Good post! The economy has been running hotter for a while now than most economists were expecting.
2 small pushbacks:
- Retail sales dropped by quite a bit in January
- Re “reduced foreign demand for US debt”: Brad Setser and Michael Pettis are adamant that the Chinese government is simply buying Treasuries through its banks.
Re-reading this now and few were as convinced we'd have higher inflation print as yourself. One thing I wanted to ask as someone not super comfy trading bonds, is why not just advocate for gold longs if you believe inflation will come in hot? Is it too much of a downstream/2nd order derivative trade idea?
I think pairing the gold long with the bond short is a solid expression. Gold will do well unless the bond selloff becomes too much and causes a bigger liquidity issue. Even in the worst markets, gold can get sold as people rush to sell what they can. Over a longer time horizon though I agree gold will do well. The two together provide solid diversification.
Good post! The economy has been running hotter for a while now than most economists were expecting.
2 small pushbacks:
- Retail sales dropped by quite a bit in January
- Re “reduced foreign demand for US debt”: Brad Setser and Michael Pettis are adamant that the Chinese government is simply buying Treasuries through its banks.
https://www.bloomberg.com/news/articles/2023-06-30/china-has-3-trillion-of-hidden-currency-reserves-setser-says
Thanks for the feedback! Good points
Just noting I agree with conclusion but I wouldn't mess about with the steepener. Just be short 10s and chill.
Agreed
Re-reading this now and few were as convinced we'd have higher inflation print as yourself. One thing I wanted to ask as someone not super comfy trading bonds, is why not just advocate for gold longs if you believe inflation will come in hot? Is it too much of a downstream/2nd order derivative trade idea?
I think pairing the gold long with the bond short is a solid expression. Gold will do well unless the bond selloff becomes too much and causes a bigger liquidity issue. Even in the worst markets, gold can get sold as people rush to sell what they can. Over a longer time horizon though I agree gold will do well. The two together provide solid diversification.