QI PRO HOLY GRAIL DASHBOARD
1) Higher Unemployment Expectations
2) S&P Global Monthly Bankruptcy Count
3) U.S. CEO Confidence Index
4) ISM Manufacturing & Services Aggregate Backlog Breadth
5) JPM/S&P Global PMI Manufacturing Export/SK Exports average
6) Global Financial Conditions (Gomez Global Curve?)
7) Market-based core PCE w/Cleveland Fed NTRI latest print
8) FreightWaves Outbound Tender Rejection Rate
9) State Initial Jobless Claims Breadth per Nationwide Population
10) BofA on USA Weekly Online Retail Sales
11) Conference Board Vacation Intentions
12) Zelman Weekly Western Absorption Rate
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— 9.6.25
General Bessent had his day on the battlefield. But will he win the war? Writing Fed Up was no easy feat. Nine years on, which equates to time served inside the institution, I’ve often found myself contemplating whether anyone in a high enough position would take the blueprint laid out in the final chapter to heart, mind, and ultimately, action. Treasury Secretary Scott Bessent’s throaty rebuke of the post-Greenspan era’s mission creep has shone the first ray of light on true reform of the Federal Reserve. As he penned in Friday’s Wall Street Journal:
“Looking ahead, the Fed must scale back the distortions it causes in the economy. Unconventional policies such as quantitative easing should be used only in true emergencies, in coordination with the rest of the federal government. There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research.”
TACTICAL
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.
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.
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