When Macro meets Geopolitics

A few snippets from our Research piece being published this weekend (sign up below)

1/9 "With so many variables in play, we can have a profoundly deflationary framework (bank crisis, job losses, technology) and yet still have inflationary shocks if the policy includes an element of fiscal support."

One of the most disturbing trends of the last few years has been the rise of the "Multi-discipline Subject Matter Expert"

People qualified in a single discipline began believing this also qualifies them to be cross-discipline experts

We're not falling into this trap 👇 - Macro investors became expert immunologists
- Programmers became VC prophets
- Everybody became monetary plumbing pros
- Tech enthusiasts became war strategists
- Portfolio managers became geopolitical analysts
- Geopolitical analysts are becoming crypto intellectuals

Just had our first run in with the "#TSLA Fan Boy Club" after posting a high-level back-of-the-envelope comps analysis to see what a reasonable valuation could look like.

Boy was that enough to set them off.

We found that there are 5 distinct types of Fan Boys, listed below👇 1) The ones who have clearly never seen nor even heard of 'valuation' or have any idea of how to derive it in the real world. Usually, they've done just enough Investopedia browsing to type words like 'margin' and 'growth', but that's it - these are the toughest type to deal with

From @RogerHirst3 in our latest Lykeion Research publication
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1/18

There is huge uncertainty in wages (we know this because of the failure of the Phillips curve before COVID). The Philips curve states that the lower the unemployment rate, the tighter the labor market, and therefore, firms must raise wages to attract scarce labor, which we have not seen yet.

If you’re wondering why OPEC+ has felt so emboldened lately, here are 3 before and afters which may give some clues…

As @DoombergT likes to say “we are not led by serious people”

1/4

#oott #oil #wti 2/4

Corporate margins are at all-time highs, and thanks to recent outsized inflation prints, real wages are cratering.
1/5

thelykeion.com/charts-of-the-… Real wage destruction is rarely a good thing, and the longer this goes on the larger the impact to demand (this is only a good thing if you’re trying to kill inflation as it reduces demand).

5 takeaways from the @ttmygh interview with Tian Yang of @VrntPerception

Go to grant-williams.com to subscribe for the full interview

A short 🧵on Policy Credibility, A (Politically) Pragmatic Fed, Shorting JGBs, Brazil, and the Commodity Super Cycle 1- Policy Credibility Matters

“As of right now, there’s probably not that many signs of relief, so it looks like everything comes back to policy credibility controlling inflation expectations, which means they have to engineer a genuine foreign headline inflation. So as of

10 highlights from Zoltan's latest (somewhat terrifying) note.

Thanks for sharing @mnicoletos

"Looking back, QE was essentially monetary policy for the asset rich, with trickle -down benefits for the less wealthy." "Asset price inflation on the back of traditional QE, and consumption growth on the back of fiscal QE (helicopter money), pushed the level of demand higher, and the pandemic and geopolitics have pushed the level of supply lower."

A brief history of the US #Oil Export Ban and subsequent lifting in '15

With gas prices recently breaking ATHs, ‘the ban’ will likely be a heated topic going forward… likely once the energy secretary figures out just how much oil the country she represents consumes 👀
1/21 From ‘50 to ‘57, US production of crude increased by 33% while imports doubled as new cheap oil from the ME reached the market. Concerned about the nation’s growing dependence on imports, Congress authorized the Mandatory Oil Import Quota Program in '59, restricting imports. 2/21

1/4
$XOM FCF Yield and EBITDA margins have already soared back to life. Now add in the combination of
-Triple-digit #OIL
-Last years cost-cutting measures
-Focused CAPEX spend
-ESG discount addressed

...and well 👇 2/4

What's going on with Russia and Ukraine?

@JacobShap breaks it all down for us

- Russia does not want to fight a war, but in order to force political and security concessions, it must convince the West that it’s prepared to fight.
1/6 2/6
-The implications of a full-scale Russian invasion would impact #oil, #naturalgas, #fertilizer, nickel, and wheat prices

-Russia has deployed over 100k soldiers to its border. According to the DoD, Russia is ready to invade with the goal of conquering the entire country

Nuclear: An infinite source of clean energy

1/6
"If you claim to be serious about reducing our carbon intensity but you are opposed to nuclear power, you aren’t actually serious about reducing our carbon intensity – you are a scientifically ignorant poseur." @DoombergT
#COP26 2/6
"If nuclear fission was discovered today, without all of the historical political baggage, it would be heralded as the miracle solution to solving the climate change problem.” @wolfejosh

(1/7) Our high-level understanding of #MMT

"It frames the broader discussion on fiscal and monetary expenditure because it outlines an unconstrained model of spending for a country which has sovereignty over its own currency (which is a central pillar of MMT)." (2/7)"Modern Monetary Theory focuses primarily on the efforts of the fiscal authority (government), whilst the role of the monetary authority (central banks) is to facilitate these efforts. Again, government is elevated to the top of the economic hierarchy."

@RepCasten this is a long tweet but hopefully, you get through it. We just finished the recent @FinancialTimes article covering the suicide of Alex Kearns where you are quoted saying, “We need to do something to make sure these kinds of things don’t happen.” We completely agree. What we hope, however, is that you are not proposing legislation to restrict retail investors from entering the market, but rather, find a better alternative to get them exposure to markets in a better way.

(1/8) If we just focus on returns, buying the dip has worked well for retail investors. As @FortuneMagazine wrote earlier this month, “Retail investors outperformed in part because they were quick to snap up value stocks as the rally gained traction... (2/8) ...since mid-May, the rally has shifted toward cyclicals, small-caps, and economically sensitive stocks, Goldman notes. “Stocks with these qualities…were quickly embraced by value-seeking retail investors, and now make up a large portion of our retail basket.”

(1/6) The policies of the @federalreserve over the last decade have suppressed financial distress, which has curtailed the forces of creative destruction, the system of checks and balances required throughout the business cycle, and for a well-functioning economy. (2/6) The decade pre-COVID had seen the opposite of this. The monetary policies adopted by the fed prevented creative destruction to naturally take place as easy financial conditions allowed for less efficient companies to survive.

(1/3) Over the next ten years, ~$30 trillion of deficits plus maturities need to be financed. Historically, the largest buyers of USTs (foreign, intragovernmental, and the fed), will all come into focus as the willingness of buyers gets tested by exogenous factors... (2/3) Intragovernmental accounts are beginning to see net outflows (as opposed to inflows which are required to purchase USTs and subsequently finance the budget deficit...as Boomer retirements accelerate, so does the depletion of these accounts