Craig Shapiro

Partnerces921@Round

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Macro Strategist: Ninja Trader Live, Cross-Asset Trader 20+ years, Ex-SAC, Ospraie, Graticule and Circle Lane Capital

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China stepping up the economic war games ahead of Trump

1

Jan 4, 2025

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Is the US$ wrecking ball coming back out?

With Chinese stimulus disappointing expectations and China now expected to wait until they know more about Trump's specific intentions before committing to more, it seems like FX market's could be poised to start trading the Trump tariff agenda more aggressively now and into year end. Strong dollar against Euro, RMB and MXN most likely to continue especially as US growth continues to outperformNov 8, 2024

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Will the old Fed Doves become hawks with a Trump / Republican Sweep?

Just a reminder that as of the last Fed meeting, 9 of the 19 Fed members were still only looking for 1 more interest rate cut this year. After today, that means close to half of them would be fine not cutting again this year. Now think about the political make-up of the Fed and the potential reaction function with a Republican sweep administration. I would assume that most of the doves were more left leaning in nature, particularly those that were appointed by Biden. I am thinking specifically of folks like Jefferson, Kugler, Barr and Cook. Even those like Williams and Daly may be more inclined to think about this now as well (forget Goolsbee, he's a doves dove). Now that the Dems are out of power, there is probably on the margin less desire by them to continue with their dovish ways in order to save the labor market and perhaps more concern about the prospects of a return of inflation next year with a more aggressive Trump pro-growth/pro-tariff/pro-deficit policy. Do we start to see a turn at the Fed now shifting in a more hawkish direction, accepting of less accommodation next year now out of fear about the upside risks coming back from inflation? I know individual politics doesn't factor into their decision but cmon, ya gotta wonderNov 7, 2024

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Gold as discipline enforcer

Gold has acted as a discipline enforcer on profligate government spending for generations. Once the gold standard era was ended in 1971, it needed to be replaced by some other enforcement mechanism to deal with inflation and government deficits. This was supposed to be done by central bankers raising rates to fight inflation and by allowing bond vigilantes to use market pricing to help force governments to change their tax and spending habits. If/when that didn't work, the country's fiat currency would get destroyed and the nation would often require some sort of bailout by the IMF. Rinse and repeat, no big deal as long as the emerging market countries said they would try harder next time and as long as they stayed within the US$ backed system. The problem we have today is that most central bankers, particularly the US Federal Reserve, do not act in ways that enforce any discipline on government spending. And then they don't allow bond vigilantes to do their work to instill that discipline either because it threatens "smooth market functioning" of sovereign bond markets. So it's the worst of both worlds from that perspective. Government deficits are blowing out, especially in the US, where there is no hope to figure out proper tax and spend policy to reign it in. But the Fed enables this dysfunctional behavior to continue in DC and has allowed the US government to abuse it's exorbitant privilege for far too long. But the chickens seem like they are finally starting to come home to roost as the rest of the world is taking notice, setting up an alternative system and moving away from financing US debt. Foreigners haven’t bought USTs on net since 2014, instead purchasing gold as a neutral reserve asset. I was recently reminded by that Volcker himself was eventually supportive of the US taking itself off the gold standard in 1971. But as Fed chair, Volcker at least acted in a way that put some discipline into the government and economy by raising rates as aggressively as he did to help slay inflation. If more acted like him, particularly the Fed, perhaps Gold wouldn't be needed. But they don't. So it is. And it's breaking out to all time highs. Immanuel Kant said, "Man must be disciplined, for he is by nature raw and wild." Central bankers are men. They need discipline. Gold is being re-inserted back into a multipolar currency world to provide it.Aug 25, 2024

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Powell's pivot is a signpost for currency debasement trades

Powell cutting rates within a whisker of the all time spx high, with credit spreads basically record tight, with inflation running above 2.5% while employment is at a level that would be considered at maximum for most of the last 50 years of data is a massive capitulation that will usher in a tremendous hard asset boom as he is sacrificing the long time stability and hegemony of the US$ to help save US govt finances. It's hard to find an alternative explanation for the speed of pivot and throwing out most Fed reaction function orthodoxy. It is what it is. We knew this was coming eventually. I thought it would happen after more pain was seen in the economy and financial markets first to give more time before inflation returned but Powell is trying to pre-empt the pain in an election year and help his "legacy" of nailing the soft landing without any issues. I doubt history will wind up being so kind to that legacy. I predict a return to inflation before lower rates are able to save the deterioration in the labor market. Get your currency debasement trades on. And this time, with a real alternative financial system away from US$ and UST being created at an increasing pace in BRICS, things are likely going to be different this time. Got Gold! Got Bitcoin!Aug 24, 2024

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Japan "flinch" doesn't look so good for sovereign bonds

If Japan can't raise rates off zero without breaking the system, why the heck does anyone want to own a long duration sovereign bond from any government ?Aug 7, 2024

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Trump underwhelms at BTC Nashville but good enough

As expected, Trump couldn't hold a candle to @RobertKennedyJr on his understanding of the need for and benefits of Bitcoin but he did pander enough to the Bitcoin community to get applause and donations. We have come a long way from Trump calling Bitcoin a scam. A strategic Bitcoin reserve for America is a great idea and I'm happy to hear Trump embrace it There is no way he has anywhere near the knowledge base or the passion for freedom that @RobertKennedyJr expressed yesterday but it is pretty historic to hear the leader in the presidential race talking about his support for Bitcoin. Truthfully I have no idea whether or not Trump is genuine here or not as he has historically shit on Bitcoin but folks tell me he's coming around and has been Orange pilled. I'm suspicious but we will see what happens. Biggest question I have regarding the direction that Trump will take with the economy and the $ will be who he chooses for Treasury secretary. Most of the choices being thrown around so far are Wall Street or hedge fund guys who are going to make it harder to really change up the monetary policy system in a way that Bitcoiners believe is necessary. However, a move in another direction toward a hard money advocate would suggest real potential for fundamental change. Time will tell.Jul 27, 2024

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French Elections This Weekend Could Bring About Some Chaos

Great article here by @izakaminska discussing some of the dynamics in Europe heading into the important French elections. There is some increasing talk of the ECB standing down near term if an adverse French election results this weekend and allows French spreads to blow out a bit as a way to punish the fringe party efforts to run up massive fiscal deficits. The ECB allowing spreads to widen and allowing markets to enact discipline on newly elected French leaders could be very risk off for Europe in the near term (euro, sov spreads, equities) until we found the new level of the ECB "put." This seems like a risk that is woefully underpriced in markets outside of Europe currently.  Jun 28, 2024

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Alpha unwind begets beta face plant.

Day 3 of the alpha unwind today. Momentum factor drilled again. While folks think we are going to get a broadening of the rally here as money flows from mag 7, I think more likely to get a highly correlated beta face plant as liquidity drains into quarter end windows dressing.Jun 24, 2024

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My Weekly Webinar - 6/19/24

Jun 20, 2024

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Chart of the Day - Inflation Expectations Are Not Well-Anchored

Jun 14, 2024

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The Fed's Trichet Moment?

Jun 13, 2024

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Was Yesterday the Fed's Trichet Moment?

Hypothesis: Yesterday may have been the Fed's Trichet Moment. Signaling a higher for longer outlook as the economy has begun to roll over means we are assured of a harder landing. Enter the narrative "The Fed is Behind The Curve." Bad setup for small cap equities. We are finally at the point where the long and variable impacts of monetary policy tightening are hurting a large enough portion of the economy to overwhelm the benefits that we have seen so far from higher rates that have been afforded to the wealthy asset holders, homeowners with locked in low rate mortgages and corporates that were able to borrow cheaply during Covid. However, this transition to a growth slowdown has just begun and since inflation is still well above target, while the unemployment rate is still quite low by any historical understanding of maximum employment, the Fed will to be slower to react to the growth slowdown, which actually will increase the likelihood that the slowdown will become worse than expected as we move into next year. The Fed needs to wait longer before acting in order to be sure that inflation has been slayed. However, their asymmetric policy stance, where the bar to cut is lower than the bar to hike, has created extraordinarily loose financial conditions which continues to bid up asset prices, and thru the wealth channel, makes achievement of 2% inflation that much more difficult. The market has already front run the Fed's reaction function and this complicates the Fed's ability to deliver on easing. Since the Fed has basically neutered QT as a tool to help with asset prices by starting their tapering of QT, the only real tool they have left is the Dot plot. They need to show the market that their reaction function is slower and will be less accommodative than folks believe. The only way to do this is to remove cuts from their outlook, both for this year, and importantly for 2025 . They did this yesterday by moving in a hawkish direction despite lower than expected May inflation data. They took up their forecast for core PCE for 2024 as well. They also moved the LT neutral rate higher. So the Fed is shifting in a hawkish direction as the data is shifting the wrong way. With nominal GDP growth momentum finally decelerating, it will be hard to generate earnings growth momentum to support stock prices. With the Fed slow to deliver accommodation until unexpected weakness in the labor market shows up, it will be hard to get further multiple expansion from on an already overvalued stock market. The strike price on the Fed's "put" to act is lower than here. My favored portfolio expression in short small cap equities and long gold on the above thesis.Jun 13, 2024

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Chart of the Day - Oil to Gold Ratio Breaking Down

Jun 6, 2024

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The "Goldilocks" Productivity Miracle Is Needed But Is Unlikely To Come

If you are a buyer of NVDA (and related AI/automation names) and believe all the hype about their growth and productivity improvements that will structurally improve corporate profit margins, then you need to be a size seller of the long end of the UST curve because the debt based monetary system is not able to handle the wage deflation that comes next. The labor displacement will force the subsequent need of the US government to come in and provide stimulus for its increasingly displaced labor force. The deficits are going to explode even further. Investors are looking for the "Goldilocks Productivity Miracle" that arrives just on time, not too early or too late, and is not too big and not too small. Needs to be just right in order to thread the needle to balance between deflation and inflation that will ensue as the government puts more workers on its own payroll while already operating at 6%+ deficits as % of GDP and debt to GDP levels above 120%. Could happen. I'm not betting on it.Jun 4, 2024

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Inflation still too hot

Core PCE comes in at 0.249, basically spot in line with expectations which isn't surprising given most economists have nearly all the data ahead of time with the CPI and PPI releases. This doesn't really change much about the trajectory for the Fed coming into the June meeting from what they have been saying over the last few weeks which is disappointment about the pace of returning inflation back down to 2% to start the year and thus the need to hold policy rates higher for longer in order to bring inflation down to target. That means we are going to be removing interest rate cuts from the Dot plot at the June meeting for 2024 and probably 2025 as well, in addition to potential further rises in R* as a tool to tighten financial conditions further. So what we have is an economy that has begun to stall out as the lagged impacts of monetary policy are starting to bite more segments of the economy in a larger way however given sticky inflation, we have a Fed that is not going to be providing any accommodation any time soon. I still content this is a challenging setup for risk assets in the coming weeks especially as we continue to get data next week that shows the labor market holding in well while pricing pressures remain elevated.May 31, 2024

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How Does The SPX/NQ Bubble Pop? - Revisited

May 28, 2024

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The Economic Warfare is heating up

Check out my latest thoughts with an action packed couple weeks coming up where geopolitical leaders are flying all around the world. Seems like changes in the global monetary order could be accelerating https://roundtable.io/crypto/thealetheanarrative/global-macro-truths/economic-warfare-continues-May 20, 2024

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My thoughts on the trading week ahead: 5/6-5/10

As we look ahead to this week's trading, although there isn't a ton of US macro data on the calendar, we are reminded that Janet has a lot of paper to sell this week. $125bn combined of 3y ($58bn), 10y ($42bn) and 30y ($25bn). Treasury generally sells these three issues in the same week and this $125bn combined compares to $121bn in February, $112bn in November and $90bn in August (the first months post QRA are always the highest for the next three month period). Number go up! Given the Apple buyback news, we should also get a pretty sizable bond offering from them next week which will add to the fixed income supply coming down the pipeline. The economic data we got this past week for the most part showed an economy that is starting to slow but has very sticky inflation pressures. This is going to make it harder for the Fed to provide accommodation any time soon as they need to keep rates higher for longer to bring inflation down. Although Powell sounded dovish at the press conference and did deliver QT tapering beginning in June, I don't believe that he spoke for the entirety of the Fed last week. We have already heard from Bowman who once again cemented her position as the most hawkish Governor on the FOMC, as she suggested that rate hikes are still on the table as there remain upside risks to inflation. She commented: "While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed." Even Goolsbee, considered amongst the most dovish members, wouldn't admit that rate hikes weren't discussed at the meeting when he was pressed about it in an interview. We will hear from various other Fed members this week including hawks like Barkin (voter), Kashkari (non-voter) and Logan (non-voter) as well as more dovish members like Jefferson (voter), Williams (voter), Collins (non-voter), Cook (voter) and Daly (voter). Fed nerds like me will be listening closely to get a sense of what triggers members are looking at from the data to suggest whether or not they think risks to their next move should be more dual sided between a cut and a hike in order to bring inflation back down to target. Clearly there was some talk of rate hikes at this most recent meeting which means that it will be harder for Powell to kick off an easing cycle later this year unless we have a drastic slowdown in the labor market, something that is yet to be observed. I still contend that Powell needs unanimous consent before starting this rate cutting cycle in an election year as he has been the consensus building Fed chair for years and has only had one dissenting vote since Covid. A rate cut decision with dissenting votes would be seen as highly political and I think this would tarnish his reputation as well as the Fed's credibility (assuming that is something they still care about). The Fed has put itself in a box here. They are afraid to raise rates and put more pressure on the economy but also can't really cut rates because it will further awaken animal spirits and inflation expectations. They can't use their balance sheet as a tool to drain liquidity more aggressively because they want it to operate in the background like watching paint dry (and beginning the tapering of QT next month adds liquidity on the margin which is ridiculous but don't get me started on that). As for Treasury, we learned last week that tax receipts are coming in lighter than expected while spending growth continues to accelerate, so the need for duration issuance is going to be with us for a while and remains difficult for folks to front-run given the size. The strike price for Yellen to provide liquidity relief to the markets aside from her token buyback operations is at a lower level in risk asset prices from here. With inflation pressures still elevated and more duration supply coming, it will be very interesting to see how the bond market handles the new issues. I suspect we are going to continue to see rising yields, rising term premiums and higher compensation needed for the private sector to take down this capacity, which should keep pressure on risk assets over the next week. I am short small caps as my preferred vehicle to capture what I think will be pressured risk markets in the weeks to come.May 5, 2024

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The Alethea Narrative, my new website, launched yesterday in partnership with Roundtable.

https://roundtable.io/crypto/thealetheanarrative/ Let me know what you think.May 2, 2024

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