As we turn the calendar to 2023, let's review a few things that few are talking about. Ever since the infamous Powell Pivot in late 2018, early 2019 (Remember B/S run off on autopilot and SPY plunging into Christmas? Mnuchin calling up Powell and 'having a word'), Retail has 2/ piled into equities as the TINA effect was in full force. The carnival barkers have filled the tent and the marginal buyer is a lot harder to find. The boat is full and passengers are slowly being thrown overboard. Most investors plan is for number go up. No clue about

Part 2 in a follow up to this article from @EpsilonTheory
epsilontheory.com/stock-buybacks… 2/In part 1, I highlighted the lack of corporate governance at the corporate C suites. This thread will highlight the hijacking of investing by Wall Street. In the pre 2008 era and more precisely the pre 2000 era, investors were rewarded for looking at the fundamentals

Weekend required reading.
epsilontheory.com/stock-buybacks…

This article is the catalyst for this thread 2/ For the last decade + the equity market has been transformed by a few trends which changed the market from being an investment driven market, to a market of transferring wealth from investors to the economic elite. Lets examine the situation. A thread🧵

Searching the world for explanations of yesterdays massive reversal rally in equities. My explanation is that some AI based fund (Bridgewater or similar) punched in the latest CPI data and concluded that the FED and other central banks will not be able to raise rates quick 2/ enough to counter the effects of 'sticky' inflation. Then they scoured the history of similar scenarios and came to conclusion that fixed income has a lot more downside and the only place to invest is in blue chip companies, which have the best balance sheets. In fact, the

It was only a matter of time before the bodies surfaced to explain some of this market action. It looks like pension funds were sold a bad bill of goods from their advisors about leverage. "Rates are dropping and will be near zero for years. Load up on carry trades" . And 2/ of course the beauty of ' We are not even thinking of thinking about raising rates.' Hindsight is a wonderful thing. How many old, slow and entrenched money followed this path? We will find out over the next quarter. Of course the banks saw the problems and jumped in

Few stock jockeys look at the US Treasury curve. The 5yr vs 30 yr curve has inverted. Most look at 2 v 10 yr, but the pros look where other people are not looking. If you want to beat the index, you can not be the index. The next recession is baked in, probably Q1 /23. 2/Equities are not cheap. Earnings are 'massaged' and a kitchen sink quarter-probably in q4-will rest earning expectations. Ignore most narratives and look at the numbers. Corporate spreads widening. Margin high. QT just ramping up. PE on adjusted earnings remain elevated.

The student debt relief may be right or wrong depending on your situation. However, what is clear is the Fed Gov't is in the business of bailouts. In 2008, the bankers on Wall Cheat got bailed out while Main Street got the shaft. Ever since that event, every time the US 2/ economy stumbles, the Feds roll in and Mr. Mkt is expecting another bailout this time round. That bailout of Wall Cheat big wigs was 100X worse than the student debt bailout. The privatization of profits and socialization of losses continues. The Pandemic response is

Now that the big PM's have returned from the Hamptons and Europe, dropped their kids at Uni, it is back to business. Prepare for a deluge of bond supply as firms look to shore up their balance sheets. PM's will need to be compensated as for the first time in a decade, the 2/ buyers have the upper hand. The bond and credit market is offer only as the amount of capital available is low. Market is waking up to the fact even Uber Dove Kashkari is Hawkish. 3.5 to 4% SOFR is the reality for an extended period of time. That is being priced in and

For the last 15 years, the Fed and other Central Banks have increased the supply of everything through the program of cheap credit. Any enterprising individual or group of individuals was able to raise cheap capital to start a new business. Cheaper labour, lets develop 2/ China and India with factories and ship the products back to the West. Build cheap factories with cheap labour. Build mega container ships with cheap financing. Upgrade ports with cheap financing. Build cities in Asia to house the new labour force with cheap financing.

The next 90 days are going to be dominated by the 'big boys/girls' pumping the narrative for the Nov. 8 mid terms. The latest paying off of Sinema and Manchin for the Inflation Reduction Act is exhibit 1. This is about paying off major Democratic supporters and Hedge Fund 2/ big wigs. The US has the best gov't money can buy. It will do nothing to reduce inflation. The Fed is going to do 50 bps at its September meeting and cross their fingers. The Balance Sheet has yet to be reduced. Everything is geared toward the mid terms. Inflation

The US market remains in limbo. Mkt is oversold and the old, slow money is waiting for J Pow and the clowns to deliver their strategy. Some observations; The Ruble is not rubble=higher now than before Feb.24. All this talk of the recession is not rallying long bonds. Credit 2/ spreads remain under pressure-especially junk. How can 'investors' pump non profit tech when junk spreads are widening with no support. Too many PM's are trading the last war. Equity valuations in the 'new economy' are too high. They will drop as credit tightens.

Few will read this,but wanted to #Timestamp this commentary. Listened to multiple podcasts and read multiple reports this weekend. It appears only the few remaining bears made money last week. Correlations between stocks, bonds, commodities,FX, etc all reverted to 1, and all 2/ went lower. Is the equity market oversold? Maybe. But zoom out and look at a weekly 10 yr chart. This drop may be just a scratch. The FED meets this week and the fear is they go major Hawk-75 bps and 95 bln B/S drawdown. My chips are on 50 bps and a 60 bln B/S

Few will read this, but putting digital ink to work. The equity market is in a world of pain and the Fed is in a tough spot. The issue is Repo collateral and Hi Yield securities. In a environment of ample Central Bank liquidity, leveraged money can buy positions and carry 2/ them with little cost. They can repo these junk securities to buy other junk securities and then repeat the process. This leverage upon leverage is in the process of unwinding. There are few if any buyers of this junk paper. Look at the OAS spreads on junk credit. For

#OOTT The 2 most E&P positive events this week come from our good friends in Norway. 1) Norway SWF changes its policy of liquidating carbon producing assets to working with the mgmt to reduce the emissions. About time some one figured it out. Think Engine No. 1. This #OOTT 2/ action will be the first of many as the woke public pension funds and endowments reassess their positions. Clearly Larry Fink and Mike BBG figured it out and realized selling assets to other people at these valuations was like throwing money out the window. Going fwd,

#OOTT The darkness over the FF industry is starting to lift. Investors are realizing that the TOTAL ENERGY pie is expanding and will continue to expand for the foreseeable future. 99% of Wall Street have no clue what life is like in the developing world. Electricity demand #OOTT 2/ is about to go S curve. As the energy demand curve expands, every source of power will be tapped. Will renewables be the fastest growers-probably as its base is low. On a % base it will lead, but on an absolute base, unlikely as it can not scale. Witness Vestas

#OOTT Oil prices retreating. No surprise as the tree gets shaken. The backwardated curve is losing some of its steepness as the mkt is expecting an SPR release. OPEC+ is going to stick with its plan, but the cheating will begin from the players that can over produce. Enjoy #OOTT 2/ the downdraft while you can as the winter months are around the corner. With the $NG situation, products are in demand (diesel, kerosene, etc). Demand is going up across the energy spectrum. It is a slow increase, but persistent. US shale has spoken-flat output

Napoleon quote: "Never interfere with your enemy when they are making a mistake". That is the Chinese game plan ever since they were admitted to the WTO. For 20+ years, US business has done a wonderful job of off shoring jobs, pollution, and technology to China under the 2/pretense that they could sell their wares to the 1.4 bln potential customers. China thinks in decades, not on FYs. Their plan was simple. Absorb all the US technology and learn how the capitalist system works to bring their country out of the dark ages. For 20+ years

#OOTT The curve is steep in backwardation and the citizens are seeing the effects of the Biden Administration and Green advocates policies. Maybe this is part of the transition team's plan to jack up the price of FF to make the Green initiative more palpable to the citizens. #OOTT 2/ But of course the best laid plans always have a wrinkle. 'You reap what you sow' and the efforts by Fink, Gore, Bloomberg, Biden and a host of other anti FF advocates has resulted in a truly monumental clusterf$%k . History books will be a fantastic read of this era

#OOTT In times of these 'expert' reports from obviously biased agencies, I refer back to the Napoleon quote-"Never interrupt your enemies when they are making a mistake". While the push for a Green energy revolution is in the best interest for the planet, it is being executed #OOTT 2/ by a clown show of disingenuous actors. Just like the cost of a container has skyrocketed, there are none available. The same will happen in the fossil fuel industry. Look at coal, yes coal the most despised FF, as it is in short supply and none is available at any