Thank God my macro instinct flashed a “get out” SOS in late February and I dumped King Dollar for Bonnie King Charlie’s British pound before New Year late last year and thus averted fate worse than death/Matty miskeen. My macro guardian angel now whispers a few subliminal ideas.
One, Chinese factories shed 20 million workers last week and hiring is down 30%. So the youth unemployment rate, declared a state secret in the PRC with the usual bullet in the neck routine for violators, must now be in the 30-35% range. Economists in the Virginia suburb estimate that 150 million Chinese workers will lose their jobs if exports to the US and its 75 pro-Washington allies crawl to a halt, as will happen this winter. How will the Politburo respond to this economic sclerosis? I position for the mother of all Chinese devaluation. Trolls who dissed me and argued that Xi blinked when he went eyeball to eyeball with Trump are living in their own visceral anti-American cloud cuckooland as Xi could become as impotent as Tony Blinken. The Dr. Kissinger of the sleepy Joe White House, who can no longer even enter the state building at foggy bottom. Suckernomics 101 will haemorrhage cash, as usual.
Two, the FOMC conclave meets in its marble palazzo on DC’s Constitution Avenue on May 7th and the Chicago futures curve assigns a pathetic 20% probability of a rate cut. A $12 trillion stock market meltdown, a trillion dollar basis black hole in the Treasury bond market, a 10% plunge in King Dollar and safe haven flows into German Bunds, mortally wounded hedge funds and systemic algorithmic pools of capital beyond the wildest dreams of the poor Abu Musa Al Khwarizmi, the mathematical maestro of Abbasid Baghdad are still not enough to persuade Chairman JayPo to do a monetary policy U-turn on May 7th. Haram!
Three, the FOMC has gone on a warpath with its refusal to slash rates even if Wall Street bleeds money and the economy tanks because the inflation rate is above the Fed’s dual mandate 2% target as 70% of sellers in Amazon are Chinese goods and 30% of inventory in Walmart hails from the Dragon Empire, all bets are off for rates when the CPI shoots upto 5% even as home mortgages cost 8%, taking down American housing by 20%. So Mattinomics suggests that Get Shorty trades on homebuilder stocks will remain molto yummy.
Four, the gods on Mount Olympus have forsaken my tribe’s global financial village even as it faces its worst asteroid collision since the summer of 1931 when Smoot-Hawley ignited the depositor run on Creditanstalt, the Rothschild bank, whose lineal descendants in Paris invited Manju and I to a wonderful soiree in the home of the Swiss ambassadress (Dankeschon Angelica). Her brilliant husband Faruk Bey taught me more about Sultans Bayezid, Salim Yauz, Sulaiman Khan Kanuni and Cardinal Cem Sultan, who defected to the Vatican and whose treachery has not been forgiven on the Bosphorus even though 500 years have now passed, than I ever learnt in my lifetime. Tesekkurler Faruk. My hosts at Rothschild were the swab Occitan financier bro Raphael, the principessa di credit Miriam and true master of the universe Mike Clancy, who once worked just down the road from me in Wall Street a long time ago in a galaxy far far away. The best investment bank in the DIFC and MENA? The House of Rothschild, now led by Baron Alexandre and UAE satarap Raphael.
Five, a thousand years of English history have taught me that the Crown always wins. Always. A decade of MAGA teaches me that in the coming catfight between Trump and the Fed Chairman, Trump will mud wrestle JayPo into the dustbin of history. So a new MAGA central banker, who will dance to the tune of his omnipotent Boss-Man will slash the Fed funds rate to 1% even as 10 year USD note yield heads to 6%, the stock market loses one third of its value, the world economy slips into stagflation with 0% growth and 5% inflation. The kings of finance grow Yippy in risk assets and the gold bull run accelerates to $5,000 an ounce. Midsummer night macro fantasies? Not at all, merely the cold calculus of risk, hubris, leverage and loony tune trade realpolitik in the sordid game of nations.
Six, who says time is linear on Wall Street? In fact, time goes backwards in the Age of Trump, like a beheaded vizier walking backwards in the court of Salim Yavuz’s Topkapi Serayi. We have now returned to the fateful autumn of 1979. When I was a school boy in Dubai and watched the Peacock Throne wobble and then topple in the madness of the Iranian Revolution. Yet something wonderful is now happening in the diplomatic chancelleries of Washington and Muscat. Imperial Iran was once Uncle Sam’s closest friend and gendarme in the Nixon/Carter era. The surge in the Iranian riyal/equities last week was all too real. President Masoud Pezeshkian is the Persian Gorbachev for whom the civilized world and Iran’s own abused youth have waited for two generations to lead them out of the nightmarish tyranny of the mullahs. This could mean a trillion dollar economic reconstruction bonanza and I want to be positioned for the greatest adventure of my life. After all, Manju and I never lose any opportunity to increase the continually expanding frontiers of our own ignorance. Buona fortuna!
via What next for global risk assets and dollar rates?