Talking Stocks 2.0

[7sins]

Originally Posted by SDGT3

Fed will definitely go at least .75 this month then there's no meeting until Sept. Given the shift in commodities, I "believe" we've seen peak inflation and this will be the highest reading we will see moving forward. The question is how much lower will it go? Going from 9.1% to 8.8% isn't much of a move but if we can get to low 7's by Sept when the Fed is scheduled to meet again, then perhaps we get the anticipated .5% raise. Any higher then we could go another .75%.

Diesel is still stubbornly high which affects virtually everything being produced/shipped/trucked to market.

Agreed on commodity prices, however, only 7% of CPI is energy related. If you look under the hood of inflation, cost of goods and services is SURGING, with no end in sight. Many of these costs are causing rent/housing to further rise and housing represents ~35% of CPI. Until we get housing and rent under control you will have persistently high CPI numbers, even as commodity prices like oil and copper have dramatically fallen. I think we can all agree CPI is not the best measure of inflation as it is backwards looking but this is currently driving investor sentiment.

When you look at forward breakevens for inflation, you can see the market expects inflation in 5 years to be at ~2.3%, thus long term you should see inflation unwind. Regardless, the yield curve is already inverted, the most since 2000 and as the FED raises again, this WILL cause the economy to move from slowing to stalling to recession. Thus demising long term growth prospects and causing a safe haven bid for a flight to safety causing intermediate to long yields to sharply decline. This is why looking at the yield curve, which is the best indicator of future markets, the 1yr forward curve prices meaningfully higher short term rates 1 year from now where intermediate to long yields are pricing lower than today in a year. This is a further inverted yield curve and if you know how to position along the curve should be easy money to be made in bonds.

Just my .02 but if recession progresses there will be significant money (leveraged strategies like CEFs) to be made in mid to long term bonds as they rally - I would explicitly avoid taxable credit given OAS spreads are not much higher than historical average and I anticipate defaults to increase enabling spreads to further widen.



This to me on CDS is much more concerning, even if the consumer is less levered than 08, CDS should not be rising at this pace.