QI PRO HOLY GRAIL DASHBOARD

QUICK QUILL — The Fed-tightening narrative gained traction after Fed Chair Warsh’s first meeting, upping our conviction for a curve inversion. Retail sales beating expectations supported the hawks. After adjusting for inflation, though, sales have yet to recoup their losses since the outbreak of war with Iran. Home-Related Goods Sales and Pending Home Sales showed tentative signs of life. But MBA’s high frequency Home Purchase Index and ZA’s proprietary real estate survey concur that declaring escape velocity is not yet merited. And given 9 of 18 FOMC meeting participants are calling for a 2026 rate hike, continued caution is clearly warranted.

TAKEAWAYS

  1. Real retail sales, excluding food services, rose 0.3% MoM in May, a three-month high after March’s flat print and April’s -0.5% decline; however, goods-only sales volumes are 0.8% annualized below February’s pre-Iran War level, countering the resilient consumer narrative
  2. While nominal home-related goods spending rose 0.1% MoM in May, Pending Home Sales, despite beating the consensus for four months running, have yet to reach escape velocity; the MBA Home Purchase Index remains below November’s two-year high, and sank 3.4% WoW
  3. Real food sales have fallen on a YoY basis since December, with May’s -0.8% print on par with Great Recession levels; however, at the same time Ely Lilly’s stock price has gone through the roof, and GLP-1 drugs could be playing a role in reduced food spending

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 — 6.13.26

Ever typed with a right torn rotator cuff when you’re right-handed? Welcome to my world for the last three weeks. Of course, idiosyncrasies matter little amidst manias. On one day, the Street was juggling “Knicks in Five!,” a.k.a., this weekend’s designated wedding crasher, “The World’s First Trillionaire!,” and “GOAL!!!” as the U.S. soccer team took down Paraguay. What’s not to like?

A few party poopers dared dash the dizziness. As legendary short seller Jim Chanos warned Thursday, “We’re going to be doing a $75 billion IPO for a valuation of close to $2 trillion for a company with revenues of $19 billion and negative free cash flow.” NOT! The market capitalization of SpaceX ended its first trading day with a $2.2 trillion valuation, catapulting the cashless phenom to the position of the sixth-largest publicly traded company in the world, skeptics be damned.

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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