Musings of the Day, 5/15/25:

Continued evidence of Net DEFLATIONARY impacts of Trump 2.0 Playbook.

Observations:

1. It’s hard to have runaway Inflation when one of its key linchpins, Oil, has become a Geopolitical Football.
2. The continued ME lovefest for Trump should have Oil Bulls worried.
3. Trump wants Oil to be < $50, and I think the Saudis will help achieve that because they alone can make for lost price with increased VOLUMES.

Result:

1. Inflation stays quiescent
2. Iran and Russia are in a weaker negotiating position that could catalyze peace settlements
3. Peace settlements would result in Sanctions relief, which means MORE OIL

Never quite seen anything like this.

The Geopolitical/Macro implications of a Peace Dividend + NATO shouldering more of its Defense Spending are BIG.

It means:

1. Lower Geopolitical Risk Premiums for Commodities like Oil and Gold due to Sanctions Relief
2. Lower Oil prices from Saudis (this has been a core thesis of mine for quite some time)
3. Lower Defense Spending needs for US

Outside of Entitlements, the two biggest line items in our Budget Deficit are Defense and Interest Expense — and both go DOWN with a Peace Dividend.

This is the path out of the Vodka Red Bull Economy.

Musings of the Day, 5/14/25:

If you didn’t know this, you haven’t been reading Kaoboy Musings!

Here are the two most pernicious Perma-Bull arguments used to rationalize a Bullish Oil thesis I have heard throughout my career:

1. Saudi Fiscal Breakeven is XXX, much higher than current Oil prices.
2. ⁠Inflation-adjusted Oil price should be XXX, much higher than current Oil prices.

Oil Prices are based on marginal Supply/Demand. PERIOD.

And right now, Demand is faltering even as Supply becomes a game of Geopolitical Football because Trump 2.0 knows that:

1. Revenues = Price X Volume
2. Saudis are the ONLY global producer who can make up for lost Price with INCREASED VOLUMES

x.com/urbankaoboy/st… Duration via Long USTs looks very interesting again.

Long Bonds look extremely oversold and yieldy even as that shiny alternative Supply Inelastic Reserve Asset seems to be losing its luster and looking toppy.

There's also an Economic Statecraft angle that I've postulated before:

What happens when Trump 2.0 offers incentives to hold Long USTs in lieu of anything else? How about tying FX Swap Line capacity to UST holdings?

I am buying $TLT Call Spreads.

Musings of the Day, 5/8/25:

Here is some AI analysis of today's US/UK Trade Deal.

What I see:

US traded 10% Blanket Tariffs in exchange for allowing UK to keep PRE-EXISTING Tariffs on Auto and Ag.

This is a key observation:

For those of you who think that the US is the bully here, these Tariffs are actually seeking to redress PRE-EXISTING discriminatory Tariffs AGAINST the US. This example shows the world that Trump is fine raising cash with Tariffs — even against an Ally (who is insistent on keeping Pre-Existing Tariffs).

Now imagine if you’re NOT an Ally that has huge Pre-Existing Tariffs/Trade Barriers in Critical Path Industries.

The UK produces nothing in Critical Path Industries. Watch out for the incoming Long Term Incentive Modifier Tariffs.👇

Musings of the Day, 5/7/25:

Saving Face is everything in the Chinese culture, so if this is the narrative that Xi needs to engage, my advice to Trump 2.0 is: Let the Wookie “win.”

https://twitter.com/urbankaoboy/status/1916864817224360315

I completely agree with @michaelxpettis on the intractability of China’s fundamental problem, which is really a sovereign version of the Innovator’s Dilemma:

To transition to a Consumer Economy would mean that China must cannibalize its existing Top-Down Investment Led GDP-Targeting Economic Model.

But to do so risks slowing down the Runaway Assembly Line which must be kept humming to keep its already restive masses employed.

Scylla, meet Charybdis.

Musings of the Day, 5/2/25:

Some good color behind the recent dramatic downtick in GDP from @profstonge’s Substack today.

Reminder that the formula for Gross Domestic Product (GDP) is GDP = C + I + G + (X - M), where C represents consumption, I represents investment, G represents government spending, and (X - M) represents net exports (exports minus imports).

“The kicker is all the pain was caused by a 41% surge of imports front-running tariffs. Which GDP bizarrely counts as negative GDP. Drop those and actual GDP soared by a blistering 4 and a half percent.”

“BLS said investment skyrocketed on the quarter by 22 percent. Much of it driven, ironically, by the very same tariffs that took the headline number negative…So going by these numbers, America is re-industrializing at light speed. And the tip of the spear is foreign companies moving production here.”

You may disagree with the way it which they were implemented, but the Trump 2.0 Tariffs are working.
“Trump is begging for a deal, and Xi isn’t taking his call.”

Uh huh.

Musings of the Day, 4/30/25:

I’ve been warning about the “Frying Pan Into Fire” risk of US companies moving their Supply Chains out of China and into neighboring SE Asian countries.

Be careful who you choose, because if they are China-aligned countries, you might find yourself shut out a second time.

Regardless of Transshipment Loopholes getting closed or other Trade Barriers getting erected, I believe Trump 2.0 is serious about closing off the Escape Valves for Chinese goods — especially in Critical Path Industries.

This article highlights Vietnam as a risk, although based on my talks with folks, I’d be even more concerned about Malaysia, Cambodia, Indonesia, and Singapore.

Remember the ultimate Economic Statecraft goal:

Re-Shore Industrial Capacity back to the US, and right now, moving your Supply Chains anywhere else entails Risk. This is an account worth following in light of the Canadian election yesterday going to Carney, who has immediately doubled down on Globalization and Climate Change policies.

A Canadian friend who works in Geopolitical circles visited me this weekend and told me that not only does Alberta feel misrepresented by the “Laurentian Elites” of Quebec and Ontario, so too feels Saskatchewan and Manitoba.

Hard to imagine what happens to Canada if the 3 provinces that account for the bulk of its resource wealth, not to mention the entire Geographic interior of the country, want to separate.

Musings of the Day, 4/28/25:

As I am Chinese by descent, I get the whole angle of Chinese national pride in being able to “吃苦” (Eat Bitterness) and endure hardship.

But the math is the math.

When your entire economy is based upon keeping the Runaway Assembly Line humming, not because of Economic Profit or Demand, but because THERE IS NO OTHER WAY TO KEEP THE MASSES EMPLOYED, it really behooves you to find a way to make good with the US Consumer that buys 35% of GLOBAL CONSUMPTION.

Talking with my Retailer CEO friends, PERMANENT decisions to relocate Supply Chains out of China are being made with every day that this Tariff War goes on.

So yeah, the US is beholden to 4-year Election Cycles, yada yada, but China is at risk of SECULAR Economic Collapse if this Tariff War even goes on for ONE year.

Trump 2.0 needs to provide a Face-Saving Exit Strategy for China, and Xi needs to take it.

x.com/urbankaoboy/st… 100% agree with Crusader.👇

The largely peasant population of the 60’s & 70’s ≠ the much more urbanized population of China today.

People like to assume that the Chinese people have modernized and urbanized and gained all the creature comforts of a Developed Economy even while the populace still retains the ability to endure hardship like in a Third World country.

I don’t buy it.

Musings of the Day, 4/22/25:

Here is another sign that the notion that China has the upper hand in this Tariff War is off.

The last time DXY was 98.5 was 3/28/22.

On that day, USDCNH was ONE BIG FIGURE lower at 6.35!

As I stated in my weekend piece, I believe the USD has undershot its fundamentals, especially based on Rate Differentials with RoW -- but ESPECIALLY with China.

If the USD strengthens from here, as I believe it will soon, I believe the PBOC may finally be pressured into accepting an 8-handle.

After all, "8" means "prosper" in Chinese does it not? 😳

x.com/UrbanKaoboy/st…
I love this post not just because of the irony of this gentleman “studying RMB Internationalization efforts for 16 years” but because it demonstrates:

1. The fact that China has been trying to internationalize the CNY for 16 years and has only de minimus adoption (see table) should tell you all you need to about what the world thinks about CNY (or other non-USD FX for that matter).

2. Just because a country WANTS something doesn’t mean it will happen.

3. See my Amazon Credit Mental Model:

x.com/urbankaoboy/st…

Musings of the Day, 4/21/25:

Translation:

“If your country wants to remain beholden to us on Critical Path Supply Chains, be ok with forced Tech Transfer and IP Theft, be ok with evisceration of your Industrial Capacity because of China’s Runaway Assembly Line that is not based on Comparative Advantage, be ok with OBOR-style Debt Trap coercion, just to name a few reasons, then by all means you should choose China in this Balkanization of Trade Blocs.”

The US may not be perfect, but it is a far cry from China. This is a MUST WATCH — especially if you believe that China holds the cards in this Tariff War.

If current Tariffs persist between the US and China, the US will get nicked in the beginning but become far more resilient and self-sufficient in the end.

China’s Runaway Assembly Line, upon which its entire Top-Down GDP Targeted Economy is based, will be irreparably hobbled.

This is serious and destabilizing enough that I think it could threaten regime change within the CCP.

Yes, the US has 4 year Election Cycles, but China’s economy won’t even survive ONE year under these conditions.

youtu.be/gQ9klecFbMw?si…

Musings of the Day, 4/16/25:

Not an unreasonable list of asks, and I think the Admin will likely explore this off-ramp with China as a first step to a negotiated deal.

I would not be surprised one iota by a “US/China Reciprocal Tariffs On Pause” headline while they negotiate.

Remember that there will be Fat Tails in BOTH directions inside the Trump 2.0 Asteroid Field. Not that there is a practical difference between 145% and 245% Tariffs — both are effective Embargoes — but here is a bit of “good news” before you believe the daily media-exacerbated hyperventilation:

https://twitter.com/typesfast/status/1912481362667577719

Musings of the Day, 4/12/25:

Naysayers will be quick to say that Trump is “caving” again even as they are equally wont to criticizing the Admin for being intransigent — can’t have it both ways.

There is an extremely important Economic Statecraft objective here — to wean the US off China dependencies without tanking the Economy.

One of the keys to this negotiation is to preserve leverage while extending a face-saving off-ramp for Xi at the same time, which was my biggest concern.

Chatted with Lakshmi this am, and she thinks that the newly announced Tariff exclusions likely cover only 8-10% of total Chinese Imports to the US.

I believe this carve-out is strategically designed to help Taiwan, Japan, and South Korea and to ease input costs for US Tech and Manufacturing sectors while maintaining broader Tariffs for leverage in negotiations with China. I see these exclusions as less about picking Big Tech over Small Businesses and more about what industries are Critical Path Industries.

I believe everything needs to be evaluated from an Economic Statecraft lens right now, and from that perspective, Chips >>> T-Shirts & Coffee Mugs.

Musings of the Day, 4/10/25:

I’ve long felt that many sell-side research analysts are closet technicians, weaving whatever Macro word salad is necessary to rationalize their technical views.

The problem with this approach in a market that cares 99% about Economic Statecraft headlines over everything else right now is that the charts themselves can chop you to bits.

Two things make me optimistic that we will skirt a Recession despite slowing growth:

1. The US Economy has a turning radius more akin to an Aircraft Carrier than a Speedboat.

2. What I said yesterday morning about this crisis being manufactured means that it can go away just as quickly without lasting damage.

Expect a bumpy ride and continued Fat Tails in both directions.

Welcome to the Trump 2.0 Asteroid Field.
Correctamundo.

I have been saying the same thing all along.

https://x.com/urbankaoboy/status/1908883383935197190?s=46

Musings of the Day, 4/8/25:

There is no better evidence of China’s Top-Down GDP Targeted Economy than this.

This is NOT Globalization based on Comparative Advantage between countries.

This is a Runaway Assembly Line that churns out an endless stream of goods regardless of economic losses or demand, because China needs to keep its restive masses employed and it can no longer to do so by building ghost cities and bridges to nowhere.

It’s fine and dandy when the $21T US Consumer was waving it all in, but eventually that gravy train had to stop given the resultant atrophy of America’s industrial muscle.

Good luck if you think the RoW will absorb everything. Possible Key Reversal day in the Long Bond signaling the end to this particular Flight to Safety?

Something I will be watching closely.

Musings of the Day, 4/6/25:

There were 2 keys Lessons I learned from Trump 1.0:

Lesson 1: Mosh Pit Theorem -- make others believe you're crazy, and even bigger guys won't fuck with you (I've personally used this at Slayer concerts).

Lesson 2: Art of the Deal -- open any negotiation with an outrageous ask with the intention of settling right on the original goal.

Imho, you can either buy into the notion that the entire Trump 2.0 Economic Team fucked up the Tariff formulas by accident and make linear extrapolations that it will bring about another Great Depression, or you can remember the Trump 1.0 Playbook to help navigate through the noise of Trump 2.0. Ask yourself:

If the goal was Persistent Tariffs and to make the Tariff Formulas impossible to comply with, why is this happening?

https://twitter.com/defense_civil25/status/1908315865457602640

Musings of the Day, 4/2/25:

Amazing how many people latched onto a headline put out by “Chinese state media” yesterday and held it as credible.

Imagine if “Chinese state media” didn’t give you that little clue and masqueraded as someone else.

Unthinkable right? 🙄

H/t @TheMichaelEvery Bold Prediction:

The Nash Equilibrium of this game is ZERO Tariffs across the board.

https://twitter.com/kobeissiletter/status/1907533834876277016

Musings of the Day, 2/5/25:

Hate to admit it, but Macro data doesn’t matter much these days!

😵‍💫 Correctamundo.

And Export Independence is America’s shield in these Tariff battles.

https://twitter.com/vrntperception/status/1887144442219389172

Musings of the Day, 11/6/24:

Good news for the Republicans:
Red Sweep

Bad news for the Republicans:
No one to blame if they fuck it up

I hope a united Government can unite the COUNTRY now.🙏🇺🇸 My Macro Trades this am:

- Took profit on my $SVIX on this Vol Crush
- Bought $SPY Put Spreads to fade this extreme ebullience, especially with LT Yields SPIKING
- Bought $XOM Put Spreads because of my concern that Trump gives Saudis a "Security Guarantee For Oil" Deal

Musings of the Day, 11/4/24:

Thanks to my antiquated, non-Internet connected bedside clock that I forgot to update and Daylight Savings Time, I woke up at 3:45 am today.

I now have an extra 2 hours to be bombarded with election crap. 🙄 Anti-China Protectionism is just getting started, regardless of who wins tomorrow in the US.

When China’s Industrial Policy is NOT based on Comparative Advantage and is divorced from economic signals, no one can compete with it.

businessinsider.com/china-responds…

Musings of the Day, 9/18/24:

Gentle reminder that at YE’23 after the Dec Rhetoric Pivot, the market had priced in 200 bps of cuts for 2024.

So when folks tell me “the probability of x bps is xx%,” here is my retort: Ok, what AUM Gatherer is believing his own bullshit right now? 😂🤡

Musings of the Day, 6/6/24:

My Pusillanimous Put strategy today will be to uncap my recently bought OTM $NVDA Put Spreads.

From my friend Chris Murphy @ Susquehanna on $NVDA: The Out-Doving of the Fed continues.

https://x.com/LiveSquawk/status/1798690142242107611

Musings of the Day, 5/2/24:

I love this headline from today's DB CoTD:

"How to work only 24 days a year"

The Pelican has taken note!! 😎 After what I heard yesterday from Pusillanimous Powell, I am going to repeat what I said to @JackFarley96 here:

Watch out for a Bear Steepener first and then for an even nastier BULL Steepener if the Fed capitulates on H4L too soon.

https://twitter.com/jackfarley96/status/1720121510981972398