

different context from when Fed did QT..forced 2 buy that helped invert Curve while they jacked up front end w Repo Crises tight SLRs & GSIB Scores..with SCB planning..& Covid final nail..that catalyzed tightening standards coz of NII & NIM crush..this exact opposite.

Staring at Long Bond Yields too long should have a surgeon general warning within context of Copper & BreakEvens ripping in a Recovery... gonna watch Cyclicals rip right by you in a once in Decade type Recovery while gets smashed by FSOC imho.

then 1 fine day when we are over the hump & we Reopen fullly (maybe past Nov)..jobs come back.. growth rips.. & EDZ1 trades back down from the Moon.. u get a levered call option on the front that they are giving away for free in EDZ1 & at ~1 TBV.. Buffett seems to like it.

Here’s a decent historical chart..

You can go back to at least the turn of the Century... every Recovery begins with rates, housing & autos... Perhaps started with GM’s “Keep America Rolling” 0% Car Loans post 9/11.
#Reflation

+18% today...

Consumer is on Fire. 🔥
#Housing #Adapting #Resilient

“Physical stores posted 10.9% sales jump Despite Virus Fears.”

All fake tho according to the intelligentsia...wait till stimulus runs out...& it must be those ETFs the Fed is buying. Meanwhile, July Card spending & Debit volume in particular has been on fire.🔥
#Reflation

This is Exhibit A.. Housing coming back strong with Prices.. the 2nd most important input into provisioning models after jobs.. Helps thaw Consumer Lending Standards.. Spending should continue...as per comments from regarding August. Chart via @zerohedge
#Reflation