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Jul 28, 2020 17 tweets 6 min read Read on X
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..

Image
... 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. Image
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..
Image
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 Image
“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 Image
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 ImageImage

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More from @gamesblazer06

Nov 2, 2022
Problem with the Fed is they suddenly have this view that they can just put the Deflation toothpaste back in the tube with the utmost of ease. It’s very complacent, unfortunately.
This is nothing like the 1970s to even use a Volcker playbook is flat out wrong.
There are enough Academics & Street Intelligentsia that are convinced Inflation is entrenched like the 1970s… thus the issue.
Read 4 tweets
Nov 2, 2022
CPI 8.2%… 1 Year Breakevens 2.85%

5Y5Y 2.66%… we were North of 3% in 2011 & 2012 when we were fighting Deflation at ZIRP.
The Bond Markets don’t believe in entrenched LT Inflation.
The irony is… they never did all the way up to 9% CPI. Peak in 5Y5Y Inflation Swaps were at 2.85% in late April.
Read 4 tweets
Nov 1, 2022
Decent thread… I would say around 1Q23 we see Terminal Reserves. This year more of a Balance Sheet Scarcity issue v Liquidity at GSIBs (small nuance that ultimately ends in less intermediation)..& QT can actually free up more Balance Sheet for 2023 in conjunction with RWAs down
Banks have overcome SCB & GSIB Scores get better with less liquidity.. via solid retained earnings + suspended buybacks in 2022…plus at Basel IV end state so SLR relief also on the horizon especially if Congress changes hands, but heavy lifting already largely done in 2022.
So that’s on the Balance Sheet side that’s clearing up… now strictly on Liquidity let’s remember MMFs absolutely provide liquidity into Sponsored FICC Repo which is low Sheet usage coz Netting + also Triparty… so Cash moving from $2.3T RRP would foam runway for further QT….
Read 12 tweets
Oct 31, 2022
“Internal metrics thus far in October suggest continuing solid performance in 4Q22 as Sep did v Aug & Aug v July. It’s certainly possible things could change for the worse..but that would require an adverse change that we don’t broadly see in current environment.”
- $GPN CEO
$GPN clears $900B+ of annual Merchant Processing Spending Volume w 3Q22 at +11% YoY.
First Data TrendSpend +9.33% YoY for the Full Month of October.. that’s 1/3 of 4Q22.
Read 5 tweets
Oct 14, 2022
$JPM 3Q22 Solid Beat:

Rev $33B +10% YoY
NII $17.5B +35% YoY (Once again Raising FY22 Guidance to $66B on Hikes & subdued Deposit Betas)
Loans +7% YoY w Flat Deposits YoY… Fed’s draining continues but Bank Liquidity is extremely strong w 113% HoldCo LCR & Bank OpCo at 165%…
Reverse Repo was down 6% QoQ…not surprising given GC/SOFR still at RRP Floor & massive Hikes offering huge IORB returns w Loan Growth that’s partially been funded on RWAs at expense of Cap Markets.. $JPM usually Repo Liquidity provider at 11AM Repo Stress..& prices accordingly.
Front End Stress non existent.. given huge Buffers.. but Long End Stress was coz SLR etc… still needs recalibration.. better to front run $JPM imho… they will ultimately be buyers…
Read 13 tweets
Oct 12, 2022
September PPI Final Demand +0.4% MoM… last month MoM revised down to -0.2% MoM.. +8.5% YoY.

Core PPI +7.2% YoY v +7.3% YoY in August.

PPI Series Peaked in March 2022 at +11.7% YoY. Core CPI Series peaked in March at +9.7% YoY.

Inflation Deceleration continues..
September CPI… +8.2% YoY vs a recent high of +9.1% YoY in June.

Core CPI +6.6% YoY took out +6.3% YoY high in March.. Core driven mainly by Rents… Rental Appreciation is BLS sticky… But in the Real World appreciation has been cut in 1/2 already.

Energy down big…
BLS OER Estimates are +6.7% YoY v +6.3% YoY in August…

OER Growth Rate is in a +2.78 Sigma Right Tail Bubble (data since 1984)…

We already know Rental Growth has been cut in 1/2 in September in the Real World.. Ask Sternlicht or Redfin.

Rental Bubble already popped.. Image
Read 28 tweets

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