MAD Macro - Inflationistas and Fiscalistas
Inflation Reduction Act, Very Funny Guys
Inflation Reduction Act at Work
There was a very messy 30yr Treasury auction yesterday afternoon. Deficits do matter and I admit to being both an inflationista and a fiscalista. So there, Paul Krugman and David Zervos, I admit it. I read and understand Paul and David when they argue that debt and deficits don’t matter. But whenever I read their arguments I can’t help but think, wait a minute, how about using some common sense? Today the WSJ has an interesting article on U.S. debt and deficits, linked here. It’s titled “The Federal Deficit Is Even Bigger than It Looks.” There are some good charts which I included below. Paul Krugman will probably write a rebuttal to this article in his Wonking Out column in this weekend’s NYT. It’s hard to look at the charts below and argue against common sense, but I am sure Paul will find a way. Back to yesterday’s 30yr auction. It had a 4 basis point tail. The simple way of explaining the tail is the bid offer as the Treasury auctioned 30yr bonds. The last time we had a 4 basis point spread was when the bond daddies of Little Rock, Arkansas, were making markets in the early 1980’s. Importantly, it mattered to the market. In reaction to the auction tail, 30yr yields jumped from 4.67% to 4.88% within a few minutes. It’s also why equities sold off yesterday afternoon.
Washington is still a mess, which is why we have deficits. The Republicans can’t find someone to be Speaker of the House. The Tin Man is pissed off at Jake Sullivan. The Orange Monster has truly lost his mind and is saying some very stupid stuff about the new Mideast war. No leadership in sight. The newest war is about to get even worse. While Antony Blinken, the U.S Secretary of State, was meeting with Israel’s Benjamin Netanyahu in Israel, Iran’s Foreign Minister, Hossein Amirabdollahian (I checked the spelling) was meeting with the head of Hezbollah, Hassan Nasrallah, in Beirut. It’s no surprise that oil and gold are higher this morning.
Equity markets are slightly lower this morning. It is Friday and there is a Mideast war, so we might see some de-risking today. Big Bank earnings are coming out this morning and they look to be ok, no bad surprises so far.
I updated the U.S. Dollar Index, U.S. 10yr yield, U.S. 10yr-2yr yield, WTI crude oil, spot gold, bitcoin, S&P futures and NASDAQ 100 futures charts below.
The dollar is unchanged after rallying yesterday. 10yr yields are lower after rising yesterday on the higher CPI and poor 30yr auction.
WTI crude oil and gold are both higher on the war. Bitcoin is unchanged and continues to trade in a narrow range.
Both S&P and NASDAQ 100 futures are a little lower.
IMPORTANT DISCLOSURES AND DEFINITIONS
Unless otherwise stated, Bloomberg is the source of all data and charts.
S&P 500 futures are a type of derivative contract that provides a buyer with an investment priced based on the expectation of the S&P 500 Index’s future value. Nasdaq 100 futures are commodities futures products traded within the equity futures sector. West Texas Intermediate (WTI) oil is a benchmark used by oil markets, representing oil produced in the U.S. Brent Crude Oil is a blend of crude oil recovered from the North Sea in the early 1960s, whose price is used as a benchmark for the commodity's prices. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners. UBS Bloomberg Constant Maturity Commodity Index is a total return rules-based composite benchmark index diversified across commodity components from within specific sectors.
The information herein represents the opinion of the author(s), an employee of the advisor, but not necessarily those of VanEck. The securities/ financial instruments discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/financial instrument, or to participate in any trading strategy.
Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.