We are in a strange time in the bond market. Lots misreading of its message and what the market is pricing what seems to be an outlier.

Let me try and explain.

@TheStalwart @DavidBeckworth @M_C_Klein @dandolfa


Daly and Waller are making news talking about a March hike. Why? That is what is already priced in!

Hikes are now priced for March, June and Dec.
3rd hike in Nov (47%) and a 4th hike in Feb 23 (40%) are close.

This is a rare period that the table above is not the middle of the consensus, but instead an outlier.

The consensus continues to argue/rationalize why this hiking schedule is too aggressive.

My view the market gets what it wants, one way or another.

Another misread is the terminal funds rate. The mkt is putting it around 1.75%

The Fed is good at hiking too much until something breaks.

What this table above and this chart say is the 4 rate hikes expected in the next 14 months might be enough to start breaking things.

Regarding the 10-year yield not rising, it is not an inflation signal, never has been. It is a "break something" signal, always has been.

Let's go back to 2004 - 2006. The Fed hiked 17 times in 17 meetings. 10-year was unchanged over this period and the curve inverted.

The market correctly saw the Fed was going to go too far and break something. When the curve inverted, it signaled "now too far."

A few months later, home prices peaked and a year later the GFC followed.

It "only" took a funds rate of 5.5% to break things.

1998 - 2000 again the Fed was hiking, and 10-year rates went sideways.

Greenspan was honest, goal was to "break" the stock market bubble. Mission accomplished, and a recession in Mar 01.

Hikes started at 20 bps curve, only took 4 rate hikes to invert and signal "break."

The last hiking cycle was more of the same, the Fed hiked to 2.38%, 10-yr went sideways, the Fed went too far and broke the repo market in Sept 2019.

The curve inverted to signal "too far." Only took, 2.38%.

A recession followed but, yes, we don't know the counterfactual.

10-yr signals the breaking point, not inflation. The yield curve is what matters, inversion means too far.

The curve is very flat before the first hike, and the lowest ever mkt priced terminal rate (1.75%)

Message, 4 or so hikes (to 1.75%-ish) should break something.

The Fed does not have a choice, inflation is out the bag, and is killing the majority party (D). They have to respond, and they will go too far and break something. This is the market message.

I did an entire thread on why (last 6 tweets)

Bonus #1

The public think inflation is problem #1, ahead of COVID.

Fed said they have the tools to remove unwanted inflation. Have to use them.

Bonus #2

For the first time since Jimmy Carter was in the White House a political party is demanding the Fed get hawkish.

What would cause a politician to demand higher rates?

Object panic over what inflation does to the 2022 midterms.


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More from @biancoresearch

24 Dec

Day three and no gas from Russia.

As the seasonal chart shows 2021 (shaded) this is way below the typical flows seen this time of year.

@DoombergT ImageImage

Bigger picture gas flows are way down from what was typical over the last decade. Image

Euro storage is 58% full, 10% below the record low on this date.

Euro storage bottoms in late March. The record was 18%. Since they are already about 10% below this, could it dip under 10% this season?

Cold winter = 0% storage?

Remember Russian gas flows are now zero. Image
Read 6 tweets
24 Dec

This thread is about what is, and what the current policies are leading to. Not what should be.

The world set a new daily record yesterday. Image

Leading this record is the parabolic spike by Europe.
7-day quarantines are mandatory for positive cases. Image

And leading Europe to new records is the UK, Italy and Spain. ImageImageImage
Read 6 tweets
23 Dec

Second day in a row zero gas from Russia Image

But don't worry, a convoy of LNG tankers are steaming across the Atlantic with Gas!


bloomberg.com/news/articles/… Image

Gas prices are off their peak. Has the market turned it focus from Russian gas flows to these LNG tankers? Image
Read 4 tweets
22 Dec

Here is the bigger picture of natural gas flows from Russia to Europe

(Today's flow hit zero for the first time since Nov 7)

And here is the result of this reduced flow.

Europe natural gas inventories are at record seasonal lows, and these inventories are falling further and further into record seasonal low territory.

And this is the market's response

A chart that only crypto-traders understand.
Read 4 tweets
21 Dec

An update on the biggest story no one is talking about (at least in the US)

Through Dec 19, only 59% of European natural gas storages are filled. The labels show the % of storage filled at similar points in past years is closer to 77% on average.

59% is a 10-year low.

As the chart below shows, the flow of gas from Russia to Europe is down considerably.

In the last several days flows have essentially hit zero.
Read 5 tweets
20 Dec

I actually think you were right, and so are the dozens of replies to me that "people" will relax once they find out it is no more harmful than the flu.

But this is the wrong crowd to focus on.



It's all about blue state politicians ("Karens"). Will they call off their "control" to "stop the spread" to "protect health" all while "following the science?"

Will Blue Karens say it ok that the US is setting new daily case records, and hospitalizations are rising to new records in the Northeast and upper Midwest, as these charts show?

Will their message be "continue with your life?"

Read 9 tweets

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