It also means there is little room to bail out stonk market or do stimmies or forgive student loans.
They cant ease cause inflation would skyrocket higher.
They cant increase rates cause govt cant afford that.
The relief valve is taxes.
You: "Oz, who would they tax?"
You: "Fuck.
Oz, what would that do to growth?"
Theres more.... todays swap weakened USD (UUP instrument)& STRENGTHENED opposing currencies - about every country that has a swap line with US got a stronger currency today, esp USDJPY
On this chart, when say USDJPY goes down, it means japanesa yen STRENGTHENED.
Infl in japn--
To do that particular swap, I think the fed bought USDJPY, USDEUR, USDAUD, etc...
This is also btw why corporations love globalization - when currency games result in favorable exchange rates...
india in particular comes to mind...
rn indian IT backoffice labor is DIRT CHEAP
$UUP (PINK) vs $VIX vs $US30y (purple) vs $USDJPY (YELLOW)
USDJPY strengthened (inflation in japan went DOWN)
USD weakened (inflation in usa went UP)
Now fed has room to raise rates again higher now that currency strength exported?
Notice what us30y is doing rn...
I know there is a lot on this chart - but same data (no vix) now including Michigan consumer sentiment.
Never in 20y has the fed hiked when consumer sentiment this bad.... (green)
The only time this cocktail was present was when consumers were kinda happy.
they'll need that deficit reduction amount to keep funding bidens war in ukraine....
Then, there's this.... i think i was mistaken about swap on this one. It wasnt a swap. Foreign CB's bought everything they could get their hands on cause yield is so much greater than their own.
Eventually the Fed will buy it all back with next cycle of QE...
This little mistake JPow made is gun cost u.
See,higher interest rates means it costs more to run the govt.
Who pays those costs?
U do: Thru taxes,fees,customs duties,etc
Foreigners/rich ppl ARE snapping up all this debt-hi interest pmt is a tax U will pay to THEM.
Tin foil hat time:
The fed raises rates and foreign CB's buy it all to hold on their balance sheet.
This weakens USD and strengthens their currency (IE USDJPY)
With USD weak, US can continue to raise rates.
The goal is to get the interest rate number HIGHER, not crash stonks.
Is this why company after company can report shitty earnings, and no forward guidence, zombie companies like $CVNA can rally with terrible future prospects?
Why Vol keeps getting suppressed?
And why we havent already crashed?
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What @JeffSnider_AIP talks about here is this period I think
I dont have a model yet like he does for EU$ curve.
🧵👇
as oil dropped stonks++
oil dropped 10% stonks went up 9%
as stonks recovered and more importantly, as gas prices went down, consumer sentiment recovered
BUT inflation never went down.
Your rent doubled?
Thats the new reality
Todays thead is about trusting a narrative when the facts (and interventions) dont support it.
🧵👇
I am a permabear. I always have been. I got pummeled in 2008 financial crisis very very badly. That pissed me off and i didnt touch stonks for years after that.
I re-entered in 2020 when i saw omicron sweep across the world.
"Stonks will fall!"
And they did...for about 3h. Then the fed intervened.
Dropped bonds to zero which made currency very cheap.
When currency cheap, stonks explode higher (EXTREME inflation)