What am I thinking now?

Nothing.

No, genuinely.

I was chatting with Tim the other day and I said to him that my main goal for each day is to end up having to do nothing and having to think nothing.

Because that means you're doing something right.

But I guess every now and then you have to have some kind of thought behind where we're going.

I've said many times recently that macro is made more complex than it should be...

All we are doing is putting together all our bits of evidence to take a view on the opportunity cost of being in one position over another, based on how asset prices are valued relative to interest rates.

That's about it.

I wrote this article back in May (and yes, it's been a month since I put pen to paper, but you tell me if you wanted to hear more doom and death, or thoughts behind what the Fed was going to do leading up to this meeting or not, since nothing has changed!)...

I still think we're at about the neutral rate, and what will start to happen is the unemployment will show up in the data going forward...

And THAT will be significant.

In fact, I feel like this is an apt description of what each hike is doing...

Except instead of the outcome being an orgasm, we get unemployment.

That's actually what's desirable from the Fed's perspective, if we go by the belief the Philips Curve actually works...

Which... since Volcker hiked rates to like 189289238928923% in the 80s, completely trashed the notion of worker bargaining power for a few decades (OK, it wasn't all Volcker, but still)...

What's certainly 'not insignificant' is the same conditions as the 70s which led to Volcker's interest rate hikes are apparent now.

I mean, just one peek at energy prices tells you how similar things are...

Well, not really, they're just massively elevated, and the 70s was a period where we came off a great monetary boom due to the post war gangbang of economic growth, indulgence, boomerism and general rebuilding, all financed by Uncle Sam.

Oh, kinda like now I guess?

Look, I know what you're thinking...

'David, you were a transitory inflationista for 2021!'

Well, yeah.

But even Powell said something last night that was important, and was exactly what I had been saying for ages...

And so with this in mind, you have to read this meta-analysis (in the Tweet)...

What is extremely worrying, is if we take my definition of 'transitory', which is based on the above AND NOT THE SHITTY NON-EMPIRICAL DEFINITION THE MEDIA HAS BEEN TALKING ABOUT.

Then inflation is transitory as long as it comes back to target within 25 months...

So do you reckon if it isn't transitory and monetary policy has its feed through effect 25 months from March 2022 (first rate hike), that markets and economies can survive this without something drastic happening?

I don't think so.

When people say bad news is good news, that was true without inflation being apparent from 2009-2020, but not now.

The Fed isn't going to dramatically cut with inflation higher, just to support asset prices.

They literally can't.

Like, that would DEFINITELY encroach on their credibility...

And let's take a view on energy here to see whether we are at peak inflation.

Our view... we aren't.

And this is purely due to energy as I began alluding to above.

Let's take something Tim wrote a while back on the weird reason why US Nat Gas fell in price when the Freeport fire happened...

I mean, the outlook for Germany (and the Eurozone as a whole) doesn't look great now going into the part of the year when most Nat Gas will be demanded...

For example, on June 1st, there was 1.75bn kW/d being sent via the Nordstream pipeline.

Yesterday, there was 372mn kW/d...

That is a huge reduction; planned, yes, but still huge and it is likely to average much, much lower than historical for the rest of the year.

And we can look to Asia too at what's going on there...

The supply constraint on Europe is pretty grippy.

And there's a lot of talk of peak inflation, which is driving me to think that being long oil is a good idea.

Purely because trading Nat Gas makes you a crackhead and I don't want to be a crack head.

But we're in a regime where I feel energy has an uncertain future; geopolitics has has stifled global supply chains, alongside the pandemic of course and we're going through some serious recalibration, which I don't even think has started properly yet.

The big push to green has meant underinvestment in fossil fuels over the past few years (yet we still need them badly)...

I think this means that oil will have much more volatility until we're out of the woods where inflation makes a big push downwards on consumer spending, durable goods orders etc...

And we just aren't seeing that yet with consumer spending coming in at 1% QoQ today.

We could always hark back to our view on the wealth effect and housing...

Oil technically looks bullish again though, which is a very poor sign for the economy if we do believe that housing is to come down, reducing that wealth effect...

And I wouldn't be surprised if we revisit $120 for peak craziness...

Headlines reading 'THE FED REALLY DON'T KNOW WHAT THEY'RE DOING!'

And remember, with the dollar up here, if the FIMA does come online in size over the next few weeks (check HIBOR rates - not pretty), there's every chance a softer dollar gives another boost to energy prices.

Check that piece out from last month below.

In all, I'm bullish energy amidst the 'peak inflation' chatter.

It just doesn't make sense to me until we start seeing the consumer REALLY get killed - and that comes with a broader uptick in unemployment... :(