Back to the future, part 2

Everyday is a new development in the West’s battle against Yemen. I think it is important to go back to the beginning to understand exactly why the Houthis in Yemen are doing what they are doing.

I think this lays it out pretty clear. The battle between Israel and Palestine is having 2nd and 3rd order consequences and I feel the market is beginning to understand the possibilities.

Here’s a look at crude futures on a weekly basis:

I know with reduced transits through the Red Sea, more oil is going to be needed as those ships will re-route around South Africa’s Cape of Good Hope. This should put a floor under the demand for oil and in doing so, will put a floor under inflation data.

This has not yet shown up in the ‘core’ PCE index which was published today. The ‘core’ PCE index is at 2.9%. Mission accomplished!, the PCE index finally shows a 2 handle. Time for the Fed to pivot, right?

We’ve got 5 days till the next Fed meeting and the market still believes we could see 6 rate cuts in 2024.

I continue to be highly skeptical that rates are going to get cut more than three times this year and after reading PauloMacro’s latest substack piece, I’m having a really hard time seeing any rate cuts at all.

Crossing the Event Horizon on Labor and Wages

Demographics, full employment, boomer spending, and wage inflation all point towards a Fed that will need to keep interest rates higher for longer. I have yet to get a straight answer about why the Fed should pivot while we have full employment, wages trending higher, and consumer spending strong. At best, it is because they parrot the line from the mainstream media. At worst, it is because they know that Congressional spending is out of control and they need the Fed to monetize 7% deficits.

Interest costs on government debt are going higher and the interest rates on that debt are going to go higher too. There is no trick that Janet Yellen is going to be able to pull to stop it. The best she can do is delay. Her mission continues to be to get the Fed to pivot and if she can’t get them to pivot on the fed funds rate, she’ll try to get them to pivot on Quantitative Tightening. By loading up the market with short duration treasuries, she is attempting to drain the Reverse-Repo facility and force the Fed’s hand to restart QE. When both of these fail, she’ll slide out of office and these actions will then become a poison pill for the next administration to deal with. Her time is running out.

Former President Trump has had very decisive victories in Iowa and New Hampshire. The democrats are attempting to play games by flooding primaries with votes for Nikki Haley. Understand that this is a losers game. The left’s attempts to stifle Trump with primary games and lawfare are failing and reek of desperation. Here are the key dates moving forward concerning the upcoming election:

As it becomes increasingly clear that Donald Trump will return to the Oval Office, the market will begin to anticipate this and price it in.

As a side-note;

I’ve been spending much more time on X (you can find me here). I feel this is where real news breaks first.

In addition, I’ve really enjoyed Tom Luongo’s content. I highly recommend his Slack server community which is part of his $4/mo Community member level on Patreon.

Finally, at the end of last year I signed up for Calvin Froedge’s substack. He has been a great source of information and has some tremendous stock picks. You can follow Calvin on X here.