GGPChat

I'm Not 100% certain what exactly - and we need to see follow through next week - but today I think something in the macro clicked big in our favour following this weeks FOMC meeting :

Copper up 8%
Gold up 3%
Oil breaking trend to the upside

What does it tell you when US yields go up (USTs go down), $ goes down and gold goes up? It could be a one-day fluke but if this becomes a trend, it would imply someone selling USTs and selling $'s to buy... That someone is someone pretty big.

Oil was bearish trade and trend until very recently... and suddenly today it broke both, and is above trade and trend... turning bullish = inflation up.
Obviously Miners went ballistic - and the large caps, in particular: Anglo American was up 11% at one point. Rio + BHP% 8%

Why? - well rumour has it China is ditching its 'never ending story lockdown' policy... ( which may account for coppers move).

But why the gold move? Well, I think the market is has made a judgment on the FED... THe long dated bond rates (30, 20 and 10year) increased whilst the short 1,2,3and 5 year yields decreased today... The inversion between the 2s and the 30s is massive - over 50 basis points

Bloomberg this AM suggested that: recent volatility in the U.K. economy, such as the bond and currency market panic that greeted former Prime Minister Liz Truss’ fiscal policy announcements in late September, had distorted market expectations for the Bank’s future interest rate hiking trajectory.

“We don’t think interest rates would need to rise as high as the market has been pricing, precisely because that would induce a slowdown in the economy that is bigger than is required to get these inflationary dynamics under control,” Pill added.

The Bank expects an economic recession that began in the second half of 2022 to now last until mid-2024, which would be the longest period of GDP contraction since records began."

So BOE now pushing back against the FED's narrative of higher for longer interest rates. That is cowbell... So do we infer this is because 1) the BOE are panicking (about UK housing) or 2) the FED are essentially lying about terminal rate rises? Or 3 the UK is just sounding cowbell and now on different paths breaking away from each other?

Paddy shared with me this Absolutely fascinating thread https://twitter.com/maxjanderson/status ... 1973257221 which demonstrates that the FED can do F**k all about inflation... And I mean F**k ALL... THIS IS WHY:

In 2019, pre-pandemic, US fiscal debt service accounted for 13% of US federal budget .. but given their $31 trilion national debt thats changed recently.

2019 Budget: Debt Burden was #4 biggest line item:

Healthcare: $1,240bn
Pensions: $1,100bn
Defense: $940bn
Debt Service: $580bn
Welfare: $370bn
Education: $150bn
NASA: $22bn

At 4% interest, US debt service cost grows to 22% of the planned federal budget
#3 biggest line item

2023 Budget (@ 4%):

Healthcare: $1,640bn
Pensions: $1,370bn
Debt Service: $1,250bn
Defense: $1,170bn
Welfare: $510bn
Education: $240bn
NASA: $26bn

Oil is about to rocket, especially if china opens up (rumour is the've now dismissed all covid lockdowns ) So china demand should surge -copper and gold up this am - on reopen .. and Biden has already shot his load (with releasing the Strategic Petroleum reserves empty b January/feb) so.... Energy inflation increases not decreases... into 2023 And for Powel to kill inflation with CPI at 8% he needs to put interest rates higher than 8%... Volker doubled rates v the CPI - so CPI at 8% means rates to 16%. That's simply impossible : It would mean US taxes have to increase 6 fold to break even and the US national debt payments would leapfrom $1.2trillion at 4% rates to >$5trillion at 16%

At 16% interest, debt service would become 86% of the planned federal budget

2023 Budget ( 16% Treasury yields):

Debt Service: $5,000bn
Healthcare: $1,640bn
Pensions: $1,370bn
Defense: $1,170bn
Welfare: $510bn
Education: $240bn
NASA: $26bn

Conclusion:
Market Change is happening - rotation into assets with harder value underway.
Evidence from the bond market suggests the Fed is losing credability.
Long end suggesting inflation will be here for longer... and inflation will run its course.
Nasdaq 34% down... and US dollar falling, While gold copper commodities rising rapidly.
I think market is finally starting to realise Powell simply can't raise rates high enough to control inflation.
Cowbell has already sounded at the BOE and BO Australia; The market is on the hunt for assets that have real value - commodities erupt...

High inflation of 5-8% CPI will be here for longer. Positive real interest rates are a much longer way off than thought.
Rates cannot get above ~5% and 6% would almost certainly break credit markets... this is the 'financial stability' caveat Powel keeps mentioning.

So Powel cannot do a Volker ... to Service the US national debt at 16% would require a 6 fold increase in US tax burden.

That's just not going to happen.... Inflation will run its course (and conveniently inflate massive government debts away).

There is much pain ahead ( for any Joe Public not positioned to capture this). Feel for those exposed to panic stricken long only Hedge Funds invested in Apple + Amazon (where is the bottom?) Google and Meta.... They have a log way to fall.

As Luke Groman puts it " I do not recall ever before seeing GLD outperform TLT by nearly 500 bps in a single trading day."

Boom!!

Trading economics forecast
“Copper futures surged nearly 6% to trade above $3.6 per pound on Friday, advancing to levels not seen in over two months as reports that the Chinese government is considering a transition away from its zero-Covid policy spurred hopes of higher demand for industrial and construction inputs. Also, PBoC officials stated that economic growth remains a priority and liberalization policies will continue. Looming supply concerns also supported prices. Commodity trader Trafigura warned that global copper stocks have fallen to record lows, with current inventories enough to supply world consumption for just 4.9 days. Freeport-McMoran was also vocal about shortage risks, stating that current low prices do not reflect the tightness in the physical market.”

The Fed have already overcooked interest rates. The pointless, ivory-towered economists, on both sides of the water, are clueless about what's happening in the real commercial world! We're heading for a global recession, no doubt, whatsoever. The Fed increase was far too much, and the BOE had to follow, mainly to protect Cable. What should have been a 0.25-0.5% increase in the UK, predictably, turned out to be 0.75%, for that very reason, but also ignorance on the part of the BOE & their advisors.

The BOE should have increased interest rates at the end of last year, but, they acted on the idiot economists view that the higher inflation rates would only be transitory. I can't find any economist, including those wheeled out by the media, that said anything different, when anyone with any experience in the global commercial markets would have told them otherwise.

Now the Fed & the BOE are, yet again, behind the curve of what's actually happening. The inflation rate, IMHO, will fall off a cliff early next year, as we head into a global recession. They've overcooked, yet again, because they always do! We'll surely be heading into a deflationary period by Q2/Q3 next year!

Quite right CanisLycaon

I nearly fell off my chair, at this absolutely astonishing interview with Mervyn King, last week on Sunday with Laura Kuenssberg:
Watch here: https://www.youtube.com/watch?v=fp1ldxboGr8
(There are two key clips 6.10 mins and again 26.15 then 28.3 for the killer bit... )

As the Spectator put it King says the unspeakable: Central banks are to blame.
https://www.spectator.co.uk/article/mer ... s-economy/

Peter Schiffe and Mervyn king in the same camp...? Nothing short of Astonishing.
Ultimately, King blames the economics profession.

But key, King states we can "only defeat inflation with slow growth" ie huge interest rate rises (a la Volker) are blatantly impossible.
That means Real rates stay negative for longer and that's what sends gold higher ( and the market has finally begun to realise.... )
Cue the gold price going hockey stick vertical for the next 3 months...

Central bankers have been driving the economy using the rear view mirror, now with a foot on the break and the accelerator simultaneously...

What could possibly go wrong?

Now, the masses are catching on... Today I saw 3 new massive 60ft billboard adverts for gold and silver bullion, at the side of the M62 motorway.

That's a first. It's a sign... !!!!! The herd are arriving.

Strap in folks...

What's shocking about US inflation recently is it's in the 1970s-1980s ballpark now and ; completely unlike the 2000s!!
Check out these latest Fed charts....

Very interesting indeed … Thanks all for taking the time to share your knowledge and research - much appreciated

Hydro - those signs have been up for a while now; at least a year.

Something big happened this week Hydro, I believe you nailed it