QI PRO HOLY GRAIL DASHBOARD

Please LOG IN to view this protected content.

Quill Intelligence

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 — 5.16.26

Did you ever study abroad? While I was never afforded the opportunity, my middle is now in Barcelona doing a “Maymester” in international business. After receiving a photo of him and one of his best friends from his growing up years at 4:46 am local time a few days ago, I think it should perhaps be named “partying abroad.” Clearly my 20-year-old has not contributed to the decline in youth over-indulging, which has halved in his mother’s lifetime. With any luck, leaving Spanish culture behind for Edinburgh in a few weeks, where he’s set to take his second two classes may allow for a wee bit more sleep. Pubs there presumably aren’t open for business as dawn approaches. We shall see.

Despite the over-imbibing, I’m told that all classes are being attended. More intriguingly, my finance major is learning quite a bit about inflation, if even unwittingly. A few days ago, Henry hatched a scheme, one that is as old as the days are long. As I was informed, vodka is €6 a bottle and wine (at least that he will drink) is €2 a bottle. If the indulging is accomplished prior to heading out after midnight to the clubs, the €12 cocktail prices don’t wipe out the week’s allowance. The follow-up question was what hit me: “Mom, why is everything so much more expensive at home?”

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