Eric Wallerstein

yields going back to 4% it looks like

massively bullish bonds

pretty interesting analysis, especially considering how quickly it was whipped up.

@BrianLe_Blanc each participant appears to be laying out their July plan + reaction function for future meetings. if you’re outright hawkish following the inflation misses this week then I imagine you are dissenting.

@ericwallerstein Do we know if Warsh is giving a presser? Do you think they're setting up for dissents, or do you think they're just getting a hawkish word in before blackout?

will certainly be an interesting FOMC; no change + Lorie & Beth dissents is the base on betting markets. then two months of data before Sept FOMC—July labor & CPI, + Aug CPI. still have 1+ hike priced in this year. Lots of opportunities to fluctuate over next two months

i think if i was hawkishly inclined i would take more shots on the short-side of the yen. it appears to me like they’re waiting/hoping for US eco weakness to take the pressure off for them, rather hiking.

@EtraAlex not sure that data is right since ahe, even for production and nonsup, fell negative in real terms . and eci and ahe are both around 3.4% nominal

Logan builds her case for rate hikes on two notions: 1) inflation is not heading to 2%, and 2) wage growth is not beating inflation. I humbly submit this data: Real wage growth has been ~1% for the past two years, and inflation expectations are consistent with 2% PCE

@EtraAlex quarterly. does it look much different?

@ericwallerstein Why not use constant dollar eci?

a nice balanced breakdown of how shocks affect the economy and r* from Vice Chair Jefferson. importantly, both the Vice Chair of the Board and Vice Chair of the FOMC have weighed in: policy is well positioned. amid internal regime change and several macroeconomic shocks, policymakers views are likely to evidence greater dispersion. it’s therefore even more important to mind which voices carry sway and reflect legitimate economic forecasts. what used to work—measuring fedspeak sentiment and obsessing over potential shifts in the dotplot—is no longer a suitable strategy for Fed watching. rather than relying on some sort of delayed reaction function, it’s important to Do Your Own Work in analyzing where the economy may go. federalreserve.gov/newsevents/spe…

@BraxResearch 2s5s steepener short belly in the fly if you want to take a shot at the long end iirc you mentioned 2s5s elsewhere

Still a medium-term bond bear but a tactical long is looking nice for next 2 weeks as we enter a data and event vacuum. Most rates are near top of ytd range and ytd story has been mean reversion. Previous 4 breakout attempts failed in Dec/Mar/Apr/May. Don't think we have the narrative or positioning setup for this time to be any different. 5 of last 7 major eco releases have missed (including the big 3 NFP/CPI/PPI) and now no new data for 2 weeks to change that narrative. Warsh sounding incrementally less hawkish every time he speaks, hike odds declining, and no Fed meeting for another 2 weeks to reset the tone. AI capex narrative losing steam with most AI equities -10 to -30% lately. Also entering peak earnings blackout which means a pause on corporate issuance. CTAs extremely short bonds and notable bond permabulls are becoming bears. What happened in prior years during the late-July data vacuum? US 10y -30bps in 2025 and -50bps in 2024. Lean bull steepener rather than bull flattener. Hoping to make money on the long side and roll those profits into an even bigger short later. Risk to longs is new 301 tariffs (122 expire Jul24) or major Iran escalation or BOJ surprise. Thoughts?

@patrick_saner true. what do you use for understanding/forecasting year ahead inflation? i’d happily use an alternative

@ericwallerstein Contrary to popular belief, inflation expectations - be it in the form of swaps or surveys - have no predictive power anyway.

p.s. great chart from the FT -- showing the limited flow of rare earths out of China post Busan ft.com/content/a5018a…

@eastasiaecon totally agree. but do think Shin having the resolve / political buy in for the hikes required—and Ueda lacking one or the other—should lead to movement in that pair at the very least

@ericwallerstein That *should* be what happens. But even without the BOK, the macro story in Korea *should* have been strong enough to produce some KRW strength relative to JPY in the last 12M. And yet, none!

after BOK expectedly hiked, Gov Shin sounds quite hawkish. imo, continued BOJ inaction and delayed hikes will put intraregional fx pressure on Japan, further raising import-induced inflation. upshot: upward pressure on KRWJPY thru remainder of year unless Ueda gets buy-in

1/ This week @PIrelandEcon @SteveMiran and @Nouriel released an interesting new paper exploring the case for reincorporating monetary aggregates into inflation analysis. The bottom line: yes. This is a helpful report that resonates with some of my priors. hudsonbaycapital.com/documents/FG/h…

the revival of Mervyn King’s Maradona theory of interest rates presaged this outcome 🇦🇷

theme across BofA spending data, Beige Book, and other sources: consumers trading down, choosing discount stores, and spending less on discretionary items.

@MattZeitlin @ArchieHall

three things i like about this thread: 1) concise 2) everyone else hates it 3) none of you care to ponder which “few allies and partners” he’s referring to, and what implications that may have.