QI PRO HOLY GRAIL DASHBOARD

QUICK QUILL — In a sign of stress, consumers are buying less food. Home builder pessimism and waning wage pressures also point to disinflation as do the Philly Fed future cost and price metrics. All told, this adds to the run of data that should price out future hikes. Though sure to be lost on Fed officials blinded by politics, downside surprises in either today’s import prices or consumer expectations would bolster the rate rally camp. (Are you ready for some FOMC blackout?)

TAKEAWAYS

  1. When deflated using CPI Food at Home, real food and beverage sales fell 0.4% MoM in June, bringing the YoY pace to -1.6%, a 10th straight month in the red; meanwhile, real food services sales rose just 0.4% YoY, continuing a streak below the 2.7% long-run average since October
  2. NAHB Home Builder Sentiment fell to 34 in July, just three points above the December 2022 cycle low; the use of sales incentives by builders has been north of 60% for 16 months, and weak builder sentiment validates continued easing in Goldman Sachs’ Wage Growth Tracker
  3. Philly Fed Future Prices Paid have fallen from November 2025’s local high of 74.5 to their current 56.7, while Future Prices Received are down from May’s high of 67.2 to 41.4; the declines in both series echo the NY Fed’s evidence of peak costs and pricing having passed

LONG MACRO

Recession probability to rise into 2025’s second half as private demand underperforms. The tariff shock should generate greater risks for a downshift in business investment and a more challenging environment for consumer cyclicals vis-à-vis consumer non-branded noncyclicals.

Manic shifts in U.S. politics harken first a deflationary gully to cross followed by the threat of impeachment and ultimately, a fourth change in administrations in as many U.S. presidential elections, a first in sequential terms since the precipice of the U.S. Civil War. The subsequent pendulum swing will manifest as Universal Basic Income/Modern Monetary Theory, and with it, the secular rise in inflation being prematurely predicted today by those positioned to profit from being short Treasuries.

Saturday Intelligence Briefing — 7.18.26

“You Deepsunk my Battleship! AGAIN!!” Gray-haired veteran traders heard this in their heads Friday alongside the sting of being fooled twice. The thing is, few were surprised about Moonshot, which needs no description. On Thursday, Bloomberg reminded the Street about DeepSeek’s adoption using simple math in the heart of San Francisco: “Lindy AI had been using Anthropic's Claude Sonnet, but switched to DeepSeek after six weeks of evaluation. ‘We're now paying about 10% of what we used to pay,’ said Flo Crivello, the company’s CEO, adding the startup is saving millions of dollars annually — more than the total cost of its entire 27-person workforce.”

The disconnect between America’s AI reality -- that of sunk costs on an unfathomable and unprecedented scale -- and investors’ sanguine view of the economy’s prospects is mindboggling. We know that the illusion of AI has been levitating everything from infrastructure and construction to industrial production and GDP in the U.S. economy. And yet, Bank of America’s July Global Fund Manager Survey (FMS) revealed a record 54% surveyed were in the ‘no landing’ camp for the global economy in the next 12 months (yellow bars). This was decisively higher than the 39% expecting a ‘soft landing’ (green bars) and the exiled 2% record low who foresee a ‘hard landing’ (red bars).

Continue Reading

TACTICAL

RATES:

Short-end and Belly best opportunities for total return. Rally keys off weaker macro. Challenged private demand, higher unemployment and lower core inflation raise Fed rate cut probabilities.

Long-end holds at elevated levels with de facto caps at 4.5% for the 10-year & 5% for the long bond with the term premium supported by fiscal malfeasance exacerbated by falling sovereign revenues and despite diminishing stimulus to the U.S. consumer.

Curve view – Bull steepener in 2025’s second half.

USD:

A sidelined Fed contrasting with most global central banks easing catalyzed a selloff in the greenback. A Fed forced to play catchup could easily thin the massively crowded trade, especially as global trade weakness impairs an open global economy vs. its closed U.S. counterpart.

CREDIT:

•  Underweight HY, overweight strong cash-flow IG

•  Lower-rated buckets at risk of dispersion with Fed Higher for Longer

•  Jobless claims deterioration makes a cautious Street rethink already-wider-spreads 2025 expectations, i.e., up default estimates as bankruptcy cycle speeds up and size

•  Fitch’s acknowledgement of cyclical consumer sector “deteriorating” fits this view

EQUITIES:

OW     Utilities
OW     Fossil Fuel Energy
OW     Senior Living

UW     Consumer Staples
UW     Consumer Discretionary
UW     Large & Midsize Banks

OTHER ASSETS:

•  USD view supports UW commodities & EM

•  Oil is a different story with geopolitical risk ramping (Israel v Iran)

•  Long MOVE to capitalize on runaway lending to Nondepository Financial Institutions triggering a credit event