I have 2 observations and 2 questions related to your thesis with vs we’re seeing I would love your feedback on.
First: Refi boom is underway + confirmed! Not great for inflation tho. Prices are not / did not come down much and will not once rates drop barring recession. Home owners disproportionately avoided initial rounds of layoffs due to demographics and are still doing well (401ks, etc boomers). Seeing cash out and reverse mortgage inquiry that wasn’t there before. Life expectancy keeps growing, as do healthcare costs. Reverse mortgages coming back in vogue which I find interesting.
I agree inflation is ded for the fed, but what about for me, or Joe six? Inflation is still very much alive for some things: insurance premiums and home/auto related items, among other consumer essentials where im noticing pricing increase that are being taken by consumers.
Shipping costs for container freight are headed higher. Used autos fully regained the losses from earlier this year. The Red Sea supply chain related issues are causing shortages again Porsche, benz, Toyota all types and many other consumer goods from asiapac.
Conflict is inherently inflationary im sure we can agree on that. So not to be that guy, but i will be..
If a new conflict leads to more inflation or we just see inflation increases unexpectedly, what do you think the fed reaction function would be?
This isn’t priced at all (for a reason) but this tail could be be a military conflict that is inflationary, and kinda might be underway already, so to say I shouldn’t consider increased geopolitical conflict resulting in higher or reallocating inflation given what is going on in the world, yeah maybe don’t do that.
A non zero probability feels right, and ignoring it bc you can’t predict it feels like it’s doesn’t fit a shiny toy model, so “no answer.”
second question: how should one think about this rationally? impact? impact on reaction function? These wars can go on a long time. Would love some input on how you would address these types of questions if you asked, would be awesome.
Last, you know Chris Wolfe I believe? Good guy. Once told me “Sovereigns make their own rules Ringo”
Nikki T just gave jpow similar status, or tried too. He has too many tools at his disposal to use and Pavlov lives.
I got nicks message, and i think youre spot on. Btfd’s.
2. Re inflation. Cost of living problems are not the Fed’s job. They look at the macro aggregate. And it’s going down. They don’t care about your insurance bills in California or Florida.
Hi Tnx. Agree on refi boom. Just will take a little longer. The majority of loans are at 3 and 4 handles. We will get there. Slowly then suddenly.
Meantime five handles will get attractive for rate buyout downs.
Rates are not the problem. It’s the MBS spread. Mainly now bc the repayment risk extremely high and MBS buyers short the call option to refi need to be compensated for that risk.
I may trim down tqqq on a bounce. If we don’t get it before FOMC then will reasses after. Being under leveraged with lots of cash gives me lots of optionally.
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Thank you.
Done.
Loved this. Well done.
I have 2 observations and 2 questions related to your thesis with vs we’re seeing I would love your feedback on.
First: Refi boom is underway + confirmed! Not great for inflation tho. Prices are not / did not come down much and will not once rates drop barring recession. Home owners disproportionately avoided initial rounds of layoffs due to demographics and are still doing well (401ks, etc boomers). Seeing cash out and reverse mortgage inquiry that wasn’t there before. Life expectancy keeps growing, as do healthcare costs. Reverse mortgages coming back in vogue which I find interesting.
I agree inflation is ded for the fed, but what about for me, or Joe six? Inflation is still very much alive for some things: insurance premiums and home/auto related items, among other consumer essentials where im noticing pricing increase that are being taken by consumers.
Shipping costs for container freight are headed higher. Used autos fully regained the losses from earlier this year. The Red Sea supply chain related issues are causing shortages again Porsche, benz, Toyota all types and many other consumer goods from asiapac.
Conflict is inherently inflationary im sure we can agree on that. So not to be that guy, but i will be..
If a new conflict leads to more inflation or we just see inflation increases unexpectedly, what do you think the fed reaction function would be?
This isn’t priced at all (for a reason) but this tail could be be a military conflict that is inflationary, and kinda might be underway already, so to say I shouldn’t consider increased geopolitical conflict resulting in higher or reallocating inflation given what is going on in the world, yeah maybe don’t do that.
A non zero probability feels right, and ignoring it bc you can’t predict it feels like it’s doesn’t fit a shiny toy model, so “no answer.”
second question: how should one think about this rationally? impact? impact on reaction function? These wars can go on a long time. Would love some input on how you would address these types of questions if you asked, would be awesome.
Last, you know Chris Wolfe I believe? Good guy. Once told me “Sovereigns make their own rules Ringo”
Nikki T just gave jpow similar status, or tried too. He has too many tools at his disposal to use and Pavlov lives.
I got nicks message, and i think youre spot on. Btfd’s.
Great job David.
4. I worked with Chris Wolfe at JP Morgan. Nice guy.
He isn’t wrong about sovereigns.
3. Military conflict is always an inflationary tail risk. I have zero to add on that.
2. Re inflation. Cost of living problems are not the Fed’s job. They look at the macro aggregate. And it’s going down. They don’t care about your insurance bills in California or Florida.
Hi Tnx. Agree on refi boom. Just will take a little longer. The majority of loans are at 3 and 4 handles. We will get there. Slowly then suddenly.
Meantime five handles will get attractive for rate buyout downs.
Rates are not the problem. It’s the MBS spread. Mainly now bc the repayment risk extremely high and MBS buyers short the call option to refi need to be compensated for that risk.
Do you plan to trim some SPXL/TQQQ given the uncertainty, or just not add?
I may trim down tqqq on a bounce. If we don’t get it before FOMC then will reasses after. Being under leveraged with lots of cash gives me lots of optionally.
Where "Sully" portrays the Hard Landing and "Alive" the Crash?
Very clearly! Thanks for sharing.
Not really watching gdp right now. The signal will not come from there.
Several questions David; as always super interesting thought piece.
1) Doesn't this contradict your Aug 19 piece which said 25bps or 50bps is the noise?
2) What's the difference between "hard slowdown & recession"
3) Do you think we're still in a BTFD regime?
Do you plan to trim some SPXL/TQQQ given the uncertainty, or just not add?