1/12

Polymarket recession odds peaked at 65% on May 1st, the April ISM release date, suggesting Liberation Day and the 20% stock market correction did not damage the economy, as the "soft data" warned.

Subsequent April data confirmed this.

Will May see more of the same?

🧵 2/12

The prevailing narrative in the market for months has been that the labor market is going to fall apart, forcing the Fed to cut rates.

This has not happened, and so far, the "soft" (survey) data have been wildly off in predicting the economy.

1/9

Why The Fed Is Not Cutting Anytime Soon

The economy is rebounding strongly, and prices are rising.

It would be reckless to cut rates under these conditions.

The market knows this ... see this chart.

🧵 2/9

Collapsing Imports are Positive For GDP

*US GOODS IMPORTS FALL 19.8% M/M, BIGGEST DROP ON RECORD

The amount of imported goods declined in April, as expected. April 2 was Liberation Day, and the rise in tariffs slowed imports.

1/5

Inflation Update:

May 1st estimated inflation at 1.35%. 25 days later, they are 0.72% higher at 2.07%.

Tariffs?
--
Truflaton measures more goods than services. Goods inflation is lower than services inflation.

So, the rate of change is more important than the level. 2/5

Before, Truflation was the Billion Prices Project, which is now called PriceStats and is owned by State Street Bank. The creator is @albertocavallo

On Thursday, the Financial Times featured some of their work. It says the same thing as truflation.

ft.com/content/b27e76…

See the red line on the right. With increased tariffs (red line to the left), the prices of goods originating from China are increasing rapidly.

Also note that the Chinese-originated price rise (red line to the right) began around May 1st, the same time truflation started its upward march.

1/12

Is the consumer paying higher prices due to tariffs?

We don't know for sure, and will not for months, but some numbers suggest they are.

This will surge inflation and keep the Fed on hold for a long while.

Wall Street does not get this.

🧵 2/12

Customs collects tariffs daily and sends most to the Treasury around the 22nd.

On Thursday (May 22), $16B flowed into the Treasury's account.

Tariff collections are now ~$29B ahead of last year's. On Liberation Day, they were ~$5B ahead of last year.

+$24B in 7 weeks.

1/9

ISM was released this morning, marking the first monthly data point since Liberation Day.

It beat expectations and is not giving indications that manufacturers "froze" or "hit a wall" post Liberation Day.
--
*US APRIL ISM MANUFACTURING INDEX FALLS TO 48.7; EST. 47.9 2/9

It is consistent with decent NON-TARIFF growth.

1/6

Wall Street only cares about weak growth and wants cuts.

Main Street cares about higher prices.

The Fed is aligned with Main Street.
🧵
--
Polymarket betting is as good a gauge as any to measure the consensus opinion.

Now, 70% expect that a recession will occur in 2025. 2/6

So explain this ...

Why is there only a 9% chance of a cut next week?

1/7

Yesterday, I made the case that tariff-driven inflation expectations are soaring, driving the bond market, and paralyzing the Fed from cutting despite fears of a recession.



In the 🧵I will address some retorts.

https://x.com/biancoresearch/status/1911132982494347319

2/7

Yesterday I noted the soaring surveys of inflation expectations and included this chart.

1/16

What Happened to Bonds Last Week?

🧵

Last week, the 30-year yield rose 46 basis points last week to end at 4.87%.

As this chart shows, this was its biggest weekly rise since April 1987 (38 years ago!). 2/16

Why Did This Happen?

Let's start with what it was not. It was not data that suggested the economy was strong or recent inflation was high.

Here is a tick chart of the last 3-days of the 10-year yield.

1/6

Bonds are getting crushed again today. Now it looks like selling is coming from foreigners, especially Europe.

China is believed to hold several hundred billion of US Treasuries in legal entities in Belgium and Luxembourg.
🧵 2/6

The 10-year continues to get crushed today ... just traded 4.57%.

Higher than Tuesday's peak of 4.51%

*US 10-YEAR YIELD HITS HIGHEST SINCE FEBRUARY AS SELLOFF RESUMES

1/4

How stressed are markets? By this metric, the most in 17 years.
---
SPY = The S&P 500 Index Trust. This was the first ETF created in 1993 and is one of the largest at $575 billion.
----
The middle panel is SPY's Net Asset Value (NAV). The price closed at a 90-basis-point premium to the underlying value of the assets.

The last time anything like this happened was 2008. To emphasize, not even in the crazy days of 2020 did its divergence get this big. 2/4

VOO = Vanguard S&P 500, $566 billion in assets

At the same time VOO, which is Vanguard's version of SPY, went out at one of its biggest discounts in years (middle panel).

Something has broken tonight in the bond market. We are seeing a disorderly liquidation.

If I had to GUESS, the basis trade is in full unwind.

Since Friday's close to now ... the 30-year yield is up 56 bps, in three trading days.

The last time this yield rose this much in 3 days (close to close) was January 7, 1982, when the yield was 14%.

This kind of historic move is caused by a forced liquidation, not human managers make decisions about the outlook for rates at midnight ET. It keeps going, the 30-year yield is now 5.00%!

As chart shows, since Sunday Night, 54 hours ago, the 30-year is up 67 basis points. Cannot find a move like this in my database.

The only overlay is the 30-year Gily blowing up during the Liz Truss moment" in September 2022. That was 130 bos in 5 days. We are now 67 bps 2 1/2 days.

1/n

Polymarket betting for an emergency rate cut is 26%. This looks consistent with April fed fund futures. 2/n

Fed fund futures now have spiked to a 77% probability of a rate cut on May 7.

1/14

67% of the US Federal debt outstanding can be tied to military spending.

Getting Europe/Canada and the rest of NATO to take up more of this spending can take a huge weight off US government finances.

Europe/Canada appear to be willing to do exactly this.

🧵 2/14

European leaders have gotten the message from Washington about doing more for their own defense and for Ukraine, too.
nytimes.com/2025/03/26/wor…

1/6

Uncertainty measures, sentiment swings, and doubts about American Exceptionalism have all been overdone. They set up a sentiment low in markets.

Now, markets are bouncing back.

🧵 2/6

The Policy Uncertainty Index is from the 10 largest newspapers' policy stories that contain words that denote uncertainty.

March 11 this index reached its highest level in over 40 years, higher than 9/11, the Iraq War, the Financial Crisis, and the Covid-19 shutdown.

1/13

This post from POTUS yesterday CAN BE significant for shipping costs and inflation.

🧵

@mercoglianos @johnkonrad

https://twitter.com/PressSec/status/1900980769993969822

2/13

Background

In November 2023, the Houthis seized the cargo ship Galaxy Leader.

The Houthis are a Shia Military/Political Group in Yemen designated as a Foreign Terrorist Org by the Trump Admin in Jan 2025.

Here is the famous image of them boarding it with a helicopter.

1/8

Something different

Is Trump Popular? It's a complicated question.

@NateSilver538 Substack, Silver Bulletin, has some good data. They average every Presidential Approval Rating back to 1946. I use this data.



@2waytvappnatesilver.net 2/8

Trump 1.0 (red) and Trump 2.0 (orange) and the number of days into his presidency. Today, March 16, is day 55.

1/7

Bar chart of the 10-year yield.

As I write, it reached 4.35%. This is the highest yield since February 25. 2/7

No risk-off rally from bonds throughout most of the stock market decline.

We only saw flashes of a risk-off rally earlier this week when stocks were under extreme pressure, but those instances lasted only a few hours.

1/4

Everyone needs to calm down about the Atlanta Fed GDPnow flipping to negative (chart).

It was driven by one statistic, merchandise trade imports, which can snap back as early as next month and take GDPnow back up.

The world is not ending. 2/4

Here is the Merchandise trade deficit.

I labeled the last three months to show how much it blew out (and March 2022).

1/7

Two major problems need to be addressed, and yes, I agree they cannot be ignored anymore (think @HoweGeneration fourth turning).

The first is the debt situation, as @nfergus detailed:

https://x.com/biancoresearch/status/1893724021834887593

2/7

The US cannot continue this level of deficit/debt. Increasing taxes and spending cuts will not correct this without hurting the economy.

2024 deficits were 6.58% of GDP. This happens in major crises (civil war, WW2, etc.). What is the major crisis now? Too much debt?

1/16

A thread on The Mar-A-Lago Accord (MALA).

tl:dr

Take it seriously, not literally

The status quo cannot last. If we do nothing, it ends badly. What is the alternative?

Most of it has either already happened, or is underway. We weren't aware of the name. 2/16

Powell on Dec 4, 2024 - “The U.S. federal budget is on an unsustainable path. The debt is not at an unsustainable level, but the path is unsustainable, and we know that we have to change that"

thehill.com/business/50225…

1/5

I have not posted a spot $BTC ETF update in a while, so here is one.

These ETFs started trading a year ago (Jan 11, 2024). Their total assets are $114 billion. (Note that they started at $29B on day 1 due to the $GBTC conversion.)

Three funds make up the vast majority. 2/5

The net NEW money invested in all Spot BTC ETFs was $36.69B (bottom panel).

This excludes the $29B of $GBTC conversion on day 1.