Bearish Steepener

Today was a bit of a scary day in the markets, with yields up across the board, the yield curve steepening with long rates coming up, commodities continuing their rise, and stocks flat or down.

A lot of sharp people have been warning that the markets are going to have to start reckoning with a world of persistent higher inflation, and overwhelming treasury supply. Today’s PMI Data was scary enough to the markets to make you wonder if these considerations are going to start mattering again.

One of my favorite bears on this site,

PauloMacro

, has been talking for a while about higher rates and even mentioned 6% rates today in one of his chats. I’ve thought for months now that these are ideas the markets are going to wait months, maybe even years to grapple with, but maybe not.

Flows, Flows, Flows

Bonds have struck me as a good asymmetric short for a while now, and I wrote on 3/28 about putting on the TLT short.

3/28/24

I think it’s important to remember that price changes are all about flows. What assets is money moving out of, and what assets is money moving into?

Provided we don’t get a big inflation shock, stocks and bonds will go back to trading inverse. The reason both stocks and bonds sold off together today after the PMI data is because it leads to inflation fears. Inflation is bad for stocks AND bonds, but good for commodities.

So as bonds sell off to send yields back to an attractive level, where will stocks go?

That depends entirely on your view of inflation. Given my personal view that inflation really WILL be largely transitory, that means stocks will go…

Up.